Neil Woodford’s ailing investment trust has breached a borrowing limit of 20 per cent of the fund’s value after another hefty writedown of one of its largest and most controversial investments.
Woodford Patient Capital Trust shares slid more than 7 per cent on Monday after it cut the value of Industrial Heat, which is trying to develop the unproven clean energy technology of cold fusion, because of “a delay in operational progress”.
WPCT has drawn scrutiny of its methodology in its valuation of Industrial Heat, which it has written down by 83 per cent since September last year, according to Jpmorgan Cazenove estimates, having previously marked its value up by 357 per cent.
Mr Woodford, one of the UK’S best-known stockpickers, resigned as manager of WPCT last month after his Equity Income fund was closed by its administrator.
“There are likely to be further writedowns to come despite the wave of optimism last month that greeted Schroders’ appointment as the new manager when Woodford’s contract ends,” said Christopher Brown of Jpmorgan Cazenove. “Schroders does not possess a magic wand.”
Read also: Japan’s foreign minister sees progress on end to US car tariffs
The trust’s shares fell 7.6 per cent in early London trading to 35p. WPCT previously marked down the value of its Industrial Heat holding in August.
The latest writedown caused the trust to breach its own investment policy, which states gearing must be below 20 per cent of net asset value. WPCT’S overdraft with Northern Trust, the US bank, stands at £111m, meaning debt to NAV has now jumped above 20 per cent.
Northern Trust and Woodford Investment Management renegotiated terms of the overdraft in September, allowing the bank to charge a higher rate of interest and giving it a veto over any new investments by the fund manager.
The overdraft is due to expire in January but negotiations are under way about extending it.
Industrial Heat, which was WPCT’S fourth biggest holding in June, has drawn interest from investors including Mr Woodford, actor Brad Pitt and philanthropist Laurene Powell Jobs’s Emerson Collective, who have backed its attempt to develop power sources that run on “low-energy nuclear reactions”.
But mainstream scientists have been sceptical over whether cold fusion — recreating the nuclear reaction that powers the stars at or close to room temperature — will be able to make the jump from science fiction to reality.
