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HICL Infra ignores Labour threat with £100m fund-raising

2 December 2019

HICL Infrastructure defies political uncertainty of general election and hits its share placing target although the new equity is priced at unusually small premium.

HICL Infrastructure (HICL) has hit its £100 million fund raising target in a placing of new shares at 160p.

Although the 5% yielding social infrastructure fund decided not to increase the size of the issue, as it indicated it might last month, it said the offer was ‘materially over-subscribed’ with investors’ applications having to be scaled back.

Chairman Ian Russell said he was ‘delighted’ with the fund raising, the timing of which had surprised analysts coming weeks before a general election. This could usher a left-wing Labour government under Jeremy Corbyn committed to nationalising some of the hospital private finance initiatives (PFI) in which HICL invests.

‘This represents a strong endorsement of HICL's investment proposition, which is to deliver long-term, stable income from a diversified portfolio of core infrastructure investments which sit at the heart of communities,’ said Russell.

HICL launched its first share issue for two-and-a-half years to fill a £90 million funding gap following its investment in the transmission link from the Walney Extension wind farm off the Cumbrian coast.

The hiatus in fund raising was caused by growing political opposition to the use of PFI in the NHS. in 2017/18 Labour’s hostility caused HICL’s shares to lose their premium rating, preventing it from issuing new equity without diluting existing investors.

Although the shares had re-rated this year, making a share issue possible, Numis Securities analyst Ewan Lovett-Turner said political nervousness could be detected in the price of the 62.5 million new shares, which will start trading tomorrow.

The 160p share price was not announced in the fund raising but was set during a ‘bookbuild’ by the company’s joint brokers Investec and RBC Capital Markets.

Lovett-Turner said this represented a ‘relatively modest’ 2.7% premium over HICL’s net asset value (NAV) at 30 September, excluding the 2.06p dividend that the new shares will not receive.

This was in contrast to the last share issue in June 2017 at a 12% premium to NAV, he said.

‘This perhaps reflects the political uncertainty around the around the upcoming election and in the second half of 2019, HICL Infrastructure wrote down the value of its regulated water company, Affinity Water, reducing NAV by 2.2p (1.4%), given the regulatory price review,’ said Lovett-Turner.

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