Portfolio Update

RNS Number : 2654P

International Public Partnership Ld

16 November 2016

 

International Public Partnerships Limited

Portfolio Update

For the period 1 July 2016 to 15 November 2016

16 November 2016

International Public Partnerships Limited ('INPP', 'the Company'), a listed investment company which invests in global public infrastructure projects, today issues the following update for the period 1 July 2016 to 15 November 2016.

Highlights

·        The Company's portfolio of 126 public infrastructure investments are performing fully in line with expectations;

·        The Company reported an increase in Net Asset Value ('NAV') per share to 138.2 pence at its 2016 Interim Results for the six months to 30 June 2016 (Dec 2015: 130.2p);

·        Inflation linkage in the portfolio remains strong such that a 1.00% increase in inflation leads to a 0.71% increase in return¹;

·        A first half year 2016 dividend of 3.325 pence per share was declared on 1 September 2016 and was paid on 3 November 2016;

·        A minimum target dividend for the 2016 and 2017 financial years has been set at 6.65 pence and 6.82 pence per share respectively and these amounts are in line with the average increase of c.2.5%² or greater each year;

·        Additional £133.0 million of investments were made during the period, including £33.9 million in relation to the Company's commitment to the Thames Tideway Tunnel;

·        The Company has an attractive pipeline of investment opportunities across the UK, Northern Europe, Australia and North America, and will continue to deploy capital to meet its existing investment commitment to the Thames Tideway Tunnel project;

·        The Company has delivered a Total Shareholder Return (comprising share price growth and aggregate dividends) since IPO in November 2006 to 10 November 2016 153.96% or 9.76% on an annualised basis³.

Rupert Dorey, Chairman of International Public Partnerships Limited, commented: "We have been encouraged by the continued strong performance of the Company's portfolio, as the demand for private investment in public infrastructure across the UK and the overseas developed markets where we have interests remains high.

As a result, we remain confident in the pipeline of suitable infrastructure and utility projects currently under review and will continue to use our primary origination capability to uphold the long-dated, low-risk and inflation-linked characteristics that make up the Company's investment case."

Portfolio performance

The Company's portfolio of assets continues to perform well with revenues and cash receipts in line with management forecasts and levels of satisfaction remaining high amongst public sector clients.    

The portfolio currently has 11.3% of assets still in physical construction. The weighted average investment life of the portfolio is currently 30 years with a weighted average (non-recourse) debt tenor of 28 years.

As at 10 November 2016, the portfolio comprised economic interests in 126 projects with a composition as detailed below:

Geographic breakdown	Investment Fair Value %	Sector breakdown	Investment Fair Value %
United Kingdom	71.0%	Energy Transmission	26.3%
Belgium	11.0%	Education	25.0%
Australia	6.5%	Transport	18.9%
United States	4.1%	Waste Water	8.2%
Germany	3.3%	Health	6.4%
Canada	2.7%	Courts	5.2%
Ireland	1.3%	Military Housing	4.2%
Italy	0.1%	Police Authority	3.1%
		Custodial	0.7%
		Government Offices/Other	2.0%

Investment life	Investment Fair Value %	Investment stake %	Investment Fair Value %
<20 years	47.8%	100%	60.4%
20-30 years	35.5%	<50%	30.3%
>30 years	16.7%	50% - 100%	9.3%

Note: This breakdown is based on the fair valuation of the Group's investments calculated utilising a discounted cash flow methodology as stated in the valuation section later in this Update.

Gearing and cash position

The Company has utilised £138.4 million of the credit available under its revolving credit facility, (taking into account its future investment obligations into new projects including its investment commitments to the Thames Tideway Tunnel project and a drawn cash balance of £13.5 million).  The Company has previously fully deployed the capital it raised in July 2016.

Taking into account the significant pipeline of investments the Company is also exploring increasing the size of its corporate debt facility, details of which will be released once the facility has been successfully renegotiated.

Investments

During the period since 30 June 2016, c.£133.0 million was invested across 13 projects.

Additional investments in UK schools

The Company invested £72.3 million to acquire investment interests in a total of ten UK schools. The investment opportunity was secured through pre-emption rights that INPP gained as part of its ownership of Building Schools for the Future Investments LLP ("BSFI"). INPP acquired BSFI from the Department of Education and Partnerships UK in August 2011.

Owing to its established position in UK education infrastructure, the Company already held 10% interests in seven of the Balfour Beatty investments in question and as a result of the transaction, the Company increased its stake to between 80.0% and 99.9% in each scheme. At the same time, the Company acquired new interests in a further three BSF schemes previously under Balfour Beatty's ownership.

In addition, the Company invested £2.2 million to acquire 45.0% of the subordinated debt and equity of HTP Grange Limited, a BSF project located in Halton, Cheshire. 

Additional investment in US Military Housing

The Company invested US$32.0 million (£24.6 million) into a further investment in the US military housing sector. The investment is in the form of interest-bearing subordinated debt and is secured on the same underlying military housing assets as those purchased by the Company in October 2015 but rank higher in priority to them.

The interests are underpinned by security over seven operational PPP military housing projects. These projects encompass a total of 19 operational military bases in the US, with approximately 21,800 individual housing units. The debt has a 36-year tenor and matures in 2052.

Tideway project update

In the period since 30 June 2016 the Company has invested £33.9 million into the Tideway project and has an additional c.£100 million to be committed by early 2018 (currently supported by a letter of credit) of which c.£20 million is expected to be committed during the remainder of 2016.

During the period, Tideway made good progress against the project's indicative timetable, including the development of a new pier at Blackfriars Bridge which will allow hard construction works to begin at the site of the former Millennium Pier.

Top Ten Investments

The Top Ten Investments of the Company in terms of investment made as at 10 November 2016 were:

Rank	Asset	Investment Fair Value %
1	Lincs Offshore Transmission	12.1%
2	Diabolo Rail Link	11.1%
3	Ormonde Offshore Transmission	8.9%
4	Thames Tideway Tunnel	8.2%
5	Angel Trains	4.5%
6	Royal Children's Hospital	3.0%
7	BeNEX Rail	2.6%
8	US Military Housing	2.5%
9	Northampton Schools	2.2%
10	Hereford & Worcester Courts	2.1%

Valuation

The Company's investment portfolio valuation is revised semi-annually by the Investment Advisor, and presented for approval by the Directors and reviewed by the Company's auditors, EY. In addition, the Company provides quarterly NAV guidance predominantly based on movements over the period in the government bond yields of countries where the Company holds investments and changes to relevant foreign exchange rates.

This quarterly guidance does not include any changes (positive or negative) in NAV arising from matters specific to individual investments (e.g. changes in asset specific risks, timing implications of delayed or accelerated cash flows, changes to cash flow projections and assumptions, indexation adjustments due to changes in inflation etc.), although any material project specific issues occurring in the period can be expected to be reported on separately in this quarterly update. The Directors' valuations published with the Company's full and interim results are reviewed by the Company's auditors and updated to reflect both project-specific and macroeconomic factors.

Since 30 June 2016 (NAV: 138.2 pence per share), government bond rates in all of the jurisdictions in which the Company invests have decreased. The decrease in these rates could, other things being equal, be expected to have a positive effect on the Company's NAV.

Over the same period, the GBP forward curve has weakened against the four currencies to which the Company has exposure. The weakened foreign exchange position of GBP could be expected, other things being equal, to have a positive effect on the Company's NAV.

Based on these two macroeconomic updates alone, the NAV could be expected to have increased since 30 June 2016.

In the course of its normal practice the Company also reviews market based evidence (market intelligence and its own experience of the secondary market for assets such as those owned by the Company) in its assessment of NAV. Since 30 June 2016 the Company has seen continued evidence of rising valuations for assets of the type it owns. The extent of the positive impact which this is likely to have on NAV is being considered and will be reported on more fully at the time of the Company's full year results.

Distributions

On 1 September 2016, the 2016 first half year distribution of 3.325 pence per share was declared for shareholders on the register as at 23 September 2016. This distribution was for the period 1 January 2016 to 30 June 2016 and was a c.2.5% increase on the distribution paid in the previous corresponding period.

The Scrip Dividend Alternative Circular applicable to that dividend was available to investors and the associated scrip allotment or dividend payment was made on 3 November 2016. 

The Board of Directors have previously announced minimum targets for the 2016 and 2017 distributions of 6.65 pence per share and 6.82 pence per share (respectively), providing additional guidance to investors as to the Company's future intentions. The targeted payments would represent a minimum c.2.5% increase on the preceding distributions and would continue to be in line with the growth target indicated at the time of the Company's IPO in 2006².

Investment environment and outlook

Overall, the Company remains positive about its prospects, both in terms of the performance of its existing investments and the opportunity to add high quality investments to the portfolio in the short to medium term.

The Investment Adviser remains confident of a significant investment pipeline for the Company. In addition to the commitment to Tideway, the Investment Adviser has a pipeline of other potential investment opportunities that are at an earlier stage of development and, subject to further review, may be progressed as investment opportunities for the Company.

Key areas of current activity for the Company and/or its Investment Adviser (or associates) include:

·     A particular focus on large scale opportunities in the UK regulated asset sector;

·     Continued activities in the area of UK offshore transmission;

·     US P3 and similar opportunities, particularly through the relationship with Amber/Hunt;

·     Other UK and European primary investment opportunities (for instance in the healthcare and judicial sectors);

·     Acquisition of additional investments in projects where the Company already has an investment. Typically these will arise under pre-emption and similar rights.

Notes to Editors:

While it is no longer a requirement under the Disclosure and Transparency Rules for the Company to issue Interim Management Statements, the Board believes it is in the interest of shareholders for the Company to provide quarterly updates in addition to its half year reports.

1.   In aggregate, the weighted return of the portfolio would be expected to increase by 0.71% per annum in response to a 1.00% per annum inflation increase across the whole portfolio over the currently assumed inflation rates.

2.   Dividend targets are targets and not profit forecasts and there can be no guarantee they will be achieved. Projections are based on the current individual asset financial models and may vary in the future.

3.   Source: Bloomberg, share price appreciation plus income.

End

For further information:

Erica Sibree                                                    [phone]

Amber Fund Management Limited                                

Nick Westlake/Hugh Jonathan                            [phone]/1263

Numis Securities       

Ed Berry/Mitch Barltrop                                     [phone]/1039
FTI Consulting

About International Public Partnerships (INPP):

International Public Partnerships ('INPP') is a listed infrastructure investment company which invests in global public infrastructure projects developed under the public private partnerships ('PPP'), private finance initiative ('PFI'), regulated asset and other similar procurement methods.

Listed in 2006, INPP is a long-term investor in 126 social and transport infrastructure projects, including schools, hospitals, courts, police headquarters, transport and utility and transmission projects in the UK, Europe, Australia and North America.  INPP seeks to provide its shareholders with both a long-term yield and capital growth through investment across both construction and operational phases typically of 25-40 year concessions.

Amber Infrastructure Group ('Amber') is the Investment Advisor to INPP and consists around 90 dedicated staff who manage, advise on and originate projects for INPP.

Visit the INPP website at www.internationalpublicpartnerships.com for more information.

This update does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe or purchase, any investments nor shall it (or the fact of its distribution) form the basis of, or be relied on in connection with, any contract or commitment whatsoever. 

The potential acquisition by the Company of any of the investments referred to in this quarterly update is subject, among other things, to those projects reaching legal completion and to the Company having conducted satisfactory due diligence in relation to such investments. Although the Company has a right of first refusal for investments disposed of by the Amber group, any acquisitions will be subject to agreement having been reached between the Company and the relevant counterparty as to the terms of the acquisitions.  In addition, some of the investment opportunities are those where Amber or the Company is currently undergoing a bidding process.  There is no guarantee that they will be successful in any such bidding process. There is therefore no guarantee that any of the investments will be acquired and if they are on what terms. 

Forward-looking statements are not guarantees of future performance. The Company's actual investment performance, results of operations, financial condition, liquidity, distribution policy and the development of its financing strategies may differ materially from the impression created by the forward-looking statements contained in this document.  Subject to their legal and regulatory obligations, International Public Partnerships and its Investment Advisor expressly disclaim any obligations to update or revise any forward-looking statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

 

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