TIIC: Downsized but still investing

The Portuguese infrastructure fund was launched in 2008 with a target of €500m. Two years on, the fund has completed its fourth investment but is now targeting a less ambitious €200m. InfrastructureInvestor caught up with CEO Manuel Cary to learn about the fund’s strategy in the wake of the financial crisis.

The Transport Infrastructure Investment Company (TIIC), a Portuguese infrastructure fund, has just completed its fourth investment, acquiring a stake in a Polish highway public-private partnership.

But TIIC’s maiden investment outside of the Iberian Peninsula is being done in a markedly different climate than when the fund launched in early 2008. That is not lost on the fund’s chief executive, Manuel Cary, formerly with Portugal’s Millennium Investment Bank.

“Our original fundraising target of €500 million has proved to be too ambitious in light of the financial crisis. So we have revised it and are now hoping to soon reach a final close of €200 million,” Cary says.

TIIC reached its first close in May 2008 at €137.5 million. About 60 percent of that amount came from the fund’s core sponsors – Portuguese toll road operator Brisa, Millennium Investment Bank and Compagnie Benjamin de Rothschild. The fund’s other investors are institutional investors including pensions, life insurers and banks.

Launching without any seed assets, TIIC has to date committed €80 million to a mixture of greenfield and brownfield projects across Iberia and now Poland. But in the current economic climate, how are investors responding to a fund with a mixed portfolio?

“Contrary to expectations, they have been responding well,” Cary says. “Investors like the upside greenfield projects bring and they like the idea of balancing their increased risk with brownfield projects.”

TIIC’s investments include a 20 percent and 25 percent stake in two Portuguese road concessions in addition to an 8.33 percent stake in the new company resulting from the buyout of Cintra’s car parks division by Portuguese parking firm Emparque. Recently, it has created a joint venture with Polish construction company NDI that splits ownership of a 25 percent stake in the consortium which is building and operating a 152-kilometre stretch of Poland’s A1 highway.

Cary is particularly excited about the Emparque deal and thinks it has good potential for upside.

Emparque is Portugal’s largest car parks operator which was managing some 70,000 spaces before it bought the much larger Cintra Aparcamientos, which manages 300,000 spaces, for €451 million. The buyout was done through  a joint venture between Emparque’s shareholders and a group of financial investors, of which TIIC was one. As a result, the Portuguese firm is now the world’s fourth-largest car parks operator with a presence in Portugal, Spain and Turkey. 

“This deal is very promising because it has characteristics of infrastructure and private equity,” Cary says. “Following the acquisition, the two companies have started integrating and there are plenty of synergies between the two.”

That could net TIIC a tidy profit when it decides to sell its interest in the project. The fund has a 10-year life-cycle but expects to hold assets for an average of seven years. It is targeting annual returns of between 10 percent and 14 percent.

Cary approaches 2010 with caution but expects the second half of the year to bring more competition for deals. As for TIIC’s future investment plans, the chief executive keeps his cards to his chest but says the fund is eyeing several deals in Europe and Brazil, which he sees as a very promising market.