Alternative investment specialist Sapphire Capital Partners has launched a £1.5m Enterprise Investment Scheme (EIS) focused on small construction projects in Northern Ireland and the north of England.
The scheme, Sapphire Building Services, is targeting net returns of 10.7% a year and has a minimum investment of £25,000.
Sapphire Building Services will focus primarily on residential projects and some smaller commercial projects. It plans to manage the construction process on all the projects with a “limited use of third party subcontractors”.
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Directors of the EIS are Denis Logan FCIOB FRICS, co-founder and former chairman of Northern Ireland-based construction group Tal, and Boyd Carson, a partner at Sapphire Capital Partners and former director of PricewaterhouseCoopers in New York.
Speaking to CM, Boyd Carson said: “Undeniably, the UK construction industry has suffered throughout this recessionary period and this has impacted on the smaller, niche construction companies operating in this sector. We therefore believe there is a strong opportunity for the type of construction company we are launching today, one that is well capitalised and managed, and can benefit from the opportunities that are now available.”
EISs are a tax efficient way to invest in small unquoted businesses and provide a useful source of capital to businesses that cannot get funding from traditional lenders or banks.
Under current regulations investors who invest for a minimum period of three years benefit from 30 per cent tax relief as well as exemption from capital gains tax and inheritance tax which means growth within the EIS is tax-free.
Their use as an investment vehicle for small investors or savers has increased under the coalition government after it raised the rate of income tax relief from 20 to 30 per cent, and increased the annual EIS investment limit for individuals to £1 million. At the same time, against the backdrop of the sharp fall in bank lending, many more companies are looking at EISs as an alternative means of funding expansion.
Private investors
One City analyst said: “At £1.5m the size isn’t huge so it’s clearly aimed at private investors rather than institutions. It recognises that the housing market has bounced off the bottom and that margins have improved and of course that the banks are still not lending to any great extent. But you have to keep in mind that things could change very quickly. Construction has had a few false dawns in recent years.”
This year has seen an increase in house building for the first time in eight months but output in the overall construction sector dropped sharply in January, down 7.9% on the same time last year, according to the Office for National Statistics.
Meanwhile, the closely watched CIPS/Markit Purchasing Managers’ Index for construction reported that output fell at its fastest rate in more than three years during February.
Another City analyst added: “Whenever construction spending and investment has been good it has been on the back of good markets. Markets aren’t good at the moment, indicators aren’t good, and so confidence isn’t high.”
The Sapphire’s Carson said: “The prospects for the construction industry appear to be improving and there are signs that 2013 will see a rebound in the construction sector. We are very confident that the total (£1.5m) subscription will be raised as it already has had a positive reaction.”
Sapphire already runs another EIS construction company, Building Procurement Services, which builds out distressed projects. According to the company’s website, it has shareholder investment of £1.1m.
