EMEA: Amey launches PFI sale amidst court battle

27 April 2018 - 12:00 am UTC

Ferrovial has become the latest company to signal a shift away from the UK PFI market while also revealing that its subsidiary Amey will book a GBP 208m charge after losing a court case concerning one of its PFIs.

Ferrovial said on Friday (27 April) that Amey “plans to divest part of its stakes in various PFI projects” and said it will incur the charge, which relates to the need for more investment in its Birmingham Highways contract with Birmingham City Council and also expectations of deductions and penalties, in its first quarter results.

A court ruled earlier this year that Amey interpreted a 25-year contract that began in 2010 in such a way that it was leaving some parts of the road network unrepaired because they were not specified in the original description of the assets. The judge ruled that “things only went wrong” in 2014 when Amey “thought up an ingenious new interpretation of the contract.”

Ferrovial said Amey plans to appeal the verdict.

Amey’s plans to divest its stakes in UK PFI projects come at a time when other companies are also cooling on the UK PFI market.

Construction company Skanska earlier this year said it will shrink its PPP business in Europe due to a weak pipeline of opportunities and focus on the US. Last month it pulled out of a PPP to build the Silvertown tunnel in East London along with its consortium partners Strabag and Meridiam.

Last month Balfour Beatty chief executive Leo Quinn said having a strong position in the US rather than being focused on the UK means that “politically this is a sort of de-risked portfolio”, while John Laingsaid the PPP market is becoming “very substantial” in the US though “the political climate in the UK is currently not favourable towards PPP.”

Ferrovial chief financial officer Ernesto López Mozo said during a conference call with analysts that it has been in discussions with possible buyers of the UK PFI project stakes, but declined to give further details. He said Amey would avoid entering similar contracts to the Birmingham PFI in future due to the risk of facing deductions and penalties when the scope of work to be carried out is not clearly defined.

Amey provides engineering, construction, consulting and other services around the world, though its PPP business is focused on the UK. It reported revenue of GBP 2.23bn for 2016, flat from the previous year, and fell to a GBP 26.6m loss after tax from a GBP 26.9m profit the previous year. 

Amey accounts for a significant part of Ferrovial’s revenue, which totalled EUR 12.21bn in 2017.

Amey has a one-third equity stake in the Birmingham motorway project through Amey Investments Ltd. The other shareholders are Equitix and PiP Multi-Strategy Infrastructure Fund, also with a third each. All works and services under the contract are being undertaken by Amey. 

Amey’s stake in the project is part of Amey Investments Ltd. Amey Investments’ other PFI shareholdings include a stake of a third in a Highways concession in Sheffield, also held with Equitix and PiP, and stakes in waste management, schools and street lighting concessions.

The Birmingham motorway project is not the only one to cause headaches for Amey. Last year, Liverpool City Council terminated a highways services contract begun in 2013 that was due to end in 2022 to save money, while Peterborough city council last year proposed terminating a 23-year waste contract with Amey.

Ferrovial bought Amey, which was then listed on the London Stock Exchange, in 2003. Aside from Amey, Ferrovial also has four airports in the UK: Heathrow, Glasgow, Aberdeen and Southampton.

Other PFI portfolios that are up for sale in the UK include six education PFIs that are part of the NIBC European Infrastructure Fund. NIBC last month sent out teasers for the sale of the portfolio, which also includes solar assets in mainland Europe and a stake in UK service station operator Welcome Break.

Amey