Interim Management Statement

RNS Number : 0357H

HSBC Infrastructure Company Limited

11 February 2010

 



HSBC Infrastructure Company Limited

11 February 2010

Interim Management Statement

HSBC Infrastructure Company Limited ('HICL' or the 'Company'), the listed infrastructure investment company, is issuing this Interim Management Statement in accordance with FSA Disclosure and Transparency Rule 4.3. This statement relates to the period from 1 October 2009 to 10 February 2010. References to the Group below refer to the Company and its wholly-owned corporate subsidiaries.

Highlights

·    Acquisition of a significant stake in a new PFI hospital project and three incremental investments in existing  police projects for a combined £31.9 million

·    Successful C share capital issue raising £80 million, plus tap issue in January 2010 raising a further £9.1 million

·    The Portfolio continues to perform  in line with projections and cash flow expectations

·    Steady flow of new investment opportunities in asset types and geographies that fit with the Company's strategic investment sectors

·    3.2p interim dividend declared in November and paid in December 2009

Graham Picken, Chairman of HSBC Infrastructure Company Ltd, said

"The Directors are pleased with the Company's performance, and successful capital raising in the period.  The Group is currently ungeared and has the capacity to make up to £200 million of further acquisitions.

Portfolio performance continues to support our distribution policy which has proved attractive to investors."

Tony Roper, director of the Investment Adviser, said

"We are pleased with our acquisition of a stake in Romford Hospital in December and the three incremental stakes in existing police projects.

The Group's portfolio of investments continues to perform as expected, helped by our active management of the portfolio.  We are evaluating a number of new investment opportunities which fit the Company's Investment Strategy and we hope to be in a position to make further acquisitions in due course."

Portfolio

Following the acquisitions in 2009, the Group now holds a portfolio of 32 infrastructure investments, of which 31 are PFI/PPP projects in the UK and Europe.

All the PFI projects have long-term availability-based concessions with public sector clients, and none of them require refinancing to meet their long-term business plans. Apart from Bradford Schools Phase II, all of the PFI/PPP projects are fully operational. Construction on Bradford is proceeding satisfactorily.

All investments in the portfolio are delivering their contracted services. There are no operational matters upon which to report.  On the Dutch High Speed Rail Link, the scheduled high speed train services have been running successfully since December.

Cashflow from the portfolio is in line with projections and will enable the Company to meet its distribution target for this financial year.

Pipeline

At the time of its interim results in November 2009, the Investment Adviser was considering eight investment opportunities.  Since then, one investment has been acquired; Romford Hospital in December, two opportunities have not been successful, and the remaining five are still being evaluated.  Since the start of 2010, a number of new potential investments have been identified and these are now being considered. 

Regulatory

A draft European Directive on Alternative Investment Fund Managers (the "AIFM Directive") was published last year. In its current form, the effect of the draft AIFM Directive would be likely to restrict the marketing of non-EU Alternative Investment Funds to investors in the EU. At the moment, it is not possible to establish whether amendments to the draft AIFM Directive designed to counter this effect, will be adopted.  The Board and the Investment Adviser are monitoring the progress of this Directive and seeking advice from the Association of Investment Companies, which is lobbying UK Government and the European Parliament on behalf of the sector.

The UK Listing Authority is making changes to the Listing Rules from April 2010 and the likely impact on the Company has been assessed.  It is believed that the only change required will be an amendment to the Company's Articles to include pre-emption rights on the shares.  The Directors propose to seek the necessary changes to the Company's Articles at the Annual General Meeting scheduled to be held in July.

Capital Raising

On 12 November 2009, the Company announced plans to raise up to £80 million by way of a C share issue.  As reported on 11 December, the issue was substantially oversubscribed.  Conversion was announced on 8 January 2010 and resulted in 71,856,000 ordinary shares of 0.01p being issued on 15 January 2010.  The scaling back of the C share issue left some investors with unsatisfied demand for the Company's shares, and the Company was able to meet this in part by issuing a further 7,965,390 ordinary shares on 15 January 2010 at 113.9p per share under its block listing capability.

As at 10 February 2010, the total number of ordinary shares in issue was 454,301,314, and the number of shares available for issue pursuant to the Company's existing block listing was 23,523,608.

Dividends

On 12 November 2009, the Company declared the first interim dividend of 3.2p per share for the year to 31 March 2010.  This was paid to shareholders on 31 December 2009. A scrip dividend alternative was offered and there was a 8.6% take-up resulting in an additional 917,049 ordinary shares being issued on 31 December 2009.

Acquisitions and additional Investments

Since 30 September 2009, the Group has made the following investments:

·    In November and December, the Group acquired an additional 22.92% interests in the equity and loan notes in the Metropolitan Police Training Facilities, the Durham & Cleveland Firearms Training, and the Greater Manchester Police Authority PFI project for a total consideration of £8.0 million.  This takes the Group's interests in these projects to 72.92%.

·    In December, the Group completed the acquisition of a 50% interest in the Queen's Hospital PFI project in Romford for £23.9 million.  The project involves the design, build and finance of the Queen's Hospital in Romford, followed by the maintenance of the hospital and the provision of non-clinical services for a total term of 36 years from January 2004. 

·    In December, the Company announced an additional £2.1million investment commitment to the Helicopter Training Facility PFI project to fund a project variation for an upgrade of a Chinook simulator used for training by the Royal Netherlands Air Force, which uses the facility in addition to the facility's main customer, the Royal Air Force.

Valuation of the Portfolio

The Company values the portfolio twice a year as at 30 September and 31 March. At 30 September 2009, the Company's Net Asset Value per share on an investment basis ('NAV') was 106.5p per share (after payment of the 3.2p interim dividend).  As part of the C share conversion process, the NAV of the ordinary shares of the Company was calculated as at 7 January 2010 and stood at 109.3p per ordinary share.  This reflected the profitability of the Group including mark to market movements for the period from 30 September 2009 to 7 January 2010.

As in previous periods, the Investment Adviser will prepare a fair market valuation for each of the Group's investments as at 31 March 2010. This will be based on discounted cashflow analysis of future forecast cashflows of the Group. Whilst it is not yet possible to determine the key assumptions to be used in this valuation, the Investment Adviser has reviewed the assumptions used in the last valuation (30 September 2009) to assess whether there are any trends likely to affect the valuation and, hence, the Company's NAV per share as at 31 March 2010.

The following trends in key assumptions have been noted since 30 September 2009:

·    The risk free rates as referenced by long term gilt rates (average of 20 and 30 year) have increased by approximately 0.4% since 30 September 2009, and some commentators are suggesting that they may well rise further.

·    The Investment Adviser believes that this increase in the risk free rates to date has been partially offset by a reduction in the risk premium applied.

·    Short term inflation expectations have also increased since 30 September 2009, with UK RPI currently 2.4% and RPIx 3.8%.

·    Bank deposit interest rates (relevant for cash held by projects on deposit) remain low and are forecast to remain so.

It is the Investment Adviser's opinion that the combination of the above factors has to date not had a material effect on the valuation of the Group's portfolio.  As in previous periods, these key economic assumptions will be reviewed in the light of information as at 31 March 2010, in particular with regard to transaction activity in the secondary PFI market.

The Kemble Water Junior loan is valued on a mark to market basis.  Since 30 September, the Group has seen an increase in the value of this asset, in line with the valuations of similar debt instruments.

As part of the interim results for the six months ended 30 September 2009, detailed guidance was given in the Company's Interim Report and Interim Presentation on the sensitivity of the valuation to the key economic assumptions (long term inflation rates and cash deposit rates) and changes to the weighted average discount rate used.  Both the Report and the Presentation are available from the Company's website.

Gearing

The Group has a £200 million five year revolving facility with Bank of Scotland, and at 30 September 2009 the Group's net debt position on an investment basis was £39.5 million.  With the successful C share equity raising in December, and the subsequent tap issue on 15 January 2010, the Group is effectively ungeared and has the whole facility available for further acquisitions.

To manage the Group's interest rate risk effectively following the degearing of the Group, the partial interest rate hedge on the Group's debt facility was re-profiled to reflect the likely gearing of the Group over the next three years.  This re-profiling has not affected the Group's profitability but resulted in a cash outflow of £2.8 million to partially settle the swaps.

Outlook

Whilst uncertainty over the global economy and the financial markets is likely to continue in 2010, the Board and the Investment Adviser remain confident that the Company will achieve its target of progressive growth in the annual distribution and achieve a dividend of 7.0p per share by March 2013. Cash generation from the operational projects remains consistent with achievement of this target.

The Company set out an acquisition strategy at the time of its results announcement in May 2009, and the Investment Adviser is seeing a steady pipeline of opportunities, which fit this strategy.

New acquisitions will initially be funded from the Group's debt facilities, with the probability of further equity raisings over time.

Ends

Enquiries

HSBC Specialist Fund Management Limited                             [phone]

Tony Roper

Keith Pickard

Sandra Lowe

M:Communications                                                                   [phone]

Ed Orlebar

James Hill

Collins Stewart Europe Limited                                                 [phone]

Dominic Waters

Neil Brierley

Will Barnett

David Yovichic

Oriel Securities Limited                                                           [phone]

Tom Durie

Emma Griffin

HSBC Infrastructure Company Limited

The Company is a long term investor in infrastructure projects which are predominantly in their operating phase and yielding steady returns. It was the first infrastructure investment company to be listed on the London Stock Exchange. It currently owns a portfolio of 32 infrastructure projects, 31 of which are PFI/PPP investments, and is seeking further suitable investment opportunities which fit its stated Investment Strategy.

In November 2009, the Company undertook a successful C share issue which raised £80 million. The C Share Prospectus is available from the Company's website.

Further details of the Company can be found on its website    www.hicl.hsbc.com

Investment Adviser

The Investment Adviser to the Company is HSBC Specialist Fund Management Limited, whose infrastructure investment team has successfully invested in infrastructure projects since 1997 and which is part of HSBC Specialist Investments, the infrastructure and real estate investment arm of the HSBC Group. HSBC Specialist Fund Management Limited is authorised and regulated by the Financial Services Authority.

 

END

 

 

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