C Share Placing and Offer

RNS Number : 4431C

HSBC Infrastructure Company Limited

12 November 2009

 



THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT FOR PUBLICATION, RELEASE, OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN, OR INTO, THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR ANY JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL OR TO U.S. PERSONS.  THE INFORMATION CONTAINED HEREIN DOES NOT CONSTITUTE AN OFFER OF SECURITIES FOR SALE INCLUDING IN THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR SOUTH AFRICA.

HSBC INFRASTRUCTURE COMPANY LIMITED

Placing and Offer for Subscription of C Shares and publication of a Prospectus

12 November 2009

Summary

Further to the announcement made by HSBC Infrastructure Company Limited (the "Company") on 2 November 2009, the Board of Directors is pleased to announce the proposed issue of up to 80 million C Shares pursuant to a Placing and Offer for Subscription at an issue price of 100p per C Share (the "Issue"). A prospectus relating to the Issue has been published today and will be posted to shareholders, as well as being made available on the Company's website (www.hicl.hsbc.com).

Key Highlights of the Issue

• Proposing to raise up to £80 million (before expenses) or, if lower, the aggregate of existing Group Debt and any outstanding subscription obligations in respect of investments as at the date of the Placing

• Net proceeds of the Issue will be used to pay down existing Group Debt and meet outstanding subscription obligations

• Aggregate of Group Debt and future subscription obligations is approximately £55 million, following the additional investments in two Police projects in November 2009

• Group is currently in discussions in respect of acquiring a further 8 investments amounting to in excess of £100 million and the Investment Adviser is hopeful that the Group will be in a position to make an investment commitment of approximately £24 million to one of the opportunities prior to the closing of the Issue

• Repayment of existing Group Debt will provide the Group with greater flexibility in making further investments in the infrastructure market as suitable opportunities arise

Expected timetable

Each of the times and dates set out below and mentioned elsewhere in this announcement may be adjusted by the Company, in which event details of the new times and dates will be notified to the FSA and the London Stock Exchange. References to a time of day are to London time.

Event	Date
Latest time and date for receipt of completed application forms and payment in full under the Offer for Subscription	1 p.m. on 8 December 2009
Close of Placing	Noon on 10 December 2009
Admission and commencement of dealings in C Shares	16 December 2009
Expected date for crediting of C Shares to CREST accounts in uncertificated form	16 December 2009
Expected date of despatch of definitive share certificates for C Shares in certificated form	Week commencing 21 December 2009
Conversion of C Shares into Ordinary Shares	January 2010

Introduction

The Company is a London listed, limited liability, Guernsey incorporated, closed-ended investment company. The Company makes infrastructure investments through a series of entities, including two wholly owned Luxembourg SOPARFIs and an English limited partnership (together with the Company, the "Group"). HSBC Specialist Fund Management Limited ("HSFML" or the "Investment Adviser"), an investment manager authorised and regulated in the UK by the Financial Services Authority, acting through members of its Infrastructure Investment Team, acts as Investment Adviser to the Company and as Operator of the Partnership.

The Company was launched on 29 March 2006 and has 373.6 million Ordinary Shares in issue which are admitted to the Official List and to trading on the London Stock Exchange Main Market. As at 30 September 2009 the Company had a market capitalisation of £424.7 million and the aggregate net assets of the Company on an investment basis were £409.8 million.

At the time of the Company's listing all the funds raised were fully invested or committed through the acquisition of the Initial Portfolio of 15 investments valued at £250.4 million as at 31 March 2006.

Background and reasons for the Issue

The Group acquired the Initial Portfolio shortly after launch in March 2006. In December 2007 the Company took out a £200 million multi-currency revolving credit facility with the Bank of Scotland plc. Over the period since launch the Group has acquired 16 further infrastructure investments, which have been financed by monies draw down under the credit facility (such outstanding debt, from time to time, being "Group Debt"), a 2008 issue of C Shares and tap issues. Since the Company's last C Share issue in May 2008 the Group has made 11 additional investments and, following the additional investments in two Police projects in November 2009, the aggregate of Group Debt and future subscription obligations is approximately £55 million.

The Group is currently in discussions in respect of acquiring a further 8 investments amounting to in excess of £100 million. The Investment Adviser is hopeful that the Group will be in a position to make an investment commitment of approximately £24 million to one of the opportunities in the pipeline prior to the closing of the Issue.

The Company is now proposing to raise up to £80 million (before expenses) or, if lower, the aggregate of existing Group Debt and any outstanding subscription obligations in respect of investments (in each case as at the date of the Placing) through the Placing and Offer for Subscription of C Shares. It is intended that the net proceeds of the Issue will be used to pay down existing Group Debt and meet outstanding subscription obligations. In order to implement the repayments of Group Debt, the Company will transfer to the C Share portfolio a pro rata share of the Current Portfolio with a value equal to the net proceeds of the Issue, in consideration for the purchase by the C Share portfolio of loan notes through the Group.

The repayment of existing Group Debt will provide the Group with greater flexibility in making further investments in the infrastructure market as suitable opportunities arise.

The Directors believe that the use of C Shares is the most appropriate way by which to raise further equity capital, as it will ensure that the portfolio value as at 31 December 2009 forms the basis for determining the price at which new Ordinary Shares are issued to investors upon the conversion of the C Shares. Furthermore, provided that the targeted minimum of £35 million is raised, the costs of the Issue will be fully borne by new investors and will not therefore dilute the Net Asset Value of existing Ordinary Shares.

The Prospectus relates not only to the issue of the C Shares, and the Ordinary Shares into which they will convert, but also sets out information in relation to the 36,735,000 Ordinary Shares issued between February 2009 and the date of the Prospectus.

Benefits of the Issue

The Directors believe that the Issue will have the following benefits:

• The Company will be able to repay existing borrowings, thereby freeing up the full extent of its loan facility for further investments in the infrastructure market as these opportunities arise;

• C Shareholder funds will be fully invested in the Current Portfolio shortly after the Issue, which will avoid the Company holding uninvested cash balances and will remove the potential effects of cash drag on Shareholder returns;

• Existing Shareholders will have the opportunity to subscribe for further shares in the Company, while other investors will be able to make an investment for the first time, and in each case subscription for C Shares will rapidly provide full exposure to the Current Portfolio of infrastructure assets;

• The market capitalisation of the Company will increase, and the secondary market liquidity in the Ordinary Shares is expected to be enhanced following conversion of the C Shares as a result of a larger and more diversified shareholder base; and

• The Company's fixed running costs will be spread across a wider shareholder base, thereby reducing the total expense ratio.

Directors' intention to subscribe

The Directors and their spouses intend to subscribe for, in aggregate, 300,000 C Shares pursuant to the Issue.

The Current Portfolio

The Current Portfolio consists of Infrastructure Equity (being subordinated debt and equity of a Project Company) in 31 Project Companies in the Government accommodation, education, health, transport, utilities and law and order sectors with a current value of £464.5 million1. It includes accommodation projects for the UK Home Office, Health and Safety Executive and the Ministry of Defence, a number of hospitals, schools, and police projects, a Ministry of Defence helicopter training facility, a high speed rail project for the Dutch state and a tranche of the junior loan in Kemble Water. The remaining lives of concessions within the Current Portfolio are between 8 and 322 years (this excludes the mezzanine debt in Kemble Water which has up to five years left to maturity).

Investment objectives

The Company seeks to provide investors with long term distributions, at levels that are sustainable, and to preserve the capital value of its investment portfolio over the long term with potential for capital growth.

The Company targets a progressive distribution policy and growth of its annual distributions to 7p per Ordinary Share by March 2013.

The Company is targeting an IRR of 7 to 8 per cent.3 on the original issue price of its Ordinary Shares in March 2006, to be achieved over the long term via active management, including the acquisition by the Group of further investments to complement the Current Portfolio, and by the prudent use of gearing.

Opportunities for new investments

The Investment Adviser is continually seeking suitable new infrastructure investments which meet the Group's Investment Policy and will have the required financial and risk characteristics to enable the Group to meet its investment targets.

Whilst there is no guarantee that suitable new investments will be found, the Investment Adviser is confident that through its leading market position and the HSBC network, new attractive investment opportunities will be sourced for the Group.

Investment performance

The Current Portfolio has performed better than the Company's projections at the time of launch. Over the period from 29 March 2006 to 30 September 2009, the Net Asset Value per Ordinary Share of the Company increased from 98.4 pence to 106.5 pence (after deduction of the 3.2 pence interim distribution). The Company announced on 12 November 2009 that the total value of the Current Portfolio as at 30 September 2009 was £464.5 million, representing a NAV of 109.7 pence per Ordinary Share.

The Company has outperformed the FTSE All Share Index on a total shareholder return basis by 38.6 per cent. over the period 29 March 2006 to 10 November 2009 and has provided an annualised total shareholder return of 9.59 per cent. over this period.

Investment opportunity

The Directors and the Investment Adviser believe that an investment in infrastructure assets offers the following features, which potentially compare favourably with an investment in other asset classes such as non-infrastructure equities and real estate:

• Low correlation to equity investment and limited exposure to economic and business cycles;

• Concessions which generally have central or local government counterparties, providing strong credit quality;

• A growing income stream supported by indexation of contract revenues;

• Underlying market demand for infrastructure remains strong worldwide - given political and economic imperatives and public budget constraints;

• Recent market turmoil in financial markets has highlighted the stability of PFI/PPP/P3 infrastructure assets; and

• Valuation of PFI/PPP/P3 infrastructure projects has been relatively stable reflecting the inherent value in the underlying income streams for assets in both primary and secondary markets.

The Directors also believe that an investment in the Company more specifically offers the following benefits:

• Offers Shareholders a growing dividend;

• Preservation of capital value of investment portfolios with potential for capital growth;

• A diversified portfolio primarily focused on equity investments in operational yielding assets with proven track record;

• Current Portfolio assets combine size and scale to maintain balance and diversification across portfolio;

• The Group has the possibility of purchasing additional equity in Current Portfolio projects, giving opportunity to enhance returns through benefits of scale;

• Management team has strength and depth in key skills - deal sourcing, deal structuring and portfolio management, enhancing returns on a low risk basis;

• The Group has debt facilities in place on attractive terms for Shareholders. Underlying projects have long term amortising debt and do not require refinancing;

• The Company provides investors with a range of information assisting them to understand how the Current Portfolio is performing;

• Access to HSBC global network gives the Group potential to source and execute deals. HSBC also provides potential supply of target assets from existing primary funds; and

• Management team has experience of operating in international arena where growth opportunities are strong.

Summary of Investment Policy

The Group's investment policy is to ensure a diversified portfolio which has a number of similarly sized investments and is not dominated by any single investment. The Group will seek to acquire further Infrastructure Equity investments with the characteristics of the Current Portfolio.

The Group will also seek to enhance returns for Shareholders by acquiring more diverse infrastructure investments. The Directors currently intend that the Group may invest in aggregate up to 35 per cent. of its total assets (at the time the relevant investment is made) in:

• Project Companies which have not yet completed the construction phases of their concessions; and/or

• Project Companies with "demand" based concessions where the Investment Adviser considers that demand and stability of revenues are not yet established, and/or Project Companies which do not have public sector sponsored/awarded or Government-backed concessions;

and to a lesser extent (but counting towards the same aggregate 35 per cent.) in:

• limited partnerships and other funds that make infrastructure investments and/or financial instruments and securities issued by companies that make infrastructure investments, or whose activities are similar or comparable to infrastructure investments.

The Investment Adviser and the Operator

HSFML is the investment adviser to the Company, and operator of the Partnership. Members of the Infrastructure Investment Team are responsible for carrying out the Investment Adviser's investment management and advisory functions for the Group. The Infrastructure Investment Team is one of Europe's most experienced infrastructure investment managers and has a strong track record.

Distribution policy

To date, distributions on the Ordinary Shares have been paid twice a year in respect of the six months to 31 March and 30 September, and have been made by way of dividend. This is expected to continue. The Company may also make distributions by way of capital distributions (or otherwise in accordance with Guernsey law and the Articles of the Company) as well as, or in lieu of, dividends, if and to the extent that the Directors consider this appropriate.

The Directors intend that the Company will generally restrict distributions (by way of dividend or otherwise) to the level of Distributable Cash Flows, and dividends to the level of income from the Group's investments, as recognised in the relevant financial year. The Directors may, where they consider this to be appropriate in respect of acquisitions where such assets are not fully cash generative, distribute as dividend an amount up to the level of the Group's gross income, i.e. in excess of Distributable Cash Flows. Project Companies which are operational usually make distributions to the Group twice a year, and occasionally these payments may be received shortly after a period end due to timing of payment process. The Directors intend to include such amounts in Distributable Cash Flows where it is clear these payments relate to the period concerned.

Borrowing policy

The Group makes prudent use of leverage. Under the Articles the Group's outstanding borrowings, including any financial guarantees to support outstanding subscription obligations but excluding internal Group borrowings of the Group's underlying investments, are limited to 50 per cent. of the Adjusted Gross Asset Value of its investments and cash balances at any time.

Discount control

In order to assist in the narrowing of any discount to the Net Asset Value at which the Ordinary Shares may trade from time to time, the Company may, at the sole discretion of the Directors:

• make market purchases of up to 14.99 per cent. per annum of its issued Ordinary Shares; and

• make tender offers for the Ordinary Shares.

Summary of Risk Factors

Risk factors affecting the Company and the C Shares include, but are not limited to, the following:

• There is no guarantee that the Company will achieve its investment objectives. An investment in the C Shares is only suitable for investors who have sufficient resources to be able to bear any losses that may arise from that investment (such losses may be equal to the whole amount invested).

• It is considered that almost 50 per cent. of the value of the Current Portfolio is comprised by investments in the Project Companies responsible for the Home Office Headquarters, DHSRL, Colchester Garrison and Kemble Water projects. If any circumstances arose which materially affected the returns generated by any of those Project Companies (or any other significant part of the Current Portfolio), the effect on the Group's ability to meet its investment objectives could be material.

• Project Agreements for infrastructure projects may be terminated in certain circumstances. The compensation a Project Company will receive on termination will depend on the reason for termination but in some circumstances the compensation received may be insufficient to repay Infrastructure Equity investment in the Project Company.

• Infrastructure projects rely on large and detailed financial models. Errors in the assumptions or methodology used in the financial models may mean that the investment return from the Project Company will be less than expected. Returns may also be affected negatively as well as positively by, inter alia inflation, lifecycle replacement costs and deposit interest rates where these differ from those assumed in the models.

• The financial models for Project Companies are typically based on the fact that construction and other risks of operating the relevant concessions are substantially assumed by subcontractors. The Project Companies may be exposed to cost or liability where this does not happen, for example, as a result of limits of liability, contractor default or insolvency or defective contractual provisions.

• Any change in law or regulation (including any general change in tax rates) or change in tax status of the Group or any Project Company in which the Group invests may adversely affect investment returns of the Group.

ISIN Number

The ISIN number of the C Shares will be GG00B597WD39.

Publication of the Prospectus

Two copies of the Prospectus dated 12 November 2009 have been submitted to the UK Listing Authority and will be available for inspection at the UK Listing Authority's Document Viewing Facility situated at: 

Financial Services Authority

25 The North Colonnade

Canary Wharf

London E14 5HS

Defined terms used in this announcement shall have the same meaning as ascribed to them in the Company's Prospectus dated 12 November 2009.

Footnotes

1    30 September 2009 valuation including £7.2 million of future loan stock commitments.

2    On the assumption that the break options are exercised in relation to the Bishop Auckland Hospital and the Helicopter Training Facility projects.

3    These are targets only and are not profit forecasts. There can be no assurance that these targets will be met or that the Company will make any distributions whatsoever or that investors will recover all or any of their investments.

CONTACTS

HSBC Specialist Fund Management Limited	020 7991 8888
Tony Roper Keith Pickard Sandra Lowe
Collins Stewart Europe Limited	020 7523 8000
Robbie Robertson Dominic Waters Neil Brierley Will Barnett David Yovichic Lucy Lewis
Oriel Securities Limited	020 7710 7600
Gavin Woodhouse Robert Tabor Nick Gregory Tom Durie Emma Ormond Gareth Price
M:Communications	020 7920 2330
Ed Orlebar James Hill

IMPORTANT NOTICES

This Announcement has been issued by and is the sole responsibility of the Company.

No representation or warranty express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Collins Stewart Europe Limited ("CS"), Oriel Securities Limited ("Oriel") or by any of their respective affiliates or agents as to or in relation to, the accuracy or completeness of this Announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

CS, which is authorised and regulated by the Financial Services Authority, is acting for the Company in connection with the Issue and no-one else and will not be responsible to anyone other than the Company for providing the protections afforded to clients of CS nor for providing advice in relation to the Issue, the contents of this Announcement or any other matter referred to herein. 

Oriel, which is authorised and regulated by the Financial Services Authority, is acting for the Company in connection with the Issue and no-one else and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Oriel nor for providing advice in relation to the Issue, the contents of this Announcement or any other matter referred to herein.

Neither the C Shares in the Company referred to in this Announcement (the "C Shares") nor the new Ordinary Shares in the Company into which they will convert (the "New Ordinary Shares) have been, or will be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act") or with any securities regulatory authority of any State or other jurisdiction of the United States, and accordingly may not be offered, sold or transferred within the United States except pursuant to an exemption from, or in a transaction not subject to, registration under the Securities Act. No offering of the C Shares or the New Ordinary Shares is being made in the United States or to U.S. persons as defined in and in accordance with Regulation S under the Securities Act ("U.S. Persons"). The Company has not been and will not be registered under the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act") and investors will not be entitled to the benefits of that Act. 

The distribution of this Announcement and the Placing in certain jurisdictions may be restricted by law. No action has been taken by the Company, CS or Oriel that would permit an offering of the C Shares or the New Ordinary Shares or possession or distribution of this Announcement or any other offering or publicity material relating to such shares in any jurisdiction where action for that purpose is required. Persons into whose possession this Announcement comes are required by the Company, CS and Oriel to inform themselves about, and to observe, such restrictions. 

This Announcement is for information purposes only and does not constitute an invitation to subscribe for or otherwise acquire or dispose of securities in the Company in any jurisdiction. The information contained in this Announcement is for background purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this Announcement or its accuracy or completeness, This announcement 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 therefor.

Certain statements in this Announcement are forward-looking statements which are based on the Company's expectations, intentions and projections regarding its future performance, anticipated events or trends and other matters that are not historical facts. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of such statements and, except as required by applicable law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The information contained in this Announcement is subject to change without notice and neither the Company nor CS nor Oriel assume any responsibility or obligation to update publicly or review any of the forward-looking statements contained herein. 

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