Analysts wary of 'unwarranted' HICL and TRIG mega-merger

Trust analysts have flagged concerns about the ‘unwarranted’ mega-merger between HICL Infrastructure (HICL ) and Renewables Infrastructure (T RIG ), warning that it has put the portfolios ‘in play’ and at the mercy of other bidders.

The trust giants, which both sit in the bedevilled alternatives sector, have shocked the market with plans to create a more than £5.3bn trust sitting under their shared manager InfraRed Capital.

The deal, which leaves the enlarged trust poised for entry into the FTSE 100, would see TRIG’s assets rolled into HICL, with the former’s shareholders given an option to cash out up to £250m.

The merger of HICL and TRIG follows another busy year for consolidation in the investment trust industry, and the deal brings with it promises of unlocking greater opportunities and liquidity. It also hopes to narrow the wide discounts that have blighted both trusts and the alternatives sector this year.

However, not all analysts are convinced that the creation of such a huge vehicle will be of benefit to shareholders.

Stifel analyst Iain Scouller warned that both HICL and TRIG will now be viewed as ‘in-play’ by other potential suitors.

‘There must be a high risk for InfraRed, that rather than consolidating its position in managing both companies, it ends up losing them to other bidders,’ he said.

Scouller added that while a merger is ‘a good deal for InfraRed’ and the boards of both trusts given all members will keep their jobs, he questions whether it is what shareholders want.

Strategy shift

While HICL and TRIG share a number of shareholders – Rathbones being the biggest investors in both, owning over 20% of the combined vehicle − and a merger would make it administratively easier for wealth managers invested in them, there are concerns that the lack of overlap in strategies could cause issues for investors.

Source: Refinitiv data 17/11/25

TRIG, on the wider discount of the two at 34% versus HICL’s 23%, has the greater exposure to renewables and Scouller said shareholders ‘either want exposure to renewables or infrastructure, but not both’.

‘We prefer the infrastructure sector to renewables given the steadier, more predictable cashflows from infrastructure,’ he said.

Jefferies analyst Matthew Hose said he was supportive of consolidation in the trust sector but the proposed merger between HICL and TRIG is ‘an unwarranted solution’ for both.

He flagged the increased exposure to renewables that HICL will be subject to as a stumbling block for some investors, which is already playing out in the share prices today as HICL shares are down more than 8% and TRIG’s shares are up almost 3%. 

‘HICL needs more of a roadmap on how its portfolio will develop over time, but the incorporation of renewables into its investment policy is unlikely to be welcomed by shareholders given a different risk profile – power prices, generation, subsidy risks – and despite the resulting enhancement to its dividend under the proposals,’ said Hose.

The HICL portfolio is mainly built on public-private partnerships (PPP) and private finance initiatives (PFI) and a roll-in of the TRIG assets would ‘materially’ increase exposure to renewable subsidy and power price risks, said Markuz Jaffe, analyst at Peel Hunt.

He added that ‘both companies have multiple top shareholders in common, which may act to increase the chance of the proposals being approved’.

Ramping up returns

It is not a surprise that TRIG shares have pushed higher this morning given the offer being made, as shareholders can enjoy a cash exit at a 37% premium to its last closing price. The exit deal being offered is for 15% of shares at a 10% discount to the 30 September net asset value (NAV) per share of 109.7p.

If the full £250m worth of shares are cashed in, HICL shareholders are expected to hold 56% and TRIG shareholders 44% of the combined trust.

Winterflood analyst Ashley Thomas said the deal is ‘clearly positive’ for TRIG shareholders and the attraction for HICL ‘is less clear’ but does raise both NAV return targets from 8% to 10%.

He added that the dividend yield for HICL investors will be raised from the current 7% to 7.6% based on the trust’s current share price.

Although TRIG has a current yield of 10.3%, Jaffe said the 9p per share dividend target actually represents an increase for both strategies, as HICL is targeting 8.5p for full-year 2027 and TRIG is aiming for 7.55p in the current full year.

The fund will also benefit from ‘aftermarket liquidity support’ promised by SunLife, the parent company of InfraRed Capital, which has agreed to purchase £100m of shares following the completion of the merger, said Jaffe.

Jumping the gun

The positives of the deal appear to lean in TRIG’s favour, and while there are clear benefits for investors, Hose noted that the trust already had a continuation vote marked into next year’s diary that ‘offers its shareholders the opportunity to voice their opinion on the future strategy of the fund’.

He said the diversified portfolio of battery storage, solar parks and onshore and offshore wind farms, had ‘potential realisation opportunities’ that could have delivered a ‘capital return of greater than the 10% of NAV currently being offered’.

Scouller also wondered whether this latest round of consolidation would deliver what it set out to do.

‘Whilst investors are hoping for corporate action to enhance shareholder value, we do question the merits of mixing these two asset classes, with their different characteristics and arguably diluting the positive points from both portfolios,’ he said.