EMEA: News Analysis: JLIF deal reflects frenzy for PFIs

07 August 2018 - 12:00 am UTC

If their joint bid for JLIF is successful, Dalmore and Equitix will become the UK’s largest owners of PFIs. It shows just how far managers are willing to go to own core UK infrastructure projects. Nick Roumpis and Brendan Malkin report

Buying listed companies has become flavour of the month for infrastructure funds. In recent weeks Morgan Stanley Infrastructure has sought to buy listed VTG, F2i has launched takeovers of Italian listed businesses El Towers and Ascopiave, and Ardian has targeted listed Italian toll road giant ASTM.

Another recent deal involves an attempted takeover by Dalmore Capital and Equitix of John Laing Infrastructure Fund (JLIF) for GBP 1.45bn, a 23.6% premium to JLIF’s closing price of GBP 118.2 pence on 13 July and a 19.8% premium to its latest published NAV per share of GBP 121.9 pence on 31 March.




If successful, the deal will make the two managers the largest owners of UK PFIs – bigger than rival listed firms International Public Partnerships, HICL Infrastructure Company and bigger than unlisted Semperian PPP Investment Partners.

By adding JLIF’s 65 assets, Dalmore and Equitix would further expand their current combined portfolio of more than GBP 7bn, of which GBP 6.5bn comprises UK-based infrastructure assets, most of which are PFIs.

The finer details of the deal’s financing have remained fairly secretive, although Inframation understands that around two-thirds of the price tag will be paid for with debt.

Lloyds Bank and National Westminster Bank have agreed to provide in total a GBP 964m loan and a EUR 40.7m facility, Inframation understands. Each lender is providing roughly half of each facility.

Of these loans, GBP 110m will be used to finance the acquisition of the Barcelona Metro assets, which account for nearly 10% of JLIF’s portfolio, and USD 68m (GBP 52.5m) will be channelled to Connecticut Service Stations P3, a 35-year concession for 23 highway service areas in the US.

The loans carry a floating margin, which starts at 1.25% per annum and gradually grows to 1.75% and 2.25%, documents seen by Inframation show. Lloyds is acting as facility agent and security agent on the transaction.

The equity will be split equally between Equitix and Dalmore. 

It is understood that Dalmore plans to source capital largely from its third fund, Dalmore Capital Fund 3, which reached final close last year, and a number of managed accounts with capital from UK institutional investors. In the last 12 months Dalmore had commitments from pension funds including Coal Staff Superannuation Scheme and Mineworkers Pension Scheme. 

Notable Dalmore Capital Secondary Market PPP Transactions
Seller Stakes Bought Acquisition Price Acquisition Date
Interserve Pension Scheme Minority stakes of between 20% and 50% in 13 PPP assets across the education, defence, healthcare and accommodation sectors. GBP 61.5m* Apr-14
Robertson Capital Projects (RCP) Investments 100% stake in five infrastructure projects. GBP 20m Oct-13
Robertson Group’s 51% stake in Elgin Infrastructure Fund (EIF) Stakes in 16 infrastructure projects, including five schools projects and 11 community healthcare schemes. GBP 50m Oct-13
Interserve Investments 49.9% stake and 62% of debt investments in 19 PFI projects spanning universities, hospitals, prisons and community centres. GBP 89.5m Oct-12
Source: Inframation
*denotes portfolio value

It is understood the UK manager will tap only a limited amount from South Korean investors, a large source of recent capital for Dalmore. 

The deal is still subject to shareholder approval and several investors have said in reports they believe the offer under-values JLIF. Next month Equitix and Dalmore hope to secure court approval to close the deal with 75% shareholder approval rather than the usual 90%.


Deal drivers

Most agree the takeover has been spurred by two key factors. The first is the desire by the managers’ investors to grow their PFI portfolio, which provides a relatively safe source of income.

Indeed, it is understood that the managers considered launching a bid for International Public Partnerships and HICL, but decided against doing so on the basis that they contain relatively large amounts of non-PFI related assets, such as Affinity Water and HS1.

It was also motivated by the dire shortage of available PFIs to buy.

“The motivating point is that there is not a lot of new PFI assets around,” one insider said. “Not many PPPs are trading and most are owned by long-term investors.”

The investors also wanted to keep the portfolio UK-focused. It is understood, however, that they have no plans to divest JLIF’s non-UK portfolio, which is sizable.

The deal is also relatively conservative, in that the investors also do not intend to use it as a platform for further inroads in to the PFI sector. 

It also enables Dalmore and Equitix to bolster their PFI empire further by exercising their pre-emption rights on their stakes in businesses held by JLIF.  

One target could be the Intercity Express Programme. John Laing Group sold its 15% stake in the project to Axa Investment Management for GBP 227.5m in March. This prompted the other sponsor of the project, Hitachi, to consider selling its own stake.

JLIF still owns 15% of the first phase of the project, and the Dalmore-Equitix consortium could be better placed to acquire Hitachi’s stake when it comes to the market.

Another source said this is a tool that has been used in the past, citing the example of INPP which bought LIFT projects, a move that enabled the company to be better positioned when these projects were sold.


High price to pay

Sources agreed that the amount Equitix and Dalmore are willing to pay for the assets is at the top end of the PFI price range. “They ended up paying more than they wanted to do. It is a higher price than they expected to pay,” said one insider.

The sale price, however, reflects the relatively lofty prices investors are currently willing to pay for PFI assets. Last year, Dalmore agreed to buy Balfour Beatty’s 12.5% stake in the M25, netting the seller GBP 53m – GBP 37m more than it expected to achieve.

In another lucrative deal, Equitix paid HICL GBP 56.2m for the Highland Schools PPP2 Project, a GBP 9.7m premium over the PFI’s 30 September valuation.

Notable Secondary Market PPP Transactions
Project Name Sale Description Portfolio Value Date of Financial Close Acquiror
John Laing Infrastructure Fund (JLIF) Sale Dalmore Capital and Equitix’s purchase of the John Laing Infrastructure Fund (JLIF). GBP 1.41bn Ongoing Equitix, Dalmore Capital
NIBC European Infrastructure Fund (NEIF) Sale NIBC’s sale of its sole European Infrastructure Fund (NEIF), including stakes in six UK projects and six European assets. GBP 600m Ongoing Applegreen, Equitix (in separate transactions)
Highland Schools PPP2 Project Sale HICL’s sale of its 100% stake in the Highland Schools PPP2 Project. GBP 56.2m Ongoing Equitix
Aberdeen UK Infrastructure Partners Portfolio Sale Aberdeen Standard Investments’ sale of its greenfield UK infrastructure fund, which has a portfolio of 10 UK PPP and PFI assets. GBP 400m Dec-17 Pensions Infrastructure Platform (PiP)
French School Portfolio Sale (85% Stake) Eiffage’s sale of four school energy efficiency PPPs. EUR 240m Nov-17 Demeter Partners
M25 Widening Scheme (65% stake) Dalmore and Equitix’s acquisition of a 65% equity interest in the M25 Widening PFI. GBP 471.17m* Feb-17 Equitix, GCM Grosvenor, Dalmore Capital
Source: Inframation
*denotes actual consideration paid for stake

Despite the juicy premium, others believe the price offered demonstrates good value. Analysts at Liberum wrote in a note that the offer represents an excellent result for shareholders, following a difficult 12-month period that saw JLIF shares down by more than 10%.

Matthew Hose, an equity analyst at Jefferies, said that valuation concerns from some of JLIF’s shareholders are “far from unfounded”. He added that the concerns stem from “an element of opportunism in the bid”.

The bid price also takes into account political risk. As well as Brexit and the Labour party’s intention to nationalise PFI contracts, JLIF is also exposed to the potential impact of Catalan independence through its Barcelona Metro assets.

Amidst reports of dissatisfaction in the offer price by some investors of JLIF’s shareholders, the deal is far from being sewn up. 

Despite this, it is likely that Equitix and Dalmore have little appetite for increasing the value of their bid, however keen they might be to enhance their already bulging PFI portfolios.

Notable Equitix Secondary Market PPP Transactions
Seller Stakes Bought Acquisition Price Acquisition Date
Palladio Holding 70% stake in Summano Sanità, the concessionaire of the EUR 150m Thiene-Schio Hospital PPP in Italy. EUR 150m Feb-17
Balfour Beatty 80% stakes in five street lighting PPPs from Balfour Beatty. GBP 33m Dec-16
Scottish Southern Electric (SSE) Stakes in 11 PFI schemes for the replacement and maintenance of councils street lighting assets. GBP 97.5m Nov-14
Morgan Sindall Investments, DIFInfrastructure  Acquisition of Community Solutions Investment Partners (CSIP), which holds stakes in eight NHS Local Improvement Finance Trust (LIFT) schemes. GBP 50m Jul-12
Source: Inframation