3i Infrastructure hit by market volatility

In its latest six-monthly results statement, the London-listed infrastructure investment firm saw mark-to-market declines and foreign exchange losses hit its return figures. But the fund delivered strong portfolio income, and said 81% of its portfolio was ahead of budget in performance terms.

3i Infrastructure, the listed UK infrastructure investment vehicle, delivered a total return of £15.9 million (€18.5 million; $25.4 million) in the six months to 30 September 2011. This compares with an equivalent figure of £31.1 million for the the six months to 30 September 2010. Over the same periods, the total return on shareholder equity went down from 3.4 percent to 1.6 percent.

Cressida Hogg, managing partner of 3i Infrastructure, told Infrastructure Investor that the outcome was “driven by the mark-to-market portion of the portfolio”. She added that we “can’t stay entirely immune” from market volatility.

Specifically, declines were seen in the value of Adani Power, the Indian energy giant – an investment held through the 3i India Infrastructure Fund – and Telediffusion de France, the French telecoms firm. In the statement, the firm pointed out that the falls were “in line with broader market declines in their respective sectors and asset classes”.

Foreign exchange losses were also recorded by the India fund as sterling appreciated against the rupee.

However, 3i Infrastructure is able to point to strong portfolio income generation of £36.8 million during the period and a 3.5 percent growth in EBITDA (earnings before interest, tax, depreciation and amortisation) of underlying operational equity investments compared with the prior period. Hogg said that 81 percent of the portfolio was ahead of budget in performance terms, while the remainder was on budget.

She added that 3i Infrastructure had now completely sold its junior debt portfolio, which had delivered a total return of 12 percent since the firm started making junior debt investments at low valuations in the wake of the Crisis in 2008/09. The firm raised £55.5 million from junior debt realisations during the reporting period.

Asked about current market conditions, Hogg said: “The market for everybody has been a bit more challenging. The banks are a bit more constrained and M&A volume is lower. But infrastructure is still seen as a great place for opportunities. The banks like the space and we’re excited about ongoing processes.”

Among those “ongoing processes” is the Thameslink train rolling stock Private Finance Initiative (PFI) transaction, for which 3i Infrastructure was selected as preferred bidder alongside German engineering giant Siemens and UK fund manager Innisfree earlier this year. The statement says that, in relation to Thameslink, “the bank market has been receptive and…debt should be available to finance the project in the right quantum and at sufficiently attractive terms”.

Earlier this week, activist investor Laxey Partners issued a call for 3i Group – in which it has a 1 percent stake – to distribute its 35 percent holding in 3i Infrastructure to shareholders. Laxey co-founder Colin Kingsnorth told The Times newspaper that the holding “makes no sense”. 3i has declined to comment.

3i Infrastructure listed on the London Stock Exchange in March 2007, raising £703 million in an initial public offering and a further £115 million in a placing and open offer in July 2008.