Interim Management Statement

RNS Number : 5098Q

HSBC Infrastructure Company Limited

04 August 2010

 



HSBC Infrastructure Company Limited

4 August 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 April 2010 to 3 August 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 from two vendors for a combined £46.4m

·    Successful issue of new shares via tap issues in June, July and August raising a gross £41.7m

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

·    There continues to be a good flow of new investment opportunities in the preferred asset types and geographies

·    A second interim dividend of 3.35p was declared in May and paid at end of June

Graham Picken, Chairman of HSBC Infrastructure Company Ltd, said

"The Directors continue to be satisfied with the Company's performance, acquisitions and capital raising in the period.

The Group has the capacity currently to make up to £193m of further drawings under its revolving debt facility.

Individual investments have performed as expected with no material issues and no impairments.

As we announced on 4 June, the management of HSBC Specialist Investments Limited ("HSIL"), the infrastructure and real estate arm of the HSBC Group ("HSBC") and owner of the Company's Investment Adviser, HSBC Specialist Fund Management Limited, has agreed outline terms with HSBC for the management to take majority ownership and control.

The Board intends to provide an update for shareholders in the autumn, but is confident that the transaction will not adversely impact the Group.  The Board is taking independent advice as part of this process and intends to seek shareholder approval for a change in name of the Company."

Tony Roper, director of the Investment Adviser, said

"We believe the recent acquisition of a 74.9% stake in the Queen Alexandra Hospital, Portsmouth continues the development of the portfolio.

The team continues its active management of the Group's portfolio, and performance is in line with our plans and projections.  We are evaluating a healthy number of new investment opportunities which fit the Company's Investment Strategy and we hope to make further acquisitions in due course."

Portfolio

Following the acquisition in June, the Group now holds a portfolio of 34 infrastructure investments, of which 33 are PFI/PPP projects in the UK and Europe.

All the PFI projects have long-term availability-based concessions with public sector clients, none of which require refinancing to meet their long-term business plans. Apart from Bradford Schools Phase II, all of the PFI/PPP projects are fully operational. Whilst it was reported in May that construction on Bradford was behind programme, subsequent remedial action has brought the forecast completion date into line with the original plan.

All investments in the portfolio are delivering their contracted services. There are no operational matters upon which to report.  None of the investments is impaired.

Each of the investments in the PFI/PPP projects comprises a mixture of shareholder equity and subordinated loans (also known as loan notes) designed to provide the appropriate balance of yield, control and positive correlation to inflation.  Details of each holding are set out in the Annual Report and Consolidated Accounts for the year ended 31 March 2010 (page 25).

Cashflow from the portfolio is healthy and in line with projections.

Pipeline of new opportunities

As is usual at this point in the calendar year, the number of suitable opportunities in the pipeline has increased as vendors seek to make disposals before the calendar year end.  The Investment Adviser is currently working on a number of interesting potential PPP acquisitions, with assets in the UK, Europe, North America and Australia.  There is also the possibility of acquiring PPP investments which are still in their construction phase.

The Investment Adviser continues to take a very cautious approach in assessing renewable energy investments.  Whilst such investments fall within the current Investment Strategy, this cautious approach means it is unlikely that there will be an acquisition of this type in the coming months.  Until there is more regulatory certainty over contractual tariffs, this position is unlikely to change.

Regulatory

The draft European Directive on Alternative Investment Fund Managers (the "AIFM Directive") continues to be discussed between the Commission, Council of Ministers and the European Parliament.  At present, it is not possible to establish what form the final Directive will take and what impact, if any, it will have on the Company and its advisers.  The Board and the Investment Adviser continue to monitor developments.

At the AGM on 26 July 2010, all the resolutions were passed.  These included resolutions to make amendments to the Company's Memorandum and Articles of Incorporation in order to conform to the Companies (Guernsey) Law 2008, and to include pre-emption provisions to comply with changes in the UK Listing Rules.

In May, the UK Financial Report Council published a revised Corporate Governance Code.  The Company has always sought to comply with the relevant codes and will respond positively to the new guidelines.

Capital Raising

As a result of the acquisition of Newcastle Library in March and the Queen Alexandra Hospital in June, coupled with the serial demand for the Company's shares, the Company was able to make tap issues of ordinary shares at a premium to the net asset value per share at the time.

In total, 37.0m shares were issued in June, July and August, raising additional equity capital of £41.7m (before costs).

As at 3 August 2010, the total number of ordinary shares in issue was 491.7m, and the number of shares available for issue pursuant to the Company's existing block listing was 16.5m.

Dividends

On 20 May 2010, the Company declared the second interim dividend of 3.35p per share, bringing the total to 6.55p per share for the year to 31 March 2010.  This was paid to shareholders on 30 June 2010. A scrip dividend alternative was offered and there was a 2.6% take-up resulting in an additional 354,717 ordinary shares being issued on 30 June 2010.

Acquisitions and additional Investments

Since 31 March 2010, the Group has made one new investment.  In June, the Group acquired two stakes in the Queen Alexandra Hospital PFI project in Portsmouth.  The Company has acquired a 50% interest and a 24.9% interest from the existing two shareholders.  Total consideration for these two interests was £46.4m.  The hospital has 1,026 inpatient beds, 34 neonatal intensive care cots, 3 endoscopy suites and 20 main operating theatres. It is fully operational and the concession contract runs until December 2040.

Valuation of the Portfolio

The Company values the portfolio twice a year, as at 30 September and 31 March. At 31 March 2010, the Company's Net Asset Value per share on an investment basis ('NAV') was 107.4p per share (after payment of the 3.35p 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 2010. This will be based on a 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 2010) to assess whether there are any trends likely to affect the valuation and, hence, the Company's NAV per share as at 30 September 2010.

The following trends in key assumptions have been noted since 31 March 2010:

·    The risk free rates as referenced by long term gilt rates (average of 20 and 30 year) and Dutch Government bonds have fluctuated since 31 March 2010, but as of 29 July 2010, they have decreased by approximately 0.2%. 

·    This fall has not been reflected, in the Investment Adviser's opinion, in the overall discount rates used to value PPP assets bought and sold in the market, where the Investment Adviser has not seen any material upward or downward movements since March.

·    With a healthy number of bid opportunities and active competition, it is possible that overall discount rates may decline slightly in the coming months.

·    Current UK inflation remains high with both UK RPI and RPIx at 5.0%.  Whilst most commentators expect this to decrease, the Investment Adviser remains comfortable with the long term assumptions used in March 2010.

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

It is the Investment Adviser's opinion that the combination of the above factors has, to date, had no material effect on the valuation of the Group's portfolio.  These key economic assumptions will be reviewed in the light of information as at 30 September 2010, coupled with relevant transaction activity.

As part of the annual results announcement, 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.  Both the Company's Annual Report and the Presentation are available from the Company's website.

Gearing

The Group has a £200m five year revolving facility with Bank of Scotland, and at 31 March 2010 the Group had a net cash position on an investment basis of £11.0m.  With the acquisition in June, the Group's debt facility was used but the subsequent tap issues of shares have reduced the Group's drawings under this facility to £7.2m, leaving substantial funds available for further acquisitions.

Outlook

Whilst there remain a number of uncertainties over the global economy and financial markets, both the Board and the Investment Adviser are 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 assets is as projected.

The new coalition government in the UK is currently reviewing all public expenditure and has recently announced plans not to proceed with further schools under the Building Schools for the Future initiative.  This has not affected the Group since the acquisition strategy is to acquire investments already in their operating phase or under construction.

The Investment Adviser is seeing a steady pipeline of good opportunities, and is confident of further acquisitions this year.

Ends

Enquiries

HSBC Specialist Fund Management Limited                             [phone]

Tony Roper

Keith Pickard

Sandra Lowe

M:Communications                                                                   [phone]

Ed Orlebar

Andrew Benbow

Collins Stewart Europe Limited                                                  [phone]

Dominic Waters

Neil Brierley

Will Barnett

David Yovichic

Oriel Securities Limited                                                                [phone]

Tom Durie

Emma Griffin

Neil Winward

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 34 infrastructure projects, 33 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 £80m. 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. It was announced on 4 June 2010 that heads of terms had been agreed with HSBC for the business to become an affiliate of HSBC (from its current status of 100%-owned subsidiary).

HSBC Specialist Fund Management Limited is authorised and regulated by the Financial Services Authority.

 

END

 

 

IMSUGUGWRUPUUBC