REG - HICL Infrastructure - Interim Update Statement

HICL InfrastructureAnnouncement

04/03/2024 07:00

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RNS Number : 3536F  HICL Infrastructure PLC  04 March 2024

4 March 2024

 

HICL Infrastructure PLC

 

"HICL" or "the Company" and, together with its subsidiaries, "the Group", the
London-listed infrastructure investment company managed by InfraRed Capital
Partners Limited ("InfraRed" or "the Investment Manager".)

 

Interim Update Statement

 

The Board of HICL is issuing this Interim Update Statement, which relates to
the period from 1 October 2023 to 29 February 2024.

 

Mike Bane, Chair of HICL said:

 

"HICL's high quality portfolio continues to demonstrate its resilience amidst
broader macro volatility, supported by significantly accretive asset rotation
announced in the period. Effective capital allocation remains crucial, and the
Board has deployed disposal proceeds to reduce the balance on the Company's
Revolving Credit Facility, make a highly accretive incremental investment and
launch a share buyback programme."

 

Key Highlights

 *  Solid operational performance across the portfolio in the period demonstrating
    the resilient nature of the underlying assets. The Company is on track to
    deliver its target dividend of 8.25p per share for the financial year to 31
    March 2024, with cash generation in line with expectations.

 *  Sale of entire stake of Northwest Parkway ("NWP") for a net consideration of
    US$232m at a c. 30%(1) premium to the most recent valuation. Up to £50m of
    the sale proceeds reserved for a share buyback programme.

 *  Acquired additional 3.1% interest in A63 Motorway in France for £20m at
    highly accretive terms.

 *  £200m of disposal proceeds received and used to reduce fund-level gearing.
    The RCF is expected to be fully repaid with the proceeds of the Northwest
    Parkway disposal.

 *  Focus remains on responsible capital allocation, with future disposal proceeds
    to support the evaluation of selective investment opportunities where they
    enhance the portfolio's key financial metrics.

 

Portfolio Performance

 

 *  Overall, the portfolio performed in line with expectations in the period,
    underpinned by its high-quality, inflation linked cashflows and limited
    variable interest rate exposure.

 *  In December 2023 HICL acquired a further 3.1% interest in the A63 Motorway
    concession in France for c. £20m. The acquisition was carefully evaluated
    against alternative uses of capital, including the repurchase of the Company's
    shares, with the expected return and yield from the asset significantly higher
    than the relevant hurdle rates.

 *  The levy on revenues earned by companies operating long-distance transport
    infrastructure in France has now been enacted as part of the 2024 Finance Law.
    Once the payment terms are published, it is expected that the law will be
    challenged in the constitutional court, and it remains HICL's expectation that
    compensation would be due through higher tolls. However, even if the levy were
    to be imposed in full, the impact on HICL's valuation of the A63 Motorway is
    not expected to be material.

 *  The Company's new modern economy assets (Fortysouth, Texas Nevada Transmission
    ("TNT") and Altitude Infra), are now well integrated into the portfolio and
    continue to perform in line with expectations.

 

Financial Performance

 

 *  The Company is on track to deliver its target dividend of 8.25p per share for
    the financial year to 31 March 2024, with cash generation in the period in
    line with expectations.

 *  Proceeds from the announced disposals of Bradford Schools PPPs, the four PPP
    assets sold to John Laing and the University of Sheffield Accommodation
    Project have been received. The proceeds from the Hornsea II OFTO and the
    Northwest Parkway disposals expected by Q3 2024.

 *  The Company announced in February 2024 the intention to allocate up to £50m
    of the NWP disposal proceeds towards a share buyback programme in due course
    which will run for a period of up to twelve months.

 

Valuation

 

 *  The Company's NAV and valuation approach continues to be well-informed by
    transaction data points, including the Company's own disposal activity which
    now spans over £500m of assets, across sectors and geographies, all realised
    at or above their carrying values.

 *  From September 2022 to September 2023, HICL increased its weighted average
    portfolio discount rate by 140bps. Current long-term UK government bond yields
    imply that HICL benefits from a c. 3.7% equity risk premium which has widened
    by 30bps since the Company's results at 30 September 2023. The Investment
    Manager believes the risk premium is appropriate for HICL's core
    infrastructure portfolio.

 *  While noting increased market confidence that interest rates have peaked
    across HICL's key jurisdictions, the Investment Manager does not anticipate a
    change in the portfolio weighted average discount rate in the 30 March 2024
    Valuation as it currently aligns with transactional evidence in the sector.
    The Company believes the strong valuation achieved for its sale of NWP
    reflects the unique opportunity for the bidder to acquire 100% of the equity
    as well as the asset's strong inflation correlation, particularly over the
    past two years.

 *  Alongside the expected NAV uplift of c. 2p, the NWP sale is expected to be
    materially accretive to portfolio yield, while modestly reducing the
    portfolio's weighted average asset life to 29.5 years and inflation
    correlation from 0.8x to 0.7x(2).

 *  Inflation for the year to 31 March 2024 is currently slightly below the
    assumptions used in the 30 September 2023 valuation (at 4% relative to an
    assumption of 6.5% for UK RPI). If it remains at these levels, the negative
    effect on the portfolio's 31 March 2024 valuation is expected to be c. 1.5p.

 

Market and Outlook

 

 *  The market for high quality core infrastructure assets remains in good health
    with increasing transaction volumes noted in the period(3). This data,
    supported by the Company's own disposals, continues to reaffirm market
    liquidity and the observed disconnect between public market and private
    investor valuations for inflation correlated core infrastructure.

 *  The Board and Investment Manager remain focused on responsible capital
    allocation, with disposal activity used to support the selective review of
    investment opportunities to enhance the portfolio's key financial metrics, in
    line with HICL's long-term track record of accretive asset rotation.

 

1.     US$ proceeds translated to £184m using an exchange rate of 1.26.
The uplift versus the US$ valuation at 30 September 2023 is 34%

2.     Based on portfolio valuation as at 30 September 2023

3.     577 infrastructure deals completed globally in Q4 2023 vs 553 in Q3
2023, with 83 core infrastructure deals in Q4 2023 vs 62 in Q3 2023.
Infrastructure deals source: Preqin data. Core infrastructure deals source:
Combination of Infralogic and InfraRed internally reviewed deal universe

 

-Ends-

 

 

 

Enquiries

   InfraRed Capital Partners Limited        +44 (0) 20 7484 1800 / info@hicl.com (mailto:info@hicl.com)
   Edward Hunt
   Helen Price
   Mohammed Zaheer

   Brunswick                                +44 (0) 20 7404 5959 / hicl@brunswickgroup.com
                                            (mailto:hicl@brunswickgroup.com)
   Sofie Brewis

   Investec Bank plc                        +44(0) 20 7597 4952
   David Yovichic

   RBC Capital Markets                      +44 (0) 20 7653 4000
   Matthew Coakes
   Elizabeth Evans

   Aztec Financial Services (UK) Limited    +44(0) 203 818 0246
   Chris Copperwaite
   Sarah Felmingham

 

HICL Infrastructure PLC

HICL Infrastructure PLC ("HICL") is a long-term investor in infrastructure
assets which are predominantly operational and yielding steady returns. It was
the first infrastructure investment company to be listed on the London Stock
Exchange.

With a current portfolio of over 100 infrastructure investments, HICL is
seeking further suitable opportunities in core infrastructure, which are
inherently positioned at the lower end of the risk spectrum.

Further details can be found on the HICL website www.hicl.com
(http://www.hicl.com/) .

 

Investment Manager (InfraRed Capital Partners)

The Investment Manager to HICL is InfraRed Capital Partners Limited
("InfraRed") which has successfully invested in infrastructure projects since
1997. InfraRed is a leading international investment manager, operating
worldwide from offices in London, New York, Seoul, Madrid and Sydney and
managing equity capital in multiple private and listed funds, primarily for
institutional investors across the globe. InfraRed is authorised and regulated
by the Financial Conduct Authority.

The infrastructure investment team at InfraRed consists of over 100 investment
professionals, all with an infrastructure investment background and a broad
range of relevant skills, including private equity, structured finance,
construction, renewable energy and facilities management.

InfraRed implements best-in-class practices to underpin asset management and
investment decisions, promotes ethical behaviour and has established community
engagement initiatives to support good causes in the wider community. InfraRed
is a signatory of the Principles of Responsible Investment.

Further details can be found on InfraRed's website www.ircp.com
(http://www.ircp.com/) .

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