Tideway, the consortium chosen to build one of the UK’s largest greenfield projects, has made its debut US private placement by raising £300 million ($392 million; €335 million) from three investors.
The company, which will finance £3.1 billion of the Thames Tideway Tunnel’s £4.2 billion projected cost, had previously raised debt from private investors in Europe, notably the Pension Insurance Corporation, a London-based insurer of defined benefit pension funds, which agreed to lend £100 million in June 2016. That came on the back of a £700 million loan by the European Investment Bank in May that year.
It then issued two retail price index-linked bonds worth £50 million each and maturing in 2048 and 2054, respectively. Both are deferred-purchase dates – 2020 and 2021, respectively – allowing Tideway to receive most of the proceeds at a later date but with payouts locked in at 2016 rates.
The company is backed by a cast of infrastructure fund managers and institutional investors including Allianz, Amber Infrastructure, Dalmore Capital and DIF. The consortium was granted a licence to own and operate the project in August 2015. Thames Water is set to fund the portion of costs not covered by the group.
“This placement marks a significant step forward in de-risking the financing of our investment programme, as we now have secured approximately two thirds of our long-term financing needs,” said Mark Corben, chief financial officer of Tideway.
The TTT, which will be about 25km long and 7.2m in diameter, will run up to 65m below the river. Its purpose is to control or intercept discharges from more than 30 combined sewer overflow points across London, from Acton in the west to Stratford in the east. Its construction is expected to complete by early 2024, a few months later than initially envisaged.
Upon inception, the structure used to fund the TTT was presented as a breakthrough in the government’s efforts to attract institutional capital into greenfield projects. In particular, it is equipped with a ‘market disruption facility’, which enables investors to retain access to ongoing capital expenditure requirements when the capital markets are closed, thanks to a facility provided by the government.
There is also a financing cost-adjustment mechanism, which fine-tunes revenues in line with fluctuations in the market cost of debt, an attractive feature in today’s interest rate environment.