Balfour Beatty reaps £51m profit from two PPPs

The attractiveness of the UK’s secondary PPP market was underlined by the sale to fund manager Dalmore Capital.

UK developer Balfour Beatty has sold two public-private partnership (PPP) interests to funds managed by Dalmore Capital for a total of £97 million (€119 million; $162 million), representing a total gain on disposal of £51 million.

The sale involved a 50 percent stake in the University Hospital of North Durham PPP and a 100 percent stake in the Knowsley Building Schools for the Future (BSF) project.

Compared with Balfour Beatty directors’ valuation of the stakes, the sales delivered an additional £44 million – representing an uplift of 82 percent.

The sale of the Knowsley interest for £42 million is expected to complete shortly, while the £55 million Durham sale remains subject to the rights of a co-shareholder to exercise pre-emption rights at the proposed sale price. The latter sale is expected in mid-July.

The £90 million contract for the design, build, finance and operation (DBFO) of the 566-bed University Hospital of North Durham was enacted in March 1998. The project was for 30 years in total, with a three-year design and construction phase and a 27-year operational stage. It is currently in its 13th year of operations.

The £180 million Knowsley DBFO contract to build seven schools was entered into in December 2007 and then adjusted in 2011 to allow for the construction of a ‘special educational needs’ school. The 27-year project (which included two years of construction) is currently in its fifth operational year.

Balfour Beatty said the proceeds would be used to invest in new and existing projects “in areas that align with the group’s target geographies and market sectors”.

In May this year, Balfour Beatty announced the departure of chief executive Andrew McNaughton after just a year in the job following a profit warning. One bright spot was that PPP disposals were generating higher gains than expected – a trend that has clearly continued in the face of a wilting primary UK PPP market and strong competition for secondary assets.

Formed in 2009, Dalmore Capital has £350 million in funds under management and reached a £130 million first close on its Dalmore Capital Fund in October 2012. In February this year, it announced that it had raised £260 million for the PPP Equity PIP Fund, the first fund launched by the low-cost Pensions Infrastructure Platform initiative.