Aus & NZ: More UTA stakes set to change hands

09 February 2018 - 12:00 am UTC

The AUD 6bn (USD 4.6bn) Utilities Trust of Australia (UTA) may sell its 15% stake in UK rail leasing company Porterbrook if it moves to appoint a new manager, Inframation understands.

Stakes in other UTA assets may also be sold to existing investors, or potentially new parties, if the UTA board moves to appoint a new external manager to replace Hastings Funds Management.

IFM Investors and HRL Morrison are understood to have been shortlisted in a tender being run by UTA, according to sources familiar with the matter.

Which shareholdings UTA exits, however, will partly depend on whether IFM or HRL Morrison wins the mandate to manage UTA.

UTA chairman, Rob Jolley, confirmed it is close to appointing a new manager for its assets. “We are going through a systematic process of selecting a new manager,” he told Inframation. He said he could not comment further due to confidentiality agreements.

Sources familiar say the UTA board will likely decide on whether to go with one of the shortlisted external managers later in February or early March.

It is understood UTA investors decided to dump Hastings Funds Management as portfolio manager in late 2017 because they were unhappy with Westpac’s move on 3 November to sell Hastings to UK asset manager Northill Capital because it has no infrastructure experience.

UTA is Hastings’ last main mandate in Australia and on 20 December Northill announced that it had opted to buy just the US and UK parts of Hastings.

If a new manager takes over from Hastings, it is understood the Australian arm of the business will be wound up by owner Westpac Bank.

UTA’s investments include utilities, toll roads, airports, ports and energy generators in Australia, the US and Britain. Some of its larger shareholdings include 20% of New South Wales high voltage network TransGrid, 33.3% of the Sydney desalination plant, 50% of South East Water in the UK, 50% of Port of Portland in Victoria and 30% of the New South Wales land titles office.

Porterbrook Rail was taken over in 2014 by the Porterbrook Group Consortium comprising Alberta Investment Management Corporation, Allianz Capital Partners on behalf of insurance companies of the Allianz Group, EDF Invest and Hastings.

Porterbrook owns more than 5,650 passenger and freight operating companies and its rolling stock portfolio accounts for about a third of Britain’s passenger stock fleet.

Sources familiar say for the most part its investments are “quality assets” and a new manager will opt to keep most of them, but some investors will want to redeem their funds, which could trigger unit sales.

It is thought likely existing shareholders in the assets will exercise their preemption rights. If they do not, it is understood there are plenty of investors outside existing shareholders that have expressed interest in buying units in the assets.

On 20 December, UTA and The Infrastructure Fund (TIF) and SWG Management moved to sell their 50.08% stake in Southwest Generation – a gas plant owner in the US – to fellow shareholder, IIF US Holding, managed by JP Morgan. It will now own all of Southwest.

There has been speculation that this was to free up cash for redemptions or to pay out the break fee with Hastings Funds Management of about AUD 160m, but Jolley denied this.

In August, Hastings only other significant mandate, TIF, said it would be internalising management or seeking another manager.

Sources close to the matter say corporate advisory firm McGrathNicol is now advising Hastings and Westpac on the winding up and transition of the Australian business of Hastings to a new manager, should UTA’s board decide to go ahead with this option.

A spokesperson for Hastings’ owner, Westpac, said Northill will still go ahead with the acquisitions it had agreed to, but would not comment on the fate of Hastings’ Australian business.