Interim Management Statement

RNS Number : 0483X

HSBC Infrastructure Company Limited

07 August 2009

 



HSBC Infrastructure Company Limited

7 August 2009 

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 April 2009 to 6 August 2009. References to the Group below refer to the Company and its wholly-owned corporate subsidiaries.

Highlights

• Two acquisitions of Scottish Schools PFI projects for total consideration of £23.6 million

• Portfolio continues to perform satisfactorily

• 17.585 million shares issued under the block listing in June and July raising a net £19.2 million

• Good pipeline of new investment opportunities in asset types and geographies that fit with Company's strategic investment sectors

Graham Picken, Chairman of HSBC Infrastructure Company Ltd, said

'The Directors remain pleased with the Company's performance, which has been largely unaffected by the prevailing economic and financial climate. The two new investments made since 31 March are good quality assets acquired at attractive prices.

The Group's portfolio of investments is performing well operationally, with the Investment Adviser actively managing each investment.  A good pipeline of new investment opportunities is expected to give rise to further acquisitions in the months ahead.'

Portfolio

Following recent acquisitions, the Group now holds a portfolio of 30 infrastructure investments, of which 29 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 Highlands School, all the PFI/PPP projects are fully operational. On the Highlands project, construction of the schools is complete and the final work on landscaping and completing the playing fields is due to be finished as planned this autumn.

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 retesting of the signalling has been completed successfully and the first scheduled train services are due to commence in September 2009.

In the Company's Annual Report & Consolidated Financial Statements for the year ended 31 March 2009, the Chairman's Statement noted the proposed changes to UK tax legislation affecting the tax deductibility of inter-group loan interest in UK subsidiaries of foreign companies. These draft proposals have recently been enacted in the latest Finance Bill, and take effect for financial periods starting after 1 January 2010.  In the case of need, the Investment Adviser is developing plans to flex the structure and composition of the investment portfolio to ensure that this new legislation does not materially impair investment returns.

On the Blackburn Hospital PFI Project, the further downgrade of the monoline insurer Ambac Assurance UK Limited ('Ambac') since 31 March 2009 has marginally increased the cost of the debt in the project. Any future downgrades of Ambac will have no further impact on the project.  This is the only project in the Group's portfolio which is affected by a downgrade of a monoline insurer.

On 20 May 2009, the Company declared a second interim dividend of 3.275p per share for the year to 31 March 2009, bringing the total to 6.4p per share for the year. This was paid to shareholders on 30 June 2009. A scrip dividend alternative was offered and there was a 1.4% take-up resulting in an additional 139,142 shares being issued in June 2009.

As a result of investor appetite and the Company's share price trading at a small premium to current NAV, the Company has successfully issued shares under its block listing application of 8 August 2008 (for 33,402,711 ordinary shares of 0.01p). In June and July 2009, a total of 17,585,000 shares were issued, raising additional net proceeds of £19.2 million, which were used to reduce the Group's debt relative to the investment expenditure on the two new acquisitions made in June and early July.

As at 31 July 2009, the total number of ordinary shares in issue were 356,012,875.

Acquisitions

Since 31 March 2009, the Group has made two acquisitions.

In June, the Group acquired a 30% interest in the Renfrewshire Schools project for a consideration price of £6.8 million. The project comprises ten primary and secondary schools, all located in Renfrewshire. It was developed and built by Carillion and has been operational since January 2008. A subsidiary of Amey plc operates the schools under a long-term services agreement.

In early July, the Group acquired a 50% interest in the second Highland Schools PPP project for a consideration price of £16.8 million.  The 30-year, all new build concession comprises five primary schools, three secondary schools, a combined primary and secondary school, and a special needs school. Construction has been completed in stages and is due to be fully completed this autumn. 

Valuation of the Portfolio

The Company values the portfolio twice a year as at 30 September and 31 March. At 31 March 2009, the Company's Net Asset Value per share on an investment basis ('NAV') was 107.2p per share (after payment of the 3.275p second interim dividend).

As in previous periods, the Investment Adviser will prepare a fair market valuation for each of the Group's investments as at 30 September 2009. This is 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 (31 March 2009), to assess whether there are any trends likely to affect the valuation and, hence, the Company's NAV per share as at 30 September 2009.

Based on recent bidding activity and market data, the Investment Adviser does not currently believe any material changes will be required to the discount rates or forecast key economic assumptions to be used in the September valuation.

As part of the annual results, detailed guidance was given 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, in the Company's Annual Report and Consolidated Financial Statements (for the year ended 31 March 2009 - available from the Company's website).

Mark-to-market valuations of the Group's traded investment (Kemble Water Junior Loan) and the Group's interest rate swaps have remained broadly stable.

Gearing

The Group has a £200 million five year revolving facility with Bank of Scotland, and at 31 July 2009 the Group's net debt position was £52.0 million.  The movement in net debt since 31 March 2009 is accounted for by the dividend paid, additional capital raised, new acquisitions and cash receipts from the portfolio.

Outlook

Despite the continued uncertainty in the global economy and the volatility of the financial markets, the Board and the Investment Adviser remain confident that the Group will achieve the Company's target of progressive dividend growth. 

The Board still plans to grow the annual distribution to 7.0p per share by March 2013. This is consistent with statements made at the time of the IPO in March 2006 and in the C Share Prospectus of April 2008. Cash generation from the operational projects is in line with forecasts.

Whilst the Board and the Investment Adviser are yet to commence the valuation process to derive the Company's NAV at 30 September, the current expectation is that there will not be a material change in the Company's NAV (post the first interim dividend) in September.

The Company set out an acquisition strategy at the time of its results announcement in May, and there is a good pipeline of opportunities which the Investment Adviser is currently evaluating, which fit this strategy. The outlook for the Group to acquire additional investments remains good.  It is currently in exclusive negotiations on two assets.  Funding of new acquisitions will be initially from the Group's debt facilities with the probability of further equity raisings in due course.

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

David Yovichic

Oriel Securities Limited                                                               [phone]

Gavin Woodhouse

Tom Durie

Emma Ormond

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 30 infrastructure projects, 29 of which are PFI/PPP investments, and is seeking further suitable investment opportunities which fit its Investment Policy.

In April 2008, the Company launched a successful C share issue and raised £103.6 million. The C Share Prospectus is available from the Company's website.

Further details of the Company can be found from its web site 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.

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