TIDMHICL
RNS Number : 8183H
HICL Infrastructure PLC
01 August 2023
1 August 2023
HICL Infrastructure PLC
"HICL" or "the Company" and, together with its subsidiaries,
"the Group", the London-listed infrastructure investment company
managed by InfraRed Capital Partners Limited ("InfraRed" or "the
Investment Manager".)
Interim Update Statement
The Board of HICL is issuing this Interim Update Statement,
which relates to the period from 1 April 2023 to 31 July 2023.
Mike Bane, Chair of HICL said:
"HICL's portfolio performed well over the period owing to its
defensive positioning and strong inflation correlation, which serve
to protect the Company's NAV in the current macro environment. The
Company continues to deliver on its asset recycling strategy, which
enhances portfolio composition and supports asset valuations as
well as providing a valuable source of funding when equity capital
markets are closed."
Key Highlights
-- Good operational performance across the portfolio
in the period demonstrating the resilient nature
of the underlying assets. The Company is on track
to deliver its target dividend of 8.25p per share
for the financial year to 31 March 2024, with cash
generation in line with expectations.
-- High Speed 1, which represents 4% of the portfolio(1)
, recommenced distributions in the period demonstrating
the asset's continued recovery from the effects
of Covid-19.
-- The partial disposal of Northwest Parkway ("NWP")
above its carrying value completed in June 2023.
The Company has other live disposal activity which
will continue to enhance portfolio composition,
while also providing support for valuations and
cash proceeds to reduce drawings on HICL's Revolving
Credit Facility ("RCF").
-- HICL completed its previously disclosed investments
in Texas Nevada Transmission, Altitude Infra in
May and the Hornsea II OFTO in July.
-- The prospect of higher UK interest rates has continued
to weigh on the Company's share price, which has
consistently traded at a discount to NAV over the
period. In the Board's view, the Company's current
share rating does not fully reflect the positive
impact of higher than assumed inflation on HICL's
cashflows.
-- HICL's defensive portfolio continues to be well
positioned amidst the uncertain macro environment,
benefiting from its strong inflation correlation
and limited variable interest rate exposure.
Portfolio Performance
-- Overall, the portfolio performed in line with expectations
in the period, underpinned by high quality cashflows,
long-term capital structures with limited exposure
to higher interest rates and active asset management.
-- Affinity Water (7% of portfolio value(1) ) performed
well operationally in the period, aided by mild
weather. The business has a stable financial position,
enhanced by the continuing reinvestment of free
cash into Affinity's substantial investment programme,
reducing external gearing, as well as effective
treasury management with no refinancing events before
2027. As a water-only company with no exposure to
sewerage services, Affinity Water is also not impacted
by some of the specific operational challenges in
the wastewater sector.
-- First distributions received in the period for Texas
Nevada Transmission (USA) and Fortysouth (NZ), in
line with acquisition assumptions.
Financial Performance
-- The Company is on track to deliver its target dividend
of 8.25p per share for the financial year to 31
March 2024(2) , with cash generation in the period
in line with expectations.
-- The Company has received the proceeds from its Northwest
Parkway disposal. These proceeds were fully hedged
with a FX forward which settled on 31 July 2023.
In August 2023 these proceeds will be used to repay
a portion of the RCF. By 31 August 2023, the drawn
balance on the Company's GBP650m RCF will be GBP370m.
Together with the Private Placement and letters
of credit, the Company's gearing will be 16%. To
protect against further rises in interest rates,
but allow it to benefit if rates decrease, the Company
purchased an option to cap GBP200m of its SONIA
exposure to 6.5% for three years.
-- The portfolio has low cashflow exposure to rising
interest rates, with the vast majority of portfolio
holdings benefiting from fixed-rate, amortising
debt. Five assets have exposure to debt refinancing,
with only one due to be refinanced before 2027.
For reference, plus / minus 100bps on the cost of
debt for all future refinancings in the portfolio
would negatively / positively impact HICL's NAV
per share by (1.7p) / 2.1p respectively.
-- Higher interest rates also flow through to cash
on deposit within underlying portfolio companies.
For reference, plus / minus 100bps on the rate attracted
by deposits placed by portfolio companies would
positively / negatively impact HICL's NAV per share
by 2.8p / (2.8p) respectively.
Valuation
-- The Investment Manager continues to observe a material
disconnect between public and private markets in
the valuations applied to inflation-correlated core
infrastructure assets. Transaction data points in
private markets, albeit in lower volumes, support
the view that valuations are generally remaining
stable as inflation correlation provides a hedge
against higher discount rates. This is further validated
by the valuations seen across the Company's NWP
sale, a recent UK PPP sale by a separate InfraRed-managed
fund, and HICL's live disposal activity.
-- However, public markets appear to be applying higher
UK Gilt yields to perceived discount rates for alternative
asset funds without a corresponding adjustment for
the benefit of inflation. The implied inflation
rate in the long-term (30 year) UK government bond
yield is currently c. 3.4%(3) , which compares to
the Company's long term UK inflation assumption
in its 31 March 2023 valuation of 2%.
-- Aligning HICL's long-term inflation assumptions(4)
to the implied inflation rates in current long-term
government bond yields across HICL's markets, would
result in a 21.4p uplift in NAV, based on the 31
March 2023 valuation. To remain NAV neutral, this
equates to an equivalent increase in the Company's
weighted average discount rate of 1.1% to 8.3%.
-- In the short-term, current inflation forecasts for
FY2024 remain significantly ahead of the UK RPI
assumptions(4) for the year ended 31 March 2024.
For reference, if inflation is 3% higher than the
Company's forecast assumptions until March 2024
in all jurisdictions, then 3.1p will be added to
its NAV per share.
-- Overall, the weighted average risk-free rate across
HICL's markets has increased by 0.6% since the Company's
valuation at 31 March 2023. All things being equal,
this would suggest the adoption of higher discount
rates, weighted towards the UK, for HICL's next
valuation at 30 September 2023. The valuation impact
of this is expected to be materially offset by the
impact of higher actual and forecast inflation.
This offsetting effect for inflation-correlated
core infrastructure aligns with transaction data
points observed by InfraRed in the market.
Market and Outlook
-- HICL's portfolio continues to perform well amidst
macroeconomic volatility. Underlying asset valuations
are resilient, with limited cashflow sensitivity
to higher interest rates, and strong inflation correlation
providing an effective hedge against the risk of
higher discount rates.
-- The Board and Investment Manager are focused on
conservative capital management, including the application
of disposal proceeds to reduce the drawings on the
Company's RCF. This strategy of asset recycling
allows the Company to continue to refine portfolio
composition and enhance the investment proposition
for shareholders.
-- Over the medium-term, core infrastructure investment
continues to be propelled by the powerful growth
drivers of digitalisation, decarbonisation and the
need to renew ageing infrastructure.
1. Based on the Directors' Valuation of GBP3,772.8m at 31 March 2023
2. This is target only and not a profit forecast. There can be
no assurance that this target will be met
3. As at 31 July 2023
4. UK RPI 5.00% to March 2024, 2.75% to March 2030, 2.00%
thereafter, CPI: 4.25% to March 2024, 2.00% thereafter. The
inflation assumptions for the rest of the world are shown on page
49 of the 2023 Annual Report and Accounts
-Ends-
Enquiries
InfraRed Capital Partners +44 (0) 20 7484 1800 / info@hicl.com
Limited
Edward Hunt
Helen Price
Mohammed Zaheer
Brunswick +44 (0) 20 7404 5959 / hicl@brunswickgroup.com
Sofie Brewis
Investec Bank
plc +44(0) 20 7597 4952
David Yovichic
RBC Capital Markets +44 (0) 20 7653 4000
Matthew Coakes
Elizabeth Evans
Aztec Financial Services
(UK) Limited +44(0) 203 818 0246
Chris Copperwaite
Sarah Felmingham
HICL Infrastructure PLC
HICL Infrastructure PLC ("HICL") 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 over 100 infrastructure investments,
HICL is seeking further suitable opportunities in core
infrastructure, which are inherently positioned at the lower end of
the risk spectrum.
Further details can be found on the HICL website www.hicl.com
.
Investment Manager (InfraRed Capital Partners)
The Investment Manager to HICL is InfraRed Capital Partners
Limited ("InfraRed") which has successfully invested in
infrastructure projects since 1997. InfraRed is a leading
international investment manager, operating worldwide from offices
in London, New York, Seoul and Sydney and managing 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 over
100 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
.
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