* TSE struggles to attract investors to solar power trusts
* Two of the three trusts trade below IPO price
* Institutional investors prefer private funds
TOKYO – The Tokyo Stock Exchange’s (TSE) two-year old infrastructure market hopes to get a badly needed boost for its listed solar power trusts as two new entrants plan to start up as early as this year.
The Tokyo Stock Exchange’s (TSE) solar power trust market has so far drawn little interest as investors prefer private funds because the public trusts’ tax benefits are limited.
Since the TSE created its infrastructure market in 2015, only three solar power trusts have listed with a combined value of $180 million.
“We don’t have a wider range of investors in the market,” said Takumi Hayase, vice president of the TSE’s new listings. “The market needs to be much bigger for institutional investors.”
Now, TSE is hoping that two new trusts will bring fresh capital.
The Japanese unit of Canadian Solar Inc and electricity wholesaler Itochu Enex Co, have set up asset management firms in preparation to list investment trusts packaging their assets, according to a document from Japan’s land ministry.
Officials from both Canadian Solar and Itochu Enex declined to comment on their listing plans.
The lack of interest in the solar trusts is at odds with Japan’s soaring solar power capacity, which has soared from virtually zero at the start of the decade to over 40,000 gigawatt-hours.
The country plans to generate 24 percent of its power from renewables by 2030, up from 14.6 percent in 2015, according to the Ministry of Economy, Trade and Industry.
The sluggish interest in its solar trusts are linked to its tax rules, investors said.
The trusts are exempt from corporate taxes for 20 years. In return, they are required to pay 90 percent of their profits to investors, resulting in higher dividends than ordinary stocks.
However, a Tokyo-based fund manager, who did not want to be named because he was not authorized to speak to the media, said it was risky to invest in solar trusts because profits could drop significantly after the tax perk expires.
“Various restrictions on the tax system is one of the factors that is limiting the growth of infrastructure trusts,” said Masanori Sato, head of the banking and structured finance group at law firm Mori Hamada & Matsumoto.
So far, the three solar trusts that have listed on the TSE market – Takara Leben Infrastructure Fund Inc, Ichigo Green Infrastructure Investment Corp, and Renewable Japan Energy Infrastructure Fund Inc – have mainly drawn interest from individual investors.
Two of the trusts are trading below their initial public offering prices, while Ichigo Green is trading 0.5 percent above the IPO price as of Friday.
Many investors like solar projects because they offer stable long-term returns and benefit from government subsidies, so-called feed-in tariffs that guarantee revenues.
“Pension fund managers want to secure stable returns, so we hold assets long-term and we do not need to seek a liquid market,” said Takeshi Ito, a senior portfolio manager for Aisin Employees’ Pension Funds.
Yet so far, investors like Nippon Life Insurance have preferred buying into private funds that not only offer annual dividends but will also typically repay the initial investment once the fund matures.
Nippon Life in June pledged 10 billion yen ($91.50 million) to a fund that General Electric is raising to invest in solar power plants in Japan.
Akitoshi Yamada, deputy general manager for Nippon Life’s alternative investment department, said that GE’s fund would deliver 5.5 percent annual returns over the next 25 years.
“We have not considered investing in public trusts trading on the TSE yet because for now we seek lower correlations with the stock and bond market when we invest in infrastructure,” said Yamada. ($1 = 109.2900 yen)