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A look at Revego Africa Energy ahead of its listing

CEO Reyburn Hendricks explains that the fund plans to ‘invest in a portfolio of predominantly operational renewable energy assets in sub-Saharan Africa’.

*Moneyweb was informed late on Wednesday that Revego’s listing has been postponed to a later date. 

SIMON BROWN: I’m chatting with Revego Energy Africa Fund CEO Reyburn Hendricks. It will be listing tomorrow. We chatted last year around it well ahead of that listing. Reyburn, I appreciate your early morning this morning. A disclaimer upfront: I’ve applied for allocation. My broker hasn’t yet got back to me. 

In essence, your business is renewable energy, and it’s the renewable energy part that’s quite important. Sub-Saharan Africa, if I look at the map, is not just South Africa. Where do you and your team get involved? Are you funding, are you building, are you buying already up-and-running developments across the continent?

REYBURN HENDRICKS: Good morning, Simon. Thank you for your time this morning. I appreciate the airtime. Revego Africa Energy Limited is a yield-focused fund, which will invest in a portfolio of predominantly operational renewable energy assets in sub-Saharan Africa. We’ve assembled an initial portfolio which is only in South Africa, which is equity stakes in four wind farms and two concentrated solar farms. That’s where we intend to play, given the equity on these investments of these wind farms and these solar farms. 

As I mentioned, the portfolios are predominantly in South Africa because that’s where the bulk of the opportunities are. An important thing to say is that these investments are … deal with in that, at the stage that Revego invests, these wind farms or solar farms have been running for some time.

SIMON BROWN: And there’s an off-take agreement in place. You mentioned ‘yield-focused’. Apart from the renewable energy, that’s a fundamentally different asset class from typically what we see on the JSE. Your target dividend from that R10 listing price – you’re looking at around an 8 to 10% dividend yield, which is part of the attraction. There are no certainties ever in life, but you’ve probably got offtake agreements in place. You’ve probably got relative confidence around that yield.

REYBURN HENDRICKS: Yes. So let me just explain it to you. The main feature, which leads to a derisking of these assets, is the offset agreement of the power-purchase agreement. These are 20 years in length from the time these wind farms and solar farms are operating. There’s also a government guarantee to the extent that Eskom does not pay the payments to the property companies. And in addition, there are termination payments in breach of contract which will risk … the debt holders and equity shareholders. 

Typically these offtake agreements are also linked to CPI, which means that there’s a great deal of inflation protection. The reason why we think there’s a lot of certainty is that we’ve got very long-term offtake agreements with a government guarantee and with inflation protection. 

So with those elements, this leads us to have a lot of certainty about the stability and predictability of the underlying cash flows. And it’s off that that we’ve been able to forecast the initial dividend yield, which you said is really on a grade of 8 to 10%. We are looking to increase this dividend yield over time ultimately from the initial portfolio giving shareholders a yield to maturity of 11%.

SIMON BROWN: You mentioned that in South Africa it is a case that these are projects already up and running. Will you have some investments in time where perhaps – because certainly, you’re looking to increase the size of the fund over the next couple of years – you might come in at the development stage ahead of it being up and running?.

REYBURN HENDRICKS: Yes. You are correct. In the fund mandate, we do have the discretion to allocate up to 10% of the fund to developing assets, which assets are prior to the operational phase. I think we’ll only get to that point once the fund has sufficient scale. At the moment there’s enough opportunity in the operational space. 

Just to give you a sense of the size, through rounds one to four of the South African Renewable Energy Programme, there’ve been approximately 112 projects which have been awarded, at a cost of R60 billion worth of equity. Coming to the market, the value must be higher by now. So at R1.5 billion, our listing, we’re a very small percentage of that. So there’s enough room for us to grow before we need to start looking at going up the risk curves.

SIMON BROWN: Okay, I hear you there. I haven’t run those numbers yet, but I take your point. So let’s call it a hundred billion. That is an absolutely huge amount. 

The listing is proposed for tomorrow – R10. Share code RVG, if my memory serves correctly once you are on the JSE.

REYBURN HENDRICKS: That’s correct – RVG.

SIMON BROWN: We’ll leave that there. As I said, I’ve applied for allocation and I will hear from my broker hopefully today – hopefully successful. Reyburn Hendricks, CEO Revego Africa Limited – a very different idea coming to our market and I think attractive, certainly. Renewable energy is a different space, is a different asset class, and is a different way it responds – that security we get. And of course, that dividend yield. I appreciate the early morning time. 

Listen to Wednesday’s full MoneywebNOW podcast here

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These projects should be great pension fund assets with less risk than property’s exposure to fashion, economy and tenants.

Not sure how cheap existing equity and debt will be though. Those sellers can do the same math?

End of comments.

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