Octopus Preference shares

Richardbajor

Octopus have just launched a "preference share" issue for two windmills paying 6% interest on a closed market that will repay the shares after 3 years (if all goes well!).  Each windmill is set up as a separate limited company.  It appears to be windmills they already own, so in a way it seems like a general funding initiative for the company, but maybe the start of a model that will invest in new renewable energy.

In the past I have done investment bonds in renewable energy, via a UK company, investing in African markets and will probably end up losing a bit due largely to issues during covid and exchange rate crashes. I was prepared when I went into it to lose a bit due to the positive climate impact and helping local communities so I'm not cross about this and I saw it as better than a straight donation. 

This one is a little different in terms of how I feel about the positive impact given they already own them and I'd be more interested if this was a way of expanding their renewables. There is an absolute risk on these shares in that if the project fails for whatever reason then you can lose all your money without any FCA compensation.

I wondered what people's views on the chances of this crashing were given Octopus have a domestic reputation to uphold.

Also a question someone can definitely answer rather than speculate on- if these are shares rather than a bond and you would need to declare interest payments (I guess "dividends") to HMRC is this hugely complicated and hassly? I do not do a self assessment because all my income is PAYE or interest and would rather not do one for what would be quite a small investment or go to the hassle of sending forms to HMRC.

wmb194

*FSCS. Yes, a preference share would pay a dividend. From the issuer's point of view the neat thing about preference shares versus a bond (debt) is that distributions aren't guaranteed and if they're suspended you cannot issue a winding up order and force the sale of the assets, so you could find yourself owning shares with no cashflow. Are they cumulative or non-cumulative prefs? If cumulative then suspended dividends can be made up. (I don't really want to register to read the prospectus.)

The big risk I see with these is the specific risk related to the asset i.e. just one turbine. They do sometimes breakdown for months on end e.g., difficulty finding a replacement gearbox and in that time there's no cashflow plus the cost for repairs. If you like Octopus you could just buy shares in Octopus Renewables Infrastructure Trust (LSE:ORIT) and you'll own a stake in a company that owns many wind turbines and solar farms but ORIT has its own risks.

I think the OP's referring to these:



https://www.octopusenergycollective.com/projects

Richardbajor

Thanks. Yes- dividends can be made up. 

I think you may be right about the suggestion to invest direct in the company, although again this leads to issues over dividends and potential self assessment returns as well as not being quite "direct" enough as you're investing in existing shares so more of a complex argument to the element of "good" you are doing.

masonic

From past experience, the biggest risks with such investments is getting them installed and connected to the grid, so investing in operating units de-risks things somewhat. If you don't mind the investment risk and view it as a somewhat philanthropic investment, then the potential return is a bonus and could be quite tax efficient. Reporting dividends is not particularly difficult and you wouldn't need to if you remained within the £500 nil rate band, for example putting up to £4k in each (with no other dividends being paid to you).

IanManc

I wouldn't invest in windmills. The ones in the UK's biggest onshore wind farm a few miles from me - which have defaced and industrialised beautiful open moorland - don't like strong winds, and have to be turned off when it's very windy. They don't like extreme cold either. Who knew that it was cold and windy on the moors?  

Meanwhile, the peatlands they were built on were massive ancient carbon sinks, which have now been permanently damaged by the excavation of the concrete rafts they're built on, and the endless concrete and tarmac roads built to service them, damaging the environment for ever.

I think they're uninvestable, and companies only build them because of the massive subsidies that the government throws at them.

kinger101

6% does not seem like a good return for the risk associated with a single fixed asset.

Reaper

If you are interested in the area have a look at green infrastructure investment trusts too which are currently trading on very large discounts and high yields. Keep an eye on their debt levels and dividend cover though.

https://www.theaic.co.uk/aic/find-compare-investment-companies?sec=REI&sortid=Name&desc=false

Richardbajor

masonic said:

From past experience, the biggest risks with such investments is getting them installed and connected to the grid, so investing in operating units de-risks things somewhat. If you don't mind the investment risk and view it as a somewhat philanthropic investment, then the potential return is a bonus and could be quite tax efficient. Reporting dividends is not particularly difficult and you wouldn't need to if you remained within the £500 nil rate band, for example putting up to £4k in each (with no other dividends being paid to you).

Thanks- good to know there is a lower limit where you don't have to go through the grief of contacting HMRC even if you do suggest this is fairly easy.