Funds Round-Up Q1 2011: Ports, Energy Assets Dominate Q1 Infra M&A Activity

By Michael Dunning

The steady ticking-over of trade in infrastructure assets continued in the first quarter of 2011 and since InfraDeals’ last infrastructure funds round-up at the end of January. Ports and other maritime infrastructure featured strongly in the deals done, with one major acquisition (Forth Ports) and another (Steam Packet Ferry Company) highlighting the dangers of overleveraged buyout structures. Transactions involving European gas assets were the main staple over the past three months, however, with several deals completed and others reporting significant progress.

One of the most eye-catching deals in the past three months was in the UK – the acceptance of a GBP760m (USD1.25bn) bid by Arcus for Forth Ports. Arcus was already the largest shareholder in Forth Ports with 22.8%, and this latest deal allowed it to acquire the remainder of the company.
Arcus’s bid is worth GBP16.30 (USD26.90) per share and is being financed through an equity contribution and debt provided by JP Morgan, Credit Agricole, RBC, RBS and Santander. Financial close is expected in June, at which point further details about the financing structure will become available.

Arcus’s EUR2.2bn (USD3.25bn) European Infrastructure Fund 1 created a special purpose vehicle called Otter Ports to carry out the acquisition. The acquisition follows the fund’s strategy of making long-term investments in core infrastructure assets throughout Europe. It already has a stake in another port, Euroports, as well as investments in Alpha Trains, Angel Trains Group, Brisa, Shere Group and UK Stewardship.

The Forth Ports deal was done at the same time Arcus is contemplating launching a second European fund.

Banks Take Back the Keys
By contrast, news of a less positive nature beset another UK-based maritime asset – the Steam Packet Ferry Company. A group of five banks (BES, Depfa Bank, ING, Mizuho and SMBC) took control of the company after Macquarie and a group of Australian pension funds failed to refinance a GBP200m (USD330m) loan that was used to acquire the company in 2006.

Macquarie had previously sold 90% of its equity in Steam Packet, in 2006, to a group of Australian pension funds. The remaining 10% was held by one of Macquarie’s infrastructure funds, although the Australian investor did not said which one.

On the listed fund side, John Laing Infrastructure Fund (JLIF) acquired two UK PFI projects, following its GB27.4m (USD45.2m) share listing. They were the acquisition of an additional 12.5% stake in the Queen Elizabeth Hospital in Greenwich, bringing its total investment in the scheme to 27.5%, and a 100% stake in the Bentilee Community Centre, near Stoke-on-Trent.

The fund is also aiming to acquire a further two PFI schemes from Henderson-owned John Laing – a 100% stake in Tees Esk & Wear Valleys NHS Trust Roseberry Park psychiatric hospital, and a 42.5% stake in Cleveland Police Headquarters in Middlesbrough.

The latest acquisitions by JLIF are part of its plans to acquire a further GBP300m (USD495m) of assets from John Laing, following the fund’s acquisition of 19 PFI projects for GBP270m (USD445m) after it’s IPO in November last year.

Also in the UK, the sale of around half of the assets in Barclays European Infrastructure Fund has gained pace, with around five offers having been made for assets worth around GBP90m (USD148m). The GBP177.5m (USD293m) fund is made up mostly of PPP and PFI assets.

All Change at HSBC Infra Funds
There were significant changes to HSBC’s infrastructure funds, following a management buyout completed during the last quarter. The new business is called InfraRed Capital Partners, which will own 80% of HSBC Special Investments Limited’s (HSIL) fund management business. HSBC will own 20% of shares in InfraRed Capital Partners, while remaining shares will be divided up among the 28 members of the management buyout team.

The fund management business manages four infrastructure funds – InfraRed Infrastructure Fund III, a global fund manager which was created last year, InfraRed Infrastructure Fund II, which focuses on European investments, HICL Infrastructure Company Limited, previously known as HSBC Infrastructure Company Limited (HICL), and, HSBC Environmental Infrastructure Fund, a global fund manager created in 2009, and which has been renamed InfraRed Environmental Infrastructure Fund.

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