First come, first serve for this exciting 12J investment opportunity

Kevin Shames, CEO of Bright Light Solar, spoke to BizNews founder Alec Hogg about an exciting investment opportunity. 12J tax incentives make this appealing for investors. With fund raising opening on February 1st, you’ve got to act fast if you’re interested, says Shames. – Jarryd Neves

For the full details on this investment opportunity exclusive to the BizNews community, contact Bright Light Solar here.

Kevin Shames on the Bright Light Solar 2021 capital raise:

The only real difference [this year] is that it is capped at R50m this year and we’re not allowed to accept any more. On Monday, it opens [and] goes live. When we hit the R50m, we will have to close. We just have a limited capital raise because of certain complications in [the] Section 12 compliance requirements. We don’t want to raise too much money.

On the tax incentives:

It gives an investor the opportunity to deduct the full costs of his investment, against his taxable income in the year in which you invest. So the 2021 tax year that ends at the end of February – anything that you invest in a Section 12J company, you deduct against your taxable income and therefore you are not paying tax on that quantum of earnings. Effectively, Sars is contributing – at your marginal tax rate – into this investment.

On what Bright Light Solar does:

We invest in renewable energy projects. It’s solar PV. It is hot water – as a service – and we are now moving quite aggressively into batteries as well. Energy storage.

On investor returns:

The returns are broken into three separate buckets. The first one is the up front Section 12J tax benefit. The second one is the dividend return – we pay dividends every six months from year one. Then the third part of the return component is when you sell your shares, when you choose to exit. You have to be in for at least five years. You can exit any time from month 61 onwards.

We have then taken those three components, put them together in an IRR calculation (an internal rate of return calculation) and the number that comes out is a 19% after tax return. It is per annum, but it doesn’t come in 19% buckets every year because you get, let’s say, a 45% upfront tax benefit.

The dividend in year one is 4.5%, 9% in year two, 9.6% in year three growing. Then when you sell your shares in, say, month 61, then you’re getting back about 88% of your capital and you’ve got to pay capital gains tax on that, with a base cost of zero. When you then take all of these components together and you run it through this calculation, that gives you an effective return of 19% (after tax) per annum.

On the maximum amount that can be invested:

An individual and a trust are limited to R2.5m, and the company is limited to a maximum of R5m.

On how the process works:

People submit their applications from the prospectus. You can go to brightlightvcc.co.za, under the investor tab. All the documents are there. You submit all the documentation to us and whoever comes in first, it’s a first come, first serve process. Send us the proof of payment and then if you’re missing any specific FICA requirements, we’ll come back to you and say, please will you provide us with A, B or C. But yes, if you submit your application on Monday with the money, you’ll be accepted.

On the future of 12J investments:

I think given the stress that national treasury are under to collect as much tax as they can, this could potentially be seen as a tax advantage that favours the rich. There might be political pressure to close it down. We don’t know that they’re going to close it down. Maybe they’re going to extend it, but that’s the negative side of it.

Obviously, the positive side of it is that there is investment into small and medium enterprise. It is job creating. It is renewable energy creating, specifically in our circumstance. As we discussed last week, was that there is no net tax cost to the fiscus over time. It is an upfront tax cost. But that cost is fully recovered over the many years that these businesses run.

There is a Section 12J association that is representing the industry. They have been lobbying hard with national treasury. We as an industry have used auditors to put together an independent report on what is actually going on in the industry. That has been sent through to Sars and National Treasury. Certainly we know that they are investigating whether it should be extended or not. I guess kind of in a month’s time, we’ll all be holding our breath when the Minister of Finance stands up and announces what their intention is, in terms of are they going to extend Section 12 today or not.

For the full details on this investment opportunity exclusive to the BizNews community, contact Bright Light Solar here.

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