Listed infrastructure fund International Public Partnerships (INPP ) issued a jam-packed announcement on Wedensday stating it is on track to pay off its corporate debt facility and will deploy buybacks to tackle its double-digit discount after an asset sale generated £200m of fire power.

Following through on its intentions earlier this month, Amber Infrastructure, the manager of the £2.6bn fund, realised four offshore transmission owner (OFTO) senior debt investments at a modest premium, the proceeds from which will be used to pay off the £80m drawn on its £350m debt facility in January.

The board will also commence a share buyback programme of up to £30m at around the same time, which it expects to run for twelve months to tackle its double-digit discount to net asset value. As further funds become available, the board may consider increasing the allocation to the buyback.

Shares in the fund rose 1.5% to 137.40, an 11% discount to the June NAV, on Wednesday morning, in part owing to falling UK government bond yields and positive market movements.

INPP said it will retain its existing equity and debt interests in these four OFTOs, which operate and maintain offshore electric power transmission infrastructure in Great Britain, while increasing leverage within the Lincs OFTO 70% as part of the transaction. It emphasised this remained low for this type of investment.

The 5.8%-yielder will use the remaining £85m of the proceeds to go ahead with the previously flagged acquisition of Moray East OFTO, for which it was awarded preferred bidder by Ofgem. The deal is expected to reach financial close in the first quarter of next year.

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.

The board said it expects these measures to ‘have a modestly positive impact’ on the net asset value (NAV) per share and ‘enhance key portfolio metrics including total return, inflation linkage and sector diversification’. 

The decisions reduce the exposure to the OFTO sector from 22% to 19%. 

The board also flagged it shouldn’t need the debt facility to fund its short-term committed investment pipeline of £17m, which includes the Gold Coast Light Rail 3 and Flinders University projects.

INPP remains on track to meet its 2023 dividend target of 8.13p per share, which will be paid in June. The board is forecasting a dividend growth rate of 2.5%, with the 2024 dividend target currently 8.33p, which is expected to be fully covered by net operating cash flows.

Analyst views

Winterflood’s James Wallace said INPP’s update provide further evidence of asset valuations, adding that recycling capital is a particularly important exercise when markets lack confidence. 

‘While we note the small size of the buyback only representing c.1.2% of share capital, the board has left the door open for an increase to the buyback programme as further funds become available,’ he added.

Retaining his ‘buy’ recommendation, Stifel’s Iain Scouller said investors should pin their hopes for discount narrowing and price rises on improved sentiment towards the infrastructure sector, with interest rates peaking and the UK’s better-than-expected inflation figures helpful in that regard.

Year to date, the 143-strong portfolio of assets across the UK, Europe, North America, Australia and New Zealand has delivered returns of 2.5%, while the shares have dropped 5.4%, according to Numis.