26 January 2018
HICL Infrastructure Company Limited
Update on Service Provision
HICL Infrastructure Company Limited ("HICL" or the "Company"), the listed infrastructure investment company advised by InfraRed Capital Partners Limited ("InfraRed" or the "Investment Adviser"), is making this announcement in order to provide an update to shareholders following the compulsory liquidation of Carillion plc ("Carillion") that was announced on 15 January 2018.
Operational update
HICL's priority is the continuation of services to public sector clients and the users of the facilities at the affected PPP projects. Service delivery in the period since Carillion's liquidation has been stable, with no material issues, thanks to the hard work and commitment of staff, suppliers, public sector clients and project company management teams. Assisted by InfraRed's Asset Management Team, project company management teams are also in dialogue with PwC, the Special Managers, to ensure that funds continue to flow to the Carillion subsidiaries that are being administered by the Official Receiver, in order to facilitate payments to staff and suppliers.
The Company has made good progress implementing its contingency plans, specifically preparing for a transition of service provision from the administered Carillion subsidiaries into interim arrangements with the previously identified replacement operators as soon as is practical. The timely implementation of these arrangements, and of the ultimate objective of securing replacement operators for the long-term, is subject to continued constructive dialogue with key stakeholders.
Financial impact
The Company previously announced that 10 projects within the HICL portfolio1 had facilities management subcontracts with Carillion subsidiaries. The liquidation of Carillion has triggered loan agreement defaults at most of these projects and, although the projects' lenders are currently supportive of the actions under way, those projects will be unable to make distributions whilst they remain in default. This situation is expected to continue until long-term replacement operators are in place, a process that the Company anticipates will take a number of months.
As at 30 September 2017, approximately 2% of the HICL portfolio was in construction, but Carillion was not the construction contractor on any of those projects. There are, however, five further projects in the portfolio where Carillion was the original construction contractor and, at the time of the liquidation, held responsibility for latent defect risk. Although as a result technically in default under their loan agreements, the Investment Adviser is confident that these will be resolved with lenders.
Under the PPP contractual framework, facilities management counterparty risk is transferred from the public sector to private sector. Responsibility for securing replacement contractors therefore sits with PPP project companies, and the associated risks fall in the first instance upon investors such as HICL. Using the information currently available, the Investment Adviser has developed a preliminary assessment of the financial impact of Carillion's liquidation on the Company. This has been discussed with, and reviewed by, the Board. Based on current information, the impact is estimated at approximately £50m of NAV (equivalent to 2.8p of NAV per share, or 1.8% of NAV per share as at 30 September 2017), which is incremental to a provision of £9.4m that was taken at the time of the Company's Interim Results in respect of counterparty exposure.
This assessment incorporates assumptions around the expected costs of the transition phase; the anticipated timing and costs of implementing long-term solutions; delays to distributions at project level; and a view on the possible impact on the valuation of these projects as at 31 March 2018. The Company will further update shareholders at the time of the Annual Results, unless the Investment Adviser's assessment of the financial impact changes materially in the interim in light of new information.
Dividend guidance reaffirmed
The Board is confident that this analysis does not change the dividend guidance that the Company has published for the current financial year and the two subsequent financial years.
The Company and the Investment Adviser will continue to work within the contractual framework for the affected PPP projects, diligently pursuing all avenues to maintain stable services in the near-term and to secure long-term, credible replacement operators, whilst seeking to mitigate the impact of Carillion's liquidation on the Company.
This announcement contains Inside Information as defined under the Market Abuse Regulation (EU) No. 596/2014. The estimate of the potential financial impact of Carillion's liquidation on the Company is based on assumptions that the Investment Adviser believes are reasonable as at the date of this announcement, but which are necessarily uncertain. In addition, there may be other factors not included in the impact assessment that could cause the actual financial impact on the Company to differ from the estimate contained in this announcement.
1 The HICL portfolio comprised 116 investments as at 30 September 2017.
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Enquiries
InfraRed Capital Partners Limited +44 (0) 20 7484 1800
Harry Seekings
Keith Pickard
Kirsty MacCallum
Tulchan Communications +44 (0) 20 7353 4200
Latika Shah
David Allchurch
Canaccord Genuity Limited +44 (0) 20 7523 8000
David Yovichic
HICL Infrastructure Company Limited
HICL Infrastructure Company Limited ("HICL" or the "Company", and together with its subsidiaries the "HICL Group") is a long-term investor in infrastructure assets which are predominantly operational and yielding steady returns. It was the first infrastructure investment company to be listed on the London Stock Exchange.
With a current portfolio of 116 infrastructure investments, HICL is seeking further suitable opportunities, which are positioned at the lower end of the risk spectrum, in three target markets segments: PPP projects; regulated assets; and demand-based assets.
Further details can be found on the HICL website www.hicl.com.
Investment Adviser (InfraRed Capital Partners)
The Investment Adviser to HICL is InfraRed Capital Partners Limited ("InfraRed") which has successfully invested in over 200 infrastructure projects since 1997. InfraRed is a leading international investment manager focused on infrastructure and real estate. It operates worldwide from offices in London, Hong Kong, New York, Seoul and Sydney. With over 130 professionals it manages in excess of US$10bn of equity capital in multiple private and listed funds, primarily for institutional investors across the globe. InfraRed is authorised and regulated by the Financial Conduct Authority.
The infrastructure investment team at InfraRed consists of approximately 70 investment professionals, all with an infrastructure investment background and a broad range of relevant skills, including private equity, structured finance, construction, renewable energy and facilities management.
InfraRed implements best-in-class practices to underpin asset management and investment decisions, promotes ethical behaviour and has established community engagement initiatives to support good causes in the wider community. InfraRed is a signatory of the Principles of Responsible Investment.
Further details can be found on InfraRed's website www.ircp.com.
