Portfolio Optimisation & Capital Allocation Update

International Public Partnerships

20 December 2023

 

Update on Portfolio optimisation and capital allocation

20 December 2023

International Public Partnerships Limited, the listed infrastructure investment company ('INPP' or 'the Company'), is pleased to announce a series of measures to optimise the Company's portfolio and reallocate capital to improve shareholder returns. These initiatives build on the steps the Company has previously taken to address the discount at which its shares are trading relative to their Net Asset Value ('NAV').

c.£200 million Offshore Transmission Owner ('OFTO') investment realisation

The Company has completed a transaction involving the realisation of its four OFTO senior debt investments as well as the addition of prudent leverage to the Lincs OFTO (together, the 'OFTO realisation').

The four senior debt investments have been realised at a modest premium to the most-recently published valuations demonstrating the robustness of the Company's NAV. The Company will continue to retain its existing equity and subordinated debt interests in these four OFTOs. Leverage within the Lincs OFTO has increased to c.70% as part of the transaction, which is still considered low in the context of a typically-structured OFTO investment, while enhancing INPP's returns from its investment in the project.

The OFTO realisation will enhance key portfolio metrics and will generate cash proceeds of c.£200 million which will be received by INPP before the end of January 2024 and are expected to be used as set out below.

Full repayment of Corporate Debt Facility ('CDF')

The Company currently has cash drawings of c.£80 million under its £350 million CDF. Previously INPP has announced that, while only modestly utilised, reducing the drawn balance of the CDF was a priority.  It is therefore pleased to confirm that £80 million of the proceeds from the OFTO realisation is intended to be used to fully repay the CDF cash drawings in January 2024. This repayment will reduce the Company's financing costs and is consistent with the Company's previously-stated focus on efficient balance sheet management.

Acquisition of Moray East OFTO

In March 2022, Ofgem appointed the Company as its preferred bidder in respect of the offshore electricity transmission assets connecting to the Moray East wind farm located in the Moray Firth off the coast of Scotland.

The Board has carefully considered the merits of completing the acquisition of the Moray East OFTO in light of capital allocation priorities. The projected returns from acquiring the Moray East OFTO are believed to be favourable relative to alternative capital allocation options and given the capital now available to the Company as a result of the OFTO realisation, the Board believes that the acquisition of the Moray East OFTO is in the best interests of shareholders.

The Company therefore expects to invest up to c.£85 million into the project upon financial close which is currently anticipated to be in the first quarter of 2024.

At financial close, the OFTO will be granted a 23-year revenue period during which it will have no exposure to electricity production or price but will be paid an availability-based revenue stream linked to UK inflation (as measured by the Retail Price Index).

Moray East OFTO will be the Company's eleventh OFTO investment and will further increase the Company's contribution to the UK's transition to a net zero carbon economy. The Moray East OFTO has the capacity to transmit sufficient renewable electricity to power the equivalent of c.1.0 million homes, increasing the total equivalent across the Company's OFTO portfolio to c.3.7 million homes.

Share buyback

The Company has previously stated that once it has fully repaid the cash drawings under its CDF, it would be in a position to consider further measures designed to reduce the discount to the NAV at which the Company's shares are trading.

Given the anticipated full repayment of the CDF in January 2024 and the Board's continued belief that the current share price materially undervalues the Company, the Board has elected to allocate a portion of the proceeds from the OFTO realisation towards a share buyback.  Accordingly, the Board intends to commence a share buyback programme of up to £30 million in early 2024. It expects the programme to run for a period of up to twelve months. The Board believes that while the shares trade at a significant discount to their NAV, the acquisition of the Company's shares is an attractive investment. As further funds become available, the Board may consider increasing the allocation to the buyback.

Portfolio impact and shareholder returns

The Board has proactively undertaken the measures noted above to optimise the portfolio and reallocate capital because it believes it is in shareholders' best interests. Together, the Company expects these measures to have a modestly positive impact on its NAV per share and enhance key portfolio metrics including total return, inflation linkage and sector diversification on account of the expected net reduction in exposure to the OFTO sector to c.19% (30 June 2023: 22%).

The full repayment of the CDF in January 2024 is consistent with the Company's previously-stated focus on efficient balance sheet management and the Company does not currently anticipate needing to draw on the CDF to fund its near-term committed investment pipeline of c.£17 million which includes the Gold Coast Light Rail 3 and Flinders University projects.

The Company remains on track to meet its 2023 dividend target of 8.13 pence per share[i]. The interim 2023 dividend of 4.06 pence was paid on 17 November 2023 and the remaining 4.07 pence is expected to be paid in June 2024. Beyond 2023, the Board will keep the Company's dividend policy under review, nevertheless, it is currently forecasting to continue its long-term projected dividend growth rate of c.2.5%, such that the 2024 dividend target is currently 8.33 pence per shareⁱ.  All dividends are expected to be fully covered by net operating cash flows.

Finally, the Board will continue to actively monitor the Company's share price and consider what further actions it may need to take should the shares continue to trade at a significant discount to their NAV.

For further information:

Erica Sibree                                                                  [phone]

Amber Fund Management Limited                                                         

Hugh Jonathan                                                                   [phone]

Numis Securities             

Ed Berry / Mitch Barltrop                                                     [phone] / (0) 7807 296 032
FTI Consulting

About International Public Partnerships (INPP):

INPP is a listed infrastructure investment company that invests in global public infrastructure projects and businesses, which meets societal and environmental needs, both now, and into the future.

INPP is a responsible, long-term investor in over 140 infrastructure projects and businesses. The portfolio consists of utility and transmission, transport, education, health, justice and digital infrastructure projects and businesses, in the UK, Europe, Australia, New Zealand and North America. INPP seeks to provide its shareholders with both a long-term yield and capital growth.

Amber Infrastructure Group ('Amber') is the Investment Adviser to INPP and consists of over 170 staff who are responsible for the management of, advice on and origination of infrastructure investments.

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[i] Future profit projections and dividends cannot be guaranteed. Projections and targets are based on current estimates and may vary in future.

 

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