Digital 9 drops Triple Point, hires InfraRed to manage its wind-down
InfraRed Capital Partners, manager of HICL Infrastructure (HICL ) and Renewables Infrastructure Group (TRIG ), is to wind down the remaining assets of Digital 9 Infrastructure (DGI9) after the company’s board decided it would part ways with Triple Point Investment Management.
The decision is the culmination of a review the board began in March when it served notice on Triple Point and shareholders voted to wind down the company whose share price has plunged 82% since launch in 2021.
It also considered retaining Triple Point on different terms or becoming a self-managed company running the liquidation by itself.
InfraRed will take over the battered portfolio shortly, having been selected for its infrastructure expertise and knowledge of Arqiva, the telecommunications group that is one of DGI9’s biggest remaining, and trickiest, assets.
James O’Halloran, a partner in InfraRed’s European investments team, will lead the disposal efforts, assisted by former TRIG manager Richard Crawford in his role as senior adviser to the group. The pair both worked on the flotation of HICL in 2006.
InfraRed will earn a fixed annual fee of £3.75m for the first 36 months, falling to £1.75m a year until the last of DGI9’s assets is sold. It will also earn a performance fee to incentivise it to gain the maximum payout for shareholders. This is set at 3.5% of distributions between £225m and £300m, rising to 4.75% of capital returns above £300m.
Shares in DGI9, which floated at 100p in March 2021, rose 1.1p, or 6.5%, to 18.7p, in hope that InfraRed could revive a sales process that the board has said was going slower than expected.
‘Although this appointment does little to rectify the value destruction that shareholders have suffered over the past 18 months, we expect many will take comfort from InfraRed’s experience in executing divestments across a range of core and value-add strategies including digital,’ said Deutsche Numis.
Shonil Chande, analyst at Panmure Liberum, said it was a significant development nearly two years since the sudden departure of its original two lead managers from Triple Point.
‘While the road ahead towards salvaging value from the remaining assets will continue to pose challenges, the fact that InfraRed, a very well-regarded manager and a major player within investment trusts and beyond, has elected to take on this mandate is indicative of potentially better underlying prospects than the market has believed by ascribing a <20p value on the shares,’ he said.
Sachin Saggar at Stifel, however, was unconvinced by InfraRed’s track record on digital infrastructure given it was limited to eight assets. He said the fees looked high with the £3.75m equivalent to 0.93% of DGI9’s £403m net assets and 2.5% of the £152m market value.
He also questioned the performance fee starting at distributions over £225m or 26p NAV per share. ‘What does this say about the 30/09/24 NAV which was only just released at 46.59p? Perhaps shareholders should re-calibrate their thoughts to a much lower base and why should investors pay a performance fee on realisation below NAV?’