HICL sells UK schools to PIP fund

The London-listed vehicle, which divested the asset through a competitive process, sees potential for cashing in on high valuations through ad-hoc disposals.

HICL Infrastructure Company (HICL), the largest London-listed infrastructure investment fund, has sold its entire interest in the Fife Schools Private Finance Initiative (PFI) project to a vehicle raised by the UK’s Pensions Infrastructure Platform (PIP).

The fund was exposed to the project through a 50 percent equity and subordinated debt stake as well as 100 percent of Fife’s junior debt. PIP is acquiring the package through its PPP Equity PIP limited partnership, a vehicle managed by London-based Dalmore Capital (Dalmore).

The disposal was triggered by one of HICL’s co-shareholders’ decision to divest its stake in the Fife project, as was the case when the fund sold its interest in Colchester Garrison to a subsidiary of Germany’s Allianz, the PPP Equity PIP fund, and Dalmore Capital Fund II in February.

The vehicle stands to pocket a £600,000 (€800,000; $900,000 million) profit on the sale, after posting a £21.7 million net gain on the Colchester disposal. With £460 million spent on investments in the two years to end March, HICL now has a portfolio comprising 100 assets.

Although HICL largely sees itself as a buy-and-hold investor, it sees the recent rise of operating infrastructure assets’ valuations as an opportunity to cash in on a number of investments to boost distribution and reinvest proceeds.

At a press briefing organised this morning by InfraRed Capital Partners, the London-based manager of HICL, team head Tony Roper acknowledged that appetite for availability-based and regulated assets was growing, making the outcome of competitive processes both less certain and more conducive to overpricing.

He explained HICL still took part in auctions – but with the general objective of getting an insider’s view on asset pricing. Mostly, he added, deals were now being sourced through “relationships”. Meanwhile high valuations provided opportunities for early – and lucrative – realisations.

Roper was not afraid of an expected change in the financing macro-environment, which in principle could in due course lead HICL shares to trade at a lower premium, thus impacting shareholder returns.

He reckoned a rise in short-term interest rates would actually bring in revenues to the fund, which holds a significant amount of cash on deposit. Meanwhile a change in long-term rates, he assessed, would have a limited impact on discount rates, thereby leaving valuations largely unchanged.

The deal comes just a week after Dalmore announced having raised more than £500 million for the PPP Equity PIP fund, which has a £600 million target. The manager expects to have the vehicle fully deployed within the coming 18 months.