Jaltech’s Feb 25 Refinance Section 12B Investment
Jaltech is in the process of finalising the acquisition of a number of existing portfolios of solar projects in order to offer investors the opportunity to reduce their tax liability before the February 2025 year-end.
While Jaltech is confident in the successful conclusion of several transactions, no guarantees can be made in this regard. Furthermore, this investment opportunity will be offered on a first-come, first-served basis, meaning allocations will be made in the order that investor commitments or applications are received.
A key benefit of this Section 12B investment is that the solar systems (in most cases) are already operational and generating electricity, providing investors with the assurance that:
- Their investment will qualify for a 100% Section 12B tax deduction before the February 2025 tax deadline.
- They will benefit from exposure to solar systems with a proven performance and track record.
- The solar assets present lower credit risk, backed by a historic record of payments.
TRACK RECORD
With a track record of superior performance, Jaltech leads the section 12B investment market by having:
- raised and committed over R700 million across 180+ solar projects
- achieved an annual deployment percentage of 93% of investors’ capital
- invested into solar projects which are on track to generate double-digit IRRs for investors
SECTOR FOCUS / MANDATE
Jaltech’s Feb 25 Refinance Section 12B Investment will be focused at acquiring existing solar portfolios which have long-term agreements with credit-worthy commercial and industrial energy consumers.
100% TAX DEDUCTION EXPLANATION
Under Section 12BA, taxpayers can claim a 125% tax deduction when their capital is used to invest in new solar systems. Conversely, where capital is used to acquire existing solar systems, taxpayers qualify for a 100% tax deduction under Section 12B.
Due to the limited time available to construct new solar systems before the end of February deadline, Jaltech will focus on acquiring existing solar systems. This strategy ensures full deployment of capital by the deadline and qualifies taxpayers for a tax deduction.
UPSIDE POTENTIAL
Jaltech aims to incorporate debt funding at the underlying investment level, at a minimum of 50% of the total capital raised.
From an investor’s perspective, this approach offers an added advantage: the additional funding enables investors to claim an increased tax benefit, thereby further de-risking the investor.
For example, if an investor commits R1,000,000, Jaltech will look to raise R500,000 in debt.
Investment Highlights
Projected annual pre-tax yield over the term:
16% to 17%
Tax deduction of 100% to 150%
Energy consumers have an existing payment history
First come first served basis
Target deployment of R100 million
Minimum investment:
R500 000
Annual income distribution to investors for 10 years
Solar assets have an existing track record
Risk profile:
Moderate
RETURN PROFILE & CASH-INFLOWS
RETURNS – BASE CASE SCENARIO:
As Jaltech is currently in negotiations to acquire several solar portfolios, there is some uncertainty regarding the final returns. Consequently, the cashflows outlined below provide both a “conservative estimate” and an “optimistic estimate” for the investment period, based on an investor committing R1 million. These scenarios depend on the average interest rate achieved across the acquired portfolios.
Assumptions:
1) The investor is in the highest tax bracket
2) The Prime Rate as at 1 December remains unchanged
3) Assets are sold at year 10 at 10% of the original purchase price
UPSIDE SCENARIO – DEBT FUNDING EXPLAINED:
Jaltech aims to incorporate debt funding at the underlying investment level, at a minimum of 50% of the total capital raised. The additional gearing could result in the investor being de-risked by 68% of the invested amount before the end of February.
RETURNS – UPSIDE SCENARIO:
Due to the uncertainty surrounding the final returns, the cashflows below represent a “conservative estimate” and a “optimistic estimate” for the investment period, where debt funding is raised and deployed, and an investor invests R1 million. The “conservative estimate” and “optimistic estimate” scenario’s are dependent on the average interest rate achieved across the portfolio.
Assumptions:
1) The investor is in the highest tax bracket
2) The Prime Rate as at 1 December remains unchanged
3) Assets are sold at year 10 at 10% of the original purchase price
4) Debt funding is raised and deployed
RISKS
As with any investment, there are numerous risks investors need to consider. With this investment, we believe that there are five main risks, namely:
Deployment subject to successful transactions:
Jaltech is in the process of finalising the acquisition of several existing solar project portfolios. While confident in the successful conclusion of multiple transactions, no guarantees can be made at this stage. The deployment of committed capital will depend on the number and size of transactions ultimately concluded.
First-come, first-served:
This investment opportunity will be allocated on a first-come, first-served basis, meaning investors will be prioritised according to the order in which their commitments or applications are received.
Credit risk:
The performance of this investment is dependent on the energy consumer’s ability to make regular payments towards their energy consumption. To mitigate this risk, Jaltech will undertake due diligence and credit checks on a portfolio level and diversify its investment across multiple solar systems.
Debt funding risk:
The investment will aim to introduce debt. As a result (by way of example), if the debt provider repossesses all the underlying investments, the investor will stand to lose his/her original investment value, and the investor may recoup a portion of the tax savings. Jaltech has mitigated this risk by placing limits around the debt to equity ratio.
Asset performance:
Income distributed to investors is generated from the sale of electricity to the energy consumers. Accordingly, the returns from this investment will be lower should the systems underperform. Jaltech will undertake a technical due diligence to mitigate this risk.
Fees
| Fees | ||
| Management fee | 2.5% p.a. | |
| Performance fee | 20% above a hurdle of the investment amount, calculated and charged annually with a high-water mark (with catch-up) – see explanation. | |
Jaltech earns a performance fee annually on returns generated above the investment amount divided by the total average term of the power purchasing agreements (PPA) signed with the end customers.
As an example, if the total average PPA term is 10 years, and an investor invests R100 the annual hurdle would be R10. Accordingly, if Jaltech returns R12 in year one, Jaltech would charge a fee of 20% on the R2 (R12 less R10). If in year two, Jaltech returns R5 no performance fee would be earned. For Jaltech to earn a performance fee in year three, Jaltech would need to return more than R15.
How to invest?
By simply completing the investment form, Jaltech’s dedicated team will take you through the investment process.
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Disclaimer: The contents of this document does not constitute and should not be construed as an offer to subscribe for shares or investment, tax, legal, accounting and/or other advice. For advice on these matters consult your preferred investment, tax, legal, accounting and/or other advisers about any information contained in this document. All mentioned returns in this document are estimates at current tax rates, and past performance is not an indication of future performance. All returns and referencing to investor(s) is with reference to an investor(s) who is in the highest tax bracket.
All reference to investor(s) assumes the investor(s) is a natural person with an income tax rate of 45%.
