China Development Bank (CDB) is in talks to provide a commitment to Equitix’s fifth fund, sources said, as mainland Chinese investors struggle to gain direct greenfield opportunities.
CDB – one of three state-owned banks responsible for raising funds for large scale infrastructure projects – met with Equitix earlier this month to discuss potentially investing capital into the UK manager’s latest fund.
“CDB is exploring opportunities with Equitix, including investing in the fifth fund,” said one source, adding that the two parties have not yet decided how much capital CDB will commit.
The Beijing-headquartered bank has for years sought to invest in UK infrastructure – in 2014 it said that it wanted to invest in large UK infrastructure projects, including HS2 and nuclear plants. A year later it reached an agreement with China General Nuclear Power Corporation over financing the construction of EDF’s Hinckley nuclear plant in Somerset, England.
However, sources said that CDB has struggled to gain UK direct infrastructure investments – hence potentially its shift to an indirect strategy.
“The Chinese liked the idea of having a close relationship with the UK, and they were expecting to acquire stakes in large projects like High Speed 2 (HS2),” the source said. “But this didn’t happen.
So, they want to find another way of deploying the capital and ensuring they are involved in the UK infrastructure market.”
To date, there has been limited investing by Chinese investors in European infrastructure funds – the sole example, according to Inframation data, is a GBP 150m commitment by China Investment Corporation to the 3i Barclays Integrated Infrastructure Fund.
CDB also has not invested in a European infrastructure fund. But investing in Equitix – which is nearing final close for its fifth infrastructure fund at its hard cap target of GBP 1bn – appears an obvious route to market.
The fund manager has a strong reputation for greenfield investing. It also has teamed up with Chinese investors in the past, including forming a consortium with China’s Shanghai Tunnel Engineering Co to bid – unsuccessfully – for the Silvertown tunnel.
Equitix has previously secured commitments from Thai and Malaysian pension funds for its third fund, while the Public Investment Fund of Saudi Arabia, a Saudi sovereign wealth fund, has a GBP 75m commitment in its fifth fund.
According to CDB’s latest annual report, public infrastructure is one of its core markets with 11.35% of its outstanding loans channelled to this sector as of 31 December 2018, only behind urban renewals (27.4%), others (19.47%) and highways (16.14%).
The development bank’s stock and fund investments as of the end of 2018 amounted to RMB 7.7bn (GBP 860m).
Chinese companies eyeing European assets in recent months include State Grid Corporation of China and China Southern Power Grid, both of which are considering bids for ENW.
Meanwhile, China Everbright has emerged as one of the shortlisted bidders for Norwegian ferry company Norled.
Equitix and CDB declined to comment.