GCP Asset Backed Income trust mulls next capital raise

By Daniel Lanyon on Friday 21 October 2016

Alternative Lending

The investment trust, having recently changed its name, is now considering a fresh share issuance to meet investor demand.

The GCP Asset Backed Income investment trust is considering raising fresh equity in November through a placing of new shares at a premium to its current net asset value (NAV).

The £166m fund, which was formerly called Project Finance Investments, invests in a portfolio of UK-based asset-backed loans secured against cash flows and/or physical assets such as equipment. These are usually in sectors such as asset finance, property, energy and infrastructure.

GCP also is active in the infrastructure space and student property market with two listed funds dedicated to these two markets. The firm are in particular seeing a ‘substantial’ number of investment opportunities including a number of ‘immediate and attractive investments’ in asset backed finance, analysts at Numis Securities say.

As the proceeds of its £44m C share issue in May are now fully invested as of the end of this month, and the fund has the ability to issue 14.96m shares without publishing a prospectus it may now seek a fresh raise. The shares are trading at a 13 per cent premium to NAV.

Seeking the generate a growing income stream, the fund also aims for some modest capital appreciation over time. It’s target dividend yield for the 2017 financial year is 6 per cent.  The trust initially raised £106m when it listed in October 2015 to invest in a diversified portfolio of projects that aimed to generate predictable medium to long term cash flows and/or physical assets.

Since its name and C share issue, the share price has made solid progress, as shown in the graph below.

Source: Google

The investments are in medium to long-term fixed or floating rate loans, secured against cash flows or physical assets predominantly in the UK, says Charles Cade, head of investment company research at Numis.

Investments are typically made in a single purpose, ring fenced company that owns the contract or the asset forming the project, therefore the exposure is to the performance of that contract or asset only.

GCP argues that when compared with corporate lending, project finance structures are highly transparent and have tight control of cash flows and assets. Also, loans tend to be originated to single purpose firms with a simpler proposition than your average corporation.

The fund has a management fee of 0.9 per cent of net assets and in addition, the manager may at its discretion, charge an investment fee of up to 1.0 per cent of the cost of each investment.

It targets an internal rate of return of 7-8 per cent on its issue price, with returns principally through quarterly dividends. It is targeting an annualised dividend yield of 5 per cent on the issue price in the period to 31 December 2016, which was increased from the 4 per cent target at its initial public offering, rising to 6 per cent in 2017 with the expectation of modest absolute growth over the long term.

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