REWS (Renewable Energy Waste Solutions UK plc) is offering 2 year and 4 year bonds paying interest as follows:
- 2 year bonds: 8% if income is paid out twice a year, 9% if income is rolled up and paid out at the end, 10% paid out twice a year for investments over £100,000
- 4 year bonds: 10% if income is paid out twice a year, 11% if income is rolled up and paid out at the end, 12% paid out twice a year for investments over £100,000
Who are REWS?
Renewable Energy Waste Solutions UK plc was incorporated in February 2017 and is yet to file accounts. Companies House shows that Matthew Donegan owns 100% of the company as at September 2017.
Despite owning and controlling 100% of the company, Donegan describes himself extremely modestly as merely “Head Engineer” in the literature, responsible for “[overseeing] the project build process”, and is listed third of the directors.
The other directors are described as Dennis Ng, managing director of Hong-Kong based Epic Asset Management Ltd and Ingenious Investments (not to be confused with the similarly-named UK-regulated firm), Bill McClintock, ex Property Ombudsman chairman, and Ben Harris.
How safe is the investment?
These investments are unregulated corporate loans and if REWS defaults you risk losing up to 100% of your money.
The purpose of the bonds is to allow REWS to invest in waste-to-energy facilities.
If REWS fails to make sufficient returns from its waste-to-energy facilities, or for any other reason REWS runs out of money to service these bonds, there is a risk that they may default on payments of interest and capital to investors.
The literature refers to “UK Government backing”. This simply means that the UK Government is a potential customer. It does not mean the UK Government backs REWS as an investment in the same way as, for example, National Savings & Investments.
Investors have a first legal charge over the company’s assets.
Investors should not assume that because their loans are secured on these assets, they are guaranteed to get at least some of their money back through sale of the collateral if the issuer defaults. Investors in asset-backed loans have been known to lose 100% of their money (e.g. Providence Bonds and Secured Energy Bonds) when it turned out that the collateral was insufficient to pay investors after paying the insolvency administrator (who always stands first in the queue).
We are not in any sense implying that the same will happen to investors in REWS, only illustrating the risk that is inherent in unregulated corporate loan notes even when they are asset-backed.
If investors plan to rely on this security, it is essential that they undertake professional due diligence to ensure that in the event of a default, these securities are valuable and liquid enough to raise sufficient money to compensate all investors, as well as any other creditors that REWS has borrowed money from.
The literature does not reveal what assets REWS has and the company is yet to file accounts, so any investors who find this security attractive will need to ensure they have independent due diligence regarding how much the assets are likely to be worth.
Should I invest with REWS?
This blog does not give financial advice. The following are statements of publicly available facts or widely accepted investment principles, not a personalised recommendation. Investors should consult a regulated independent financial adviser if they are in any doubt.
As with any unregulated corporate bond, this investment is only suitable for sophisticated and/or high net worth investors who have a substantial existing portfolio and are prepared to risk 100% loss of their money.
Any investment offering up to 12% per annum yields should be considered very high risk. As an individual security with a risk of total and permanent loss, REWS’ bonds are higher risk than a mainstream diversified stockmarket fund.
This particular bond is described as asset-backed. Before relying on the security backing the bond, investors should undertake professional due diligence to ensure that in the event of default, the security could be easily sold and would raise enough money to compensate all the investors, after the adminstrator deducts their fees and any higher-ranking borrowers are paid.
Before investing investors should ask themselves:
- How would I feel if the investment defaulted, the sale of the security failed to raise enough money to compensate all investors, and I lost 100% of my money?
- Do I have a sufficiently large portfolio that the loss of 100% of my investment would not damage me financially?
- Have I conducted due diligence to ensure the asset-backed security can be relied on?