TIDMHICL
RNS Number : 4049S
HICL Infrastructure PLC
06 November 2023
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT
FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY,
IN OR INTO, THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR THE
REPUBLIC OF SOUTH AFRICA.
This announcement has been determined to contain inside
information for the purposes of the market abuse regulation (EU)
No.596/2014.
6 November 2023
HICL Infrastructure PLC
"HICL" or the "Company" and, together with its corporate
subsidiaries [1] , the "Group", the London-listed infrastructure
investment company managed by InfraRed Capital Partners Limited
("InfraRed" or the "Investment Manager").
Net Asset Value
The Company's Interim Results are scheduled for release on 22
November 2023.
The Board expects to announce a decrease in the Company's
unaudited Net Asset Value ("NAV") per share of approximately 5.5
pence to 159.4 pence as at 30 September 2023 (31 March 2023: 164.9
pence). This statement explains the Company's approach to
determining the NAV as at 30 September 2023.
The most significant driver of the movement in NAV per share has
been an increase in the portfolio's weighted average discount rate
from 7.2% to 8.0%, reflecting higher market return requirements. In
establishing the appropriate movement in the discount rate, the
level implied by the increases in long-term government bond yields
has been evaluated in the context of the Company's own recent
cross-sector and cross-geography transactional data.
The operational performance of the portfolio has remained in
line with expectations, with the expected decrease in NAV
attributable to the following macro-economic factors:
-- The significant increases in long-term government bond yields
since the last valuation date of 31 March 2023, particularly
in the UK, have been the primary driver of an increase in
the portfolio's weighted average discount rate to 8.0% (31
March 2023: 7.2 %). The weighted average equity risk premium
at 30 September 2023 was 3.3% (31 March 2023: 3.4%);
-- Higher actual and forecast UK inflation compared with the
assumptions included in the portfolio valuation as at 31
March 2023. UK RPI is now assumed to be 6.5% in FY2024, 3.5%
in FY2025, 3.25% to 31 March 2030 and 2.50% thereafter. This
remains 0.7% below the inflation rate implied by the 30 Year
UK gilt yield on a weighted average basis; and
-- Increases in deposit rate assumptions in all jurisdictions
due to higher prevailing interest rates.
Breakdown of the movement in Net Asset Value per share
Net Asset Value per share as at 31 March 2023 (audited) 164.9p
Portfolio return
---- -------
Actual inflation 0.8
---- -------
Other portfolio performance [2] 6.1
---- -------
6.9
---- -------
Discount rate (13.9)
---- -------
Macro-economic assumptions
---- -------
Forecast inflation 5.1
---- -------
Interest + tax rates 2.6
---- -------
7.7
---- -------
Fund and interest costs (1.9)
---- -------
Foreign exchange (net of hedging) (0.2)
---- -------
Dividends paid (4.1)
---- -------
Net Asset Value per share as at 30 Sept 2023 (unaudited) 159.4p
---- -------
Inflation
The portfolio's cashflows and valuation are positively
correlated to inflation. In addition, aggregate forecast inflation
for the UK for the rest of this financial year and the year to 31
March 2025 is ahead of the assumptions used in the 31 March 2023
portfolio valuation, leading to higher expected portfolio
cashflows. The movement in forecast assumptions is largely limited
to the UK portfolio.
Discount rates
Long-term government bond yields, particularly in the UK, have
increased materially since the Company's 31 March 2023 valuation.
As discount rates used to value projects do not follow bond yields
on a like-for-like basis, the Investment Manager considers asset
pricing observed in core infrastructure transactions across HICL's
key geographies, as well as the level of risk premium implied by
movements in bond yields.
Over the last six months, the Company has announced eight
selective disposals in several sectors and geographies at or above
the carrying value of the relevant asset, as part of an active
management approach to asset rotation. These asset sales offered
clear supporting evidence of the robustness of the Company's Net
Asset Value and provided data which indicated that higher discount
rates and inflation assumptions are being used by secondary market
participants in determining valuations. Taking into account the
significant increase in long-term government bond yields and the
corresponding reduction in the implied equity risk premium over the
last six months, the Investment Manager has increased the
portfolio's weighted average discount rate from 7.2% to 8.0%. The
weighted average risk-free rate for the portfolio is 4.7% (31 March
2023: 3.8%) and the weighted average risk premium is 3.3% (31 March
2023: 3.4%). The largest discount rate increases were in the UK
(+100bps) and the US and New Zealand (+60bps respectively).
InfraRed will continue to closely monitor market activity and
will provide a further update as part of HICL's Interim Results on
22 November 2023.
Foreign Exchange
The Company is exposed to movements in the Canadian dollar, the
Euro, the New Zealand dollar and the US dollar. 62% of the
Company's exposure to foreign currency was hedged as at 30
September 2023, giving rise to a small valuation loss in the
period.
Funding position
At 30 September 2023 the Group had net debt of GBP496.8m (31
March 2023: net debt GBP147.6m), comprising cash of c. GBP24m,
drawings on the Revolving Credit Facility ("RCF") of c. GBP370m and
the private placement of GBP150m. Following the completion of the
recently announced disposals, the pro forma drawings on the RCF are
expected to be c. GBP130m and gearing is expected to be c.10%.
Macro-economic assumptions used in the valuation
Assumption Jurisdiction 30 September 2023 31 March 2023
Discount rate
(WADR) 8.0% 7.2%
--------------------- --------------------
Inflation UK (RPI and RPIx) 6.50% to 31-Mar-24 5.00% to 31-Mar-24
3.50% to 31-Mar-25 2.75% to 31-Mar-30
3.25% to 31-Mar-30 2.00% thereafter
2.50 % thereafter
------------------- --------------------- --------------------
UK (CPI/CPIH) 5.75% to 31-Mar-24 4.25% to 31-Mar-24
2.75% to 31-Mar-25 2.00% thereafter
2.50 % thereafter
------------------- --------------------- --------------------
Eurozone (CPI) 4.75% to 31-Mar-24 5.00% to 31-Mar-24
2.25% to 31-Mar-25 2.00% thereafter
2.00% thereafter
------------------- --------------------- --------------------
Canada (CPI) 3.00% to 31-Mar-24 3.00% to 31-Mar-24
2.25% to 31-Mar-25 2.00% thereafter
2.00 % thereafter
------------------- --------------------- --------------------
US (CPI) 3.00% to 31-Mar-24 3.00% to 31-Mar-24
2.00 % thereafter 2.00% thereafter
------------------- --------------------- --------------------
New Zealand 5.00% to 31-Mar-24 5.00% to 31-Mar-24
2.75% to 31-Mar-25 2.50% to 31-Mar-25
2.25% thereafter 2.25% thereafter
------------------- --------------------- --------------------
Deposit rates UK 5.00% to 31-Mar-24 3.25% to 31-Mar-25,
4.50% to 31-Mar-25, 2.50% thereafter
3.5 % thereafter
------------------- --------------------- --------------------
Eurozone 3.00% to 31-Mar-25, 2.25% to 31-Mar-25,
2.25 % thereafter 2.00% thereafter
------------------- --------------------- --------------------
Canada 3.75% to 31-Mar-25 3.50% to 31-Mar-25,
3.25 % thereafter 3.00% thereafter
------------------- --------------------- --------------------
US 4.25% to 31-Mar-25 4.00% to 31-Mar-25
3.25 % thereafter 3.00% thereafter
------------------- --------------------- --------------------
New Zealand 4.50% to 31-Mar-24 4.00% to 31-Mar-24
4.25% thereafter 4.25% thereafter
------------------- --------------------- --------------------
Foreign exchange
rates USD 1.22 1.23
------------------- --------------------- --------------------
EUR 1.15 1.14
-------------------------------------- --------------------- --------------------
CAD 1.66 1.67
-------------------------------------- --------------------- --------------------
NZD 2.03 1.97
-------------------------------------- --------------------- --------------------
-ends-
Enquiries
InfraRed Capital Partners Limited +44 (0) 20 7484 1800 / info@hicl.com
Edward Hunt
Helen Price
Mohammed Zaheer
Brunswick Group Advisory Ltd +44 (0) 20 7404 5959 / HICL@brunswickgroup.com
Sofie Brewis
Investec Bank plc
David Yovichic +44 (0) 20 7597 4952
RBC Capital Markets
Matthew Coakes
Elizabeth Evans +44 (0) 20 7653 4000
Aztec Financial Services (UK)
Limited
Chris Copperwaite
Sarah Felmingham +44 (0) 203 818 0246
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
.
This statement aims to give an indication of material events and
transactions that have taken place in the period from 1 April 2023
to 30 September 2023 and their impact on the financial position of
HICL. These indications reflect the Board's current view. They are
subject to several risks and uncertainties and could change.
Factors which could cause or contribute to such differences
include, but are not limited to, general economic and market
conditions and specific factors affecting the financial prospects
or performance of individual investments within the portfolio of
HICL.
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
.
[1] The Corporate subsidiaries are Infrastructure Investments
Limited Partnership and HICL Infrastructure 2 s.a.r.l., as
disclosed in HICL's Annual Report and Accounts 2023
[2] Performance comprises the unwinding of the discount rate
(Value Preservation) and the Investment Manager's Value Enhancement
initiatives
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END
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