InvestmentsMar 9 2016

A new era for the Enterprise Investment Scheme

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A new era for the Enterprise Investment Scheme

Advertorial: Nigel, can you tell me about what led you to the creation of your new opportunity?

Last year we completed a successful raise for our hydro EIS, however, following theremoval of renewable energy businesses benefitting from qualifying for EIS relief, TIME has been seeking new asset backed EIS opportunities. Our focus was on trades we considered to be real investments genuinely in line with the intentions of the Enterprise Investment Scheme, rather than overly contrived vehicles that rely too heavily on the tax breaks. One of the areas which TIME has been monitoring for many years is shipping and this is a sector we feel is an ideal fit with EIS.

How does TIME:EIS work?

TIME:EIS invests in dry bulk shipping, offering investors an asset backed opportunity in a global industry that has been established for hundreds of years. This non-contentious business model makes TIME:EIS an excellent fit within the EIS regulations – which is why advance assurance from HM Revenue & Customs has already been granted. Asset backing will take the form of physical ownership of assets i.e. ships, providing added security for investors.

TIME:EIS targets an initial fund raise of £20 million, split across four tranches.

Shipping is a diverse industry and following substantial research and analysis of market trends, TIME has taken the decision to focus on the dry bulk shipping sector, targetingHandymax and Supramax vessels. The base case target return for TIME:EIS is £1.27 plus up to 30 pence income tax relief.

What makes shipping an attractive investment opportunity?

The dry bulk shipping industry currently faces considerable challenges, with charter rates barely covering operating costs and therefore many ship owners and operators that have to cover the costs of debt are operating at a loss. Against a backdrop of increasing worldwide demand for the transport of goods, it is easy to see why industry forecasters are expecting an improvement in the next three to five years.

Shipping has substantial tax free upside potential should charter rates, and as a result, vessel values, rise. As TIME expects them to, over the next three to five years. Government support for new sources of finance for the shipping industry is strongly evidenced, with the Chief Secretary to the Treasury announcing in September 2015 that, “the British Government will pull out all the stops to keep the UK a world-leading maritime centre”. The Department for Transport also released their September 2015 Maritime Growth Study in which they support investment in UK shipping businesses. The Department for Transport stated that, “A thriving maritime sector is extremely important in supporting the wider UK economy”.

The asset backed nature of shipping, in the form of physical ownership of vessels, also provides attractive downside protection for investors. With a typical lifespan of 25+ years, ships are normally sold on at a price linked to the current and expected charter rates, as well as retaining a significant scrap value for the steel they are built from. It is important to highlight that TIME:EIS will not be utilising any borrowings for vessel acquisition. This means we will be able to react promptly to the right opportunities for asset acquisition, without having to satisfy bank lending arrangements.

What measures are in place to ensure the successful operation of these ships?

Although a successful EIS provider, TIME recognises that we have limited experience within shipping so have partnered with an established UK shipping group, British Marine Plc. British Marine has a successful track record in owning and operating dry bulk shipping vessels. TIME has appointed British Marine to provide asset management in the form of technical and commercial services. They will also be engaged to source a vessel for each EIS company, hire the crew, agree charters and, effectively, run a commercial vessel. One of our core values at TIME is keeping our investors at the heart of what we do. With this in mind we were keen to ensure the interests of British Marine were aligned with those of our investors.

As well as an experienced asset manager, we’ve also established an Independent Advisory Committee formed of industry heavyweights. With over 100 years’ experience, this committee provides specialist dry bulk shipping industry advice to TIME.

Members have been selected by TIME specifically for their strong knowledge in the sector and includes the head of the UK Chamber of Shipping.

Could you provide some more background on the sector?

Over 90% of global commodity movements are carried out by oceangoing vessels. Dry bulk carriers play an important role in connecting resource extraction points, such as mines and farms, with end users, such as steel mills and food processors. Also, dry bulk carriers provide the most cost effective means of completing the supply chain than other methods such as air, rail or road transportation.

The growth of the Chinese economy has recently slowed down and imports of thermal coal have dropped, however, Chinese imports of bauxite, soybeans and cereal grains are on the rise and its export of steel has also increased.

China’s official annual GDP growth figure is still predicted at 6.5% for 2016 - 2020. Elsewhere, India has increased its demand for coal, up by 16 million metric tonnes compared with 2014, whilst grain production and export is increasing in Canada, Australia, Russia, Kazakhstan, and the Ukraine.

By operating Handymax/Supramax vessels - regarded as the most versatile and the workhorse of the dry bulk fleet - TIME:EIS will be able to transport both major and minor bulks. This versatility will allow us to respond to the demand for a particular commodity type at any point in time.

What steps will you take to mitigate the risks?

As a long standing industry, the normal risks of shipping are widely known and understood. We shall insure against these risks to protect the interests of our investors. Although shipping is a higher risk investment, we have actively sought to reduce the investment risks where possible through avoiding the use of debt, the asset backed nature of owning a ship, focusing on 12 month charters providing a predictable revenue stream and hedging some of the foreign currency risk.

Am I right in saying you won’t be charging an annual management fee?

That is correct. In order to align the interests of TIME with those of Investors, TIME will not charge an Annual Management Fee. We will instead charge a performance fee linked to investor returns which you can find out more about in our Brochure. Our expectation is that the significant upside potential, combined with the EIS tax breaks and a degree of asset backed downside protection, will encourage more investors to invest in EIS as part of a wider investment portfolio.