Net Asset Value

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], 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]	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 3.50% to 31-Mar-25 3.25% to 31-Mar-30 2.50% thereafter	5.00% to 31-Mar-24 2.75% to 31-Mar-30 2.00% thereafter
	UK (CPI/CPIH)	5.75% to 31-Mar-24 2.75% to 31-Mar-25 2.50% thereafter	4.25% to 31-Mar-24 2.00% thereafter
	Eurozone (CPI)	4.75% to 31-Mar-24 2.25% to 31-Mar-25 2.00% thereafter	5.00% to 31-Mar-24 2.00% thereafter
	Canada (CPI)	3.00% to 31-Mar-24 2.25% to 31-Mar-25 2.00% thereafter	3.00% to 31-Mar-24 2.00% thereafter
	US (CPI)	3.00% to 31-Mar-24 2.00% thereafter	3.00% to 31-Mar-24 2.00% thereafter
	New Zealand	5.00% to 31-Mar-24 2.75% to 31-Mar-25 2.25% thereafter	5.00% to 31-Mar-24 2.50% to 31-Mar-25 2.25% thereafter
Deposit rates	UK	5.00% to 31-Mar-24 4.50% to 31-Mar-25, 3.5% thereafter	3.25% to 31-Mar-25, 2.50% thereafter
	Eurozone	3.00% to 31-Mar-25, 2.25% thereafter	2.25% to 31-Mar-25, 2.00% thereafter
	Canada	3.75% to 31-Mar-25 3.25% thereafter	3.50% to 31-Mar-25, 3.00% thereafter
	US	4.25% to 31-Mar-25 3.25% thereafter	4.00% to 31-Mar-25 3.00% thereafter
	New Zealand	4.50% to 31-Mar-24 4.25% thereafter	4.00% to 31-Mar-24 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

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Enquiries
InfraRed Capital Partners Limited Edward Hunt Helen Price Mohammed Zaheer	[phone] / [e-mail]
Brunswick Group Advisory Ltd Sofie Brewis	[phone] /  [e-mail]
Investec Bank plc David Yovichic	[phone]
RBC Capital Markets Matthew Coakes Elizabeth Evans	[phone]
Aztec Financial Services (UK) Limited Chris Copperwaite Sarah Felmingham	[phone]

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.

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.

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[1] 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] Performance comprises the unwinding of the discount rate (Value Preservation) and the Investment Manager's Value Enhancement initiatives

 

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