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3i Infrastructure targets fresh investments

The quoted infrastructure manager has raised £340m in equity and debt to fund its future infrastructure acquisitions, as it delivers ahead of initial return targets and looks to capitalize on market distress.

3i Infrastructure, a quoted fund advised by the FTSE-listed private equity firm 3i, has raised £115 million ($223.8 million; €145 million) through a placing and open offer of new shares to international investors at 106p a share.

In an interview with PERE's sister website PEO, Michael Queen, 3i’s managing partner for infrastructure, said the additional capital meant the fund was well placed to take advantage of market conditions. He said: “Lots of assets are owned by big institutions like banks and construction companies, which have been hit by the credit squeeze. One of the ways to raise capital is to sell.”

There are more mature assets coming to market and there is less capital to fund new assets, he said.

The company was able to access the debt markets throughout the period from January 2007 to the end of March this year, not only to finance and refinance its investments, but also to raise its own £225 million credit facility at the end of March, at terms that it said were attractive in the current environment.

Queen said: “We also took the opportunity to de-risk by buying some of the debt of our portfolio. It was trading at around 80p in the pound. If we hold that to maturity it will give us a return of 15 percent and generate a cash yield of 10 percent. It delivers our overall return objective at lower risk.” It has committed £86 million to buying debt including three junior debt tranches in Viridian, Thames Water and National Grid Wireless.

The company achieved a total return, on a consolidated IFRS basis, of £89 million, representing a 12.9 percent return on opening shareholders’ equity.

On an investment basis, which the board uses as the primary basis to monitor performance, the company achieved a total return of £91 million or 13.1 percent ahead of its 12 percent return objective and ahead of the target set out at IPO.

The board is proposing a final dividend of 3p per share, making a total dividend for the period of 5p per share, or 5.1 percent of net IPO proceeds, which meets its annual distribution yield objective earlier than targeted.

The company invested £442 million over the period, or 64 percent of the net proceeds raised at IPO. Including undrawn commitments at 31 March 2008, 3i Infrastructure had invested £613 million, or 88 percent of net IPO proceeds.

New investments in the period included the acquisition of a 45 percent interest in three subsidiaries of Oiltanking, based in the Netherlands, Malta and Singapore and the commitment to the 3i India Infrastructure Fund, whose final closing, at $1.2 billion, was announced by 3i Group in April.

The commitment to the fund is of significant strategic importance for the company, as it allows exposure to a diversified portfolio of infrastructure assets in India at no additional cost in terms of fees payable to the fund’s investment manager.

A source close to the company said it had no plans for any other emerging markets in the immediate future.