HSBC Infra back in the black and looking to invest

The UK’s first listed infrastructure fund has returned to profit for the year ending March 31 2010. The fund expects a slowdown in the PFI primary market but is looking to continue purchasing in the secondary market.

HBSC Infrastructure Company (HICL), the UK’s first listed infrastructure fund, is back in the black with a pre-tax profit of £25 million (€29 million; $36 million) for the year ending March 31 2010.

The fund – which mostly invests in projects that form part of the UK’s project finance initiative (PFI), a standardised government procurement process that tenders projects to the private sector – posted a loss of £22 million in the previous comparable period.

HICL spent £68 million during its last financial year acquiring six stakes in PFI projects across the UK, taking advantage of increased activity in the secondary market “as the recession motivated contractors and financial institutions to dispose of PFI/PPP assets to enable them to generate profits on sale and de-leverage or recycle capital,” the fund said in its full-year results statement.

The fund expects this trend to continue in these “uncertain economic times”, providing opportunities for further acquisitions in the secondary market, from which HICL makes its investments, the vehicle said. However, chairman Graham Picken warned he expected a slowdown in the primary market for UK PFI projects, as the country’s new coalition government “determines its spending priorities”.

The new investments helped HICL increase its portfolio valuation by 14 percent to almost £510 million compared with about £446 million in the year ending March 31 2009. It now holds stakes in 32 PFI/PPP projects – all operational and with no refinancing risk – and one investment in a junior loan to a UK utility, HICL said. It is looking for new acquisitions in the PPP space across the UK, Europe and North America as well as operational renewable energy projects.

But HICL will also look at potential investments in regulated utilities – although the fund recognises most opportunities in the sector are too large for it – and providing debt funding for infrastructure projects.

HICL successfully raised £128 million (before expenses) through a C share capital raising of £80 million last December, which was oversubscribed by 50 percent. This strong demand for its shares allowed it to utilise the block listing to place a further 43.1 million shares in the year. It added that the fund’s “directors will consider further opportunities to use this listing as and when new acquisitions are made or are imminent”.