HICL sells seven assets for £225m to fund share buybacks

HICL Infrastructure is continuing its battle against its stubborn discount, selling a portfolio of seven assets to a Dutch pension fund to raise cash.

HICL Infrastructure (HICL ) has sold a portfolio of seven assets for £225m, which it will use to pay down debt and continue its buyback programme as the share price discount remains a stubborn 22%.

The £2.9bn investor in public-private partnership (PPP) and private finance initiatives (PFI) in the UK and beyond has confirmed the sale of seven assets to APG, the largest Dutch pension services provider, for £225m.

It has offloaded 50% of its investments in Southmead Hospital in Bristol, and Pinderfields and Pontefract Hospitals in Yorkshire, where HICL will continue to own stakes of 31.2% and 50%, respectively. HICL is a long-standing investor in the hospitals and ‘significantly de-risked’ Southmead following the bankruptcy of construction and facilities management group Carillion in 2018.

HICL also sold its entire equity interest in four UK LIFT projects – which are part of the Department for Health’s national ‘local improvement finance trust programme’ (LIFT) that spans 49 areas – and its full interest in Edinburgh Schools.

The £225m price tag is in line with the last valuation of the assets at the end of March and the majority of the cash will be received upon completion, with a £14m deferred payment due by the end of June next year.

Big buyback continues

The latest deal brings realisations at HICL to £725m over the past two years, and will allow the trust to progress its ongoing share buyback programme, which it has been using to bring down it double-digit discount, as well as fully repay the £30m drawn on its revolving credit facility, and meet existing investment commitments of around £110m.

The trust bought back 89.4m of shares under its expanded £150m share buyback programme between 1 April and 15 August, using £30m from its RCF to fund the repurchases – an option it considers when the shares are trading at a more than 15% discount to NAV. 

The shares, which rose 1.2% following the news, closed on Friday at 22.1% discount that is almost exactly in line with the average over the past year, according to Deutsche Numis data.

Edward Hunt, head of core income funds at InfraRed, which manages the trust, said the sale ‘improves key portfolio metrics for HICL and reflects InfraRed’s ability to execute highly targeted divestments’.

‘It also reinforces the through-cycle attractiveness of high-quality infrastructure assets, with pricing that underscores the company’s robust NAV and highlights the continued dislocation between public and private markets,’ he said.

InfraRed, will continue to manage the assets sold to APG under a separate agreement and as part of the transaction has agreed a ‘partnership framework’ with APG which ‘provides the opportunity to pursue further divestments over time’ and the option to co-invest in new assets.

In a similar move, Bluefield Solar Income Fund (BSIF ) today announced the sale of another £38m of green energy assets under its own partnership with GLIL Infrastructure.

JPMorgan Cazenove analyst Christopher Brown said the portfolio sale was ‘good news’ as it allows HICL to ‘repay its relatively expensive short term debt and fund share buybacks that are accretive to NAV’.

The deal also reduces the portfolio’s exposure to healthcare asset, from 22% to 16% – the sector houses ‘some of the more complex assets within the PPP spectrum from an operations perspective’. 

Dividend on track 

The infrastructure giant also provided a broader update that confirmed ‘solid operation performance across the portfolio’, although did not provide a fresh NAV valuation for the portfolio.

The trust remains on track to deliver a covered target dividend of 8.35% in the year ending March 2026, and the board reiterated its 8.5p dividend target for the following year.

HICL delivered a positive update on its largest holding Affinity Water, which makes up 10.8% of the portfolio and has enjoyed ‘strong operational performance’ despite warm and dry weather. 

By the end of next March, HICL still expects to complete a £50m equity investment and for Affinity to resume paying dividends. 

This follows the Cunliffe Review of the UK water sector that has set out recommendations including a streamlining of the regulatory regime.

‘The company welcomes the conclusions of the review and will continue to monitor its implications for Affinity Water over the coming years,’ said the trading statement.

More generally, HICL’s management said the portfolio was ‘well positioned’ given free cash generation is trending upwards. The statement added: ‘Successful disposal activity and sound capital allocation have provided significant financial flexibility while enhancing long-term portfolio construction.’

As the shares have derated, investors in HICL are down 12.3% over three years, including dividends reinvested, while the Infrastructure sector tracked by the Association of Investment Companies is down 9.2% on average.