REG - HICL Infrastructure - Net Asset Value

HICL InfrastructureAnnouncement

06/11/2023 07:00

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RNS Number : 4049S  HICL Infrastructure PLC  06 November 2023

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT FOR RELEASE,
PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO, THE UNITED
STATES, AUSTRALIA, CANADA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA.

This announcement has been determined to contain inside information for the
purposes of the market abuse regulation (EU) No.596/2014.

6 November 2023

 

HICL Infrastructure PLC

 

"HICL" or the "Company" and, together with its corporate subsidiaries 1 
(#_ftn1) , the "Group", the London-listed infrastructure investment company
managed by InfraRed Capital Partners Limited ("InfraRed" or the "Investment
Manager").

Net Asset Value

The Company's Interim Results are scheduled for release on 22 November 2023.

The Board expects to announce a decrease in the Company's unaudited Net Asset
Value ("NAV") per share of approximately 5.5 pence to 159.4 pence as at 30
September 2023 (31 March 2023: 164.9 pence). This statement explains the
Company's approach to determining the NAV as at 30 September 2023.

The most significant driver of the movement in NAV per share has been an
increase in the portfolio's weighted average discount rate from 7.2% to 8.0%,
reflecting higher market return requirements. In establishing the appropriate
movement in the discount rate, the level implied by the increases in long-term
government bond yields has been evaluated in the context of the Company's own
recent cross-sector and cross-geography transactional data.

The operational performance of the portfolio has remained in line with
expectations, with the expected decrease in NAV attributable to the following
macro-economic factors:

 ·             The significant increases in long-term government bond yields since the last
               valuation date of 31 March 2023, particularly in the UK, have been the primary
               driver of an increase in the portfolio's weighted average discount rate to
               8.0% (31 March 2023: 7.2 %). The weighted average equity risk premium at 30
               September 2023 was 3.3% (31 March 2023: 3.4%);

 ·             Higher actual and forecast UK inflation compared with the assumptions included
               in the portfolio valuation as at 31 March 2023. UK RPI is now assumed to be
               6.5% in FY2024, 3.5% in FY2025, 3.25% to 31 March 2030 and 2.50% thereafter.
               This remains 0.7% below the inflation rate implied by the 30 Year UK gilt
               yield on a weighted average basis; and

 ·             Increases in deposit rate assumptions in all jurisdictions due to higher
               prevailing interest rates.

Breakdown of the movement in Net Asset Value per share

 Net Asset Value per share as at 31 March 2023 (audited)        164.9p
 Portfolio return
 Actual inflation                                          0.8
 Other portfolio performance 2  (#_ftn2)                   6.1
                                                                6.9

 Discount rate                                                  (13.9)

 Macro-economic assumptions
 Forecast inflation                                        5.1
 Interest + tax rates                                      2.6
                                                                7.7

 Fund and interest costs                                        (1.9)
 Foreign exchange (net of hedging)                              (0.2)
 Dividends paid                                                 (4.1)
 Net Asset Value per share as at 30 Sept 2023 (unaudited)       159.4p

Inflation

The portfolio's cashflows and valuation are positively correlated to
inflation. In addition, aggregate forecast inflation for the UK for the rest
of this financial year and the year to 31 March 2025 is ahead of the
assumptions used in the 31 March 2023 portfolio valuation, leading to higher
expected portfolio cashflows. The movement in forecast assumptions is largely
limited to the UK portfolio.

Discount rates

Long-term government bond yields, particularly in the UK, have increased
materially since the Company's 31 March 2023 valuation. As discount rates used
to value projects do not follow bond yields on a like-for-like basis, the
Investment Manager considers asset pricing observed in core infrastructure
transactions across HICL's key geographies, as well as the level of risk
premium implied by movements in bond yields.

Over the last six months, the Company has announced eight selective disposals
in several sectors and geographies at or above the carrying value of the
relevant asset, as part of an active management approach to asset rotation.
These asset sales offered clear supporting evidence of the robustness of the
Company's Net Asset Value and provided data which indicated that higher
discount rates and inflation assumptions are being used by secondary market
participants in determining valuations. Taking into account the significant
increase in long-term government bond yields and the corresponding reduction
in the implied equity risk premium over the last six months, the Investment
Manager has increased the portfolio's weighted average discount rate from 7.2%
to 8.0%. The weighted average risk-free rate for the portfolio is 4.7% (31
March 2023: 3.8%) and the weighted average risk premium is 3.3% (31 March
2023: 3.4%). The largest discount rate increases were in the UK (+100bps) and
the US and New Zealand (+60bps respectively).

InfraRed will continue to closely monitor market activity and will provide a
further update as part of HICL's Interim Results on 22 November 2023.

Foreign Exchange

The Company is exposed to movements in the Canadian dollar, the Euro, the New
Zealand dollar and the US dollar. 62% of the Company's exposure to foreign
currency was hedged as at 30 September 2023, giving rise to a small valuation
loss in the period.

Funding position

At 30 September 2023 the Group had net debt of £496.8m (31 March 2023: net
debt £147.6m), comprising cash of c. £24m, drawings on the Revolving Credit
Facility ("RCF") of c. £370m and the private placement of £150m. Following
the completion of the recently announced disposals, the pro forma drawings on
the RCF are expected to be c. £130m and gearing is expected to be c.10%.

 

Macro-economic assumptions used in the valuation

 Assumption              Jurisdiction       30 September 2023     31 March 2023
 Discount rate (WADR)                       8.0%                  7.2%
 Inflation               UK (RPI and RPIx)  6.50% to 31-Mar-24    5.00% to 31-Mar-24

                                            3.50% to 31-Mar-25    2.75% to 31-Mar-30

                                            3.25% to 31-Mar-30    2.00% thereafter

                                            2.50% thereafter
                         UK (CPI/CPIH)      5.75% to 31-Mar-24    4.25% to 31-Mar-24

                                            2.75% to 31-Mar-25    2.00% thereafter

                                            2.50% thereafter
                         Eurozone (CPI)     4.75% to 31-Mar-24    5.00% to 31-Mar-24

                                            2.25% to 31-Mar-25    2.00% thereafter

                                            2.00% thereafter
                         Canada (CPI)       3.00% to 31-Mar-24    3.00% to 31-Mar-24

                                            2.25% to 31-Mar-25    2.00% thereafter

                                            2.00% thereafter
                         US (CPI)           3.00% to 31-Mar-24    3.00% to 31-Mar-24

                                            2.00% thereafter      2.00% thereafter
                         New Zealand        5.00% to 31-Mar-24    5.00% to 31-Mar-24

                                            2.75% to 31-Mar-25    2.50% to 31-Mar-25

                                            2.25% thereafter      2.25% thereafter
 Deposit rates           UK                 5.00% to 31-Mar-24    3.25% to 31-Mar-25,

                                            4.50% to 31-Mar-25,   2.50% thereafter

                                            3.5% thereafter
                         Eurozone           3.00% to 31-Mar-25,   2.25% to 31-Mar-25,

                                            2.25% thereafter      2.00% thereafter
                         Canada             3.75% to 31-Mar-25    3.50% to 31-Mar-25,

                                            3.25% thereafter      3.00% thereafter
                         US                 4.25% to 31-Mar-25    4.00% to 31-Mar-25

                                            3.25% thereafter      3.00% thereafter
                         New Zealand        4.50% to 31-Mar-24    4.00% to 31-Mar-24

                                            4.25% thereafter      4.25% thereafter
 Foreign exchange rates  USD                1.22                  1.23
                         EUR                1.15                  1.14
                         CAD                1.66                  1.67
                         NZD                2.03                  1.97

 

 

 

-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 Group Advisory Ltd           +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/) .

This statement aims to give an indication of material events and transactions
that have taken place in the period from 1 April 2023 to 30 September 2023 and
their impact on the financial position of HICL.  These indications reflect
the Board's current view.  They are subject to several risks and
uncertainties and could change.  Factors which could cause or contribute to
such differences include, but are not limited to, general economic and market
conditions and specific factors affecting the financial prospects or
performance of individual investments within the portfolio of HICL.

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 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/) .

 1  (#_ftnref1) The Corporate subsidiaries are Infrastructure Investments
Limited Partnership and HICL Infrastructure 2 s.a.r.l., as disclosed in HICL's
Annual Report and Accounts 2023

 2  (#_ftnref2) Performance comprises the unwinding of the discount rate
(Value Preservation) and the Investment Manager's Value Enhancement
initiatives

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