HICL Infrastructure Regulatory News (HICL)

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT FOR PUBLICATION, RELEASE, OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN, OR INTO, THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR ANY JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL OR TO U.S. PERSONS. THE INFORMATION CONTAINED HEREIN DOES NOT CONSTITUTE AN OFFER OF SECURITIES FOR SALE INCLUDING IN THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR SOUTH AFRICA OR TO U.S. PERSONS.

HSBC INFRASTRUCTURE COMPANY LIMITED

Placing, Open Offer and Offer for Subscription of C Shares

16 November 2010

Summary

Further to the announcement made by HSBC Infrastructure Company Limited (the "Company") on 21 October 2010, the Board of Directors is pleased to announce a Placing, Open Offer and Offer for Subscription with a target size of 110 million C Shares at an issue price of 100p per C Share (the "Issue"). A prospectus relating to the Issue (the "Prospectus") will be published shortly and will be posted to shareholders, as well as being made available on the Company's website (www.hicl.hsbc.com).

Key Highlights of the Issue

·; Net proceeds of the Issue will be used to pay down existing Group Debt, to meet outstanding and anticipated investment obligations, and to acquire Conditional Investments and Additional Investments

·; Aggregate of Group Debt and future subscription obligations stood at approximately £108.4 million as at 11 November 2010

·; Under the Open Offer, existing Shareholders are entitled to subscribe for C Shares pro rata to their holdings of Ordinary Shares on the basis of 1 C Share for every 8 Ordinary Shares held as at close of business on 12 November 2010

·; The balance of C Shares to be made available under the Issue, together with any C Shares not taken up pursuant to the Open Offer, will be made available for subscription under the Excess Application Facility, the Offer for Subscription and the Placing

·; Repayment of existing Group Debt will provide the Group with greater flexibility in making further investments in the infrastructure market as suitable opportunities arise

Expected timetable

Each of the times and dates set out below and mentioned elsewhere in this announcement may be adjusted by the Company, in which event details of the new times and dates will be notified to the FSA and the London Stock Exchange. References to a time of day are to London time.

Introduction

The Company is a limited liability, Guernsey incorporated, closed-ended investment company whose Ordinary Shares have a premium listing on the Main Market of the London Stock Exchange. An investment in the Company enables investors to access the income stream from a diversified and established portfolio of high quality, predominantly operational infrastructure investments.

The Current Portfolio consists of Infrastructure Equity in 38 Project Companies in the Government accommodation, education, health, transport, utilities and law and order sectors. It includes:

- accommodation projects for the UK Home Office, the Health and Safety Executive and the Ministry of Defence;

- a number of hospitals, schools, and police projects;

- a Ministry of Defence helicopter training facility;

- a high speed rail project for the Dutch State;

- a tranche of the junior loan in Kemble Water; and

- highway projects in Canada

Since acquiring the Initial Portfolio shortly after launch, it has been the Group's intention to make further infrastructure investments to be funded by cash reserves held, pending investment, through borrowing facilities or by raising additional capital from the market. Following further acquisitions funded through its borrowing facilities, the Company undertook a £103.6 million placing and offer for subscription of C Shares in May 2008, the proceeds of which were used to repay Group Debt. Over the following sixteen months, the Company issued a further 38,735,000 Ordinary Shares by way of tap issues for an aggregate net consideration of £43.07 million.

In light of the consistent pipeline of investment opportunities available to it, the Company undertook a further placing and offer for subscription of C Shares in December 2009 in order to pay down Group Debt and meet any outstanding investment obligations, once again in accordance with the Group's investment strategy. This exercise, which was substantially oversubscribed, raised a further £80.0 million (before costs) for the Company. Since that date the Company has issued a further 49,631,336 Ordinary Shares by way of tap issues for an aggregate net consideration of £55.6 million.

Background to the Issue

The Group acquired the Initial Portfolio shortly after launch in March 2006, and in December 2007 the Company took out a £200 million multi-currency revolving credit facility with the Principal Bankers. Over the period since launch the Group has acquired or has contracted to acquire 23 further new infrastructure investments, and has made 19 follow-on investments which have been financed by Group Debt, the issues of C Shares in 2008 and 2009 and tap issues. Since the Company's last C Share issue in December 2009, the proceeds of which were used to repay outstanding Group Debt and meet outstanding investment obligations, the Group has made additional investments with an aggregate consideration of £145.8 million.

The Group is continuing to appraise suitable investment opportunities, and expects to secure further acquisitions in the future, with the possibility of further commitments or allocations being made prior to the closing of the Issue.

The Issue

The Company is now proposing to raise a target amount of £110 million (before expenses) through the Placing, Open Offer and Offer for Subscription. The Directors have also reserved the right, in consultation with the Placing Agents, to increase the size of the Issue to a maximum of £150 million to the extent that Additional Investments are made or identified and overall demand for C Shares exceeds the target amount. The net proceeds of the Issue will not in any event exceed the aggregate of (i) existing Group Debt, (ii) the consideration payable for any Conditional Investments and Additional Investments, and (iii) any investment obligations to which the Group is subject as at the date of this prospectus in respect of the Current Portfolio or to which it is anticipated that the Group will become subject in respect of Additional Investments. As at 11 November 2010 (being the latest practicable date prior to publication of this prospectus), this aggregate figure stood at £108.4 million. It is intended that the net proceeds of the Issue will be used to pay down existing Group Debt, to meet outstanding and anticipated investment obligations and to acquire Conditional Investments and Additional Investments. In order to implement the repayments of Group Debt, the Company will transfer to the C Share portfolio a pro rata share of the Current Portfolio with a value equal to the net proceeds of the Issue, in consideration for the purchase by the C Share portfolio of loan notes which will be replicated down through the Group structure.

The Issue is being implemented by way of a Placing, Open Offer and Offer for Subscription. The inclusion of an Open Offer ensures that a portion of the new share capital being made available pursuant to the Issue is reserved in the first instance exclusively for Existing Shareholders.

Under the Open Offer, Existing Shareholders are entitled to apply to subscribe for up to an aggregate of 62,040,247 C Shares pro rata to their holdings of Ordinary Shares on the following basis:

1 C Share for every 8 Ordinary Shares held at the Record Date (being 12 November 2010).

The balance of C Shares to be made available under the Issue, together with any C Shares not taken up pursuant to the Open Offer, will be made available for subscription under the Excess Application Facility, the Offer for Subscription and the Placing.

In order that the portfolio value as at 31 December 2010 forms the basis for the calculation of the Conversion Ratio, it is intended that the proceeds from the Issue will be applied at the beginning of January 2011 with Conversion occurring later that month.

The repayment of existing Group Debt will provide the Group with greater flexibility to make further investments in the infrastructure market as suitable opportunities arise.

The Directors believe that the use of C Shares is the most appropriate way by which to raise further equity capital, as it will ensure that the portfolio value as at 31 December 2010 forms the basis for determining the price at which new Ordinary Shares are issued to investors upon the conversion of the C Shares. Furthermore, provided that the targeted minimum of £50 million is raised, the costs of the Issue will be fully borne by C Share investors and will not therefore dilute the Net Asset Value of Existing Ordinary Shares. The Company is targeting an IRR of around 7 per cent. on the Ordinary Shares to be issued upon conversion of the C Shares.

The Issue is not being underwritten and will not proceed unless minimum aggregate subscriptions of £50 million are received (or such lesser amount as the Company and the Placing Agents, in consultation with the Investment Adviser, may agree).

Benefits of the Issue

The Directors believe that the Issue will have the following benefits:

- The Company will be able to repay existing borrowings, thereby freeing up the full extent of the Facility for further investments in the infrastructure market as these opportunities arise;

- C Shareholder funds will be fully invested in the Current Portfolio shortly after the Issue, which will avoid the Company holding uncommitted cash balances, thereby reducing the potential for cash drag on Shareholder returns;

- The Directors recognise the importance of pre-emption rights to Shareholders and consequently up to 62,040,247 (or such greater number as may be made available by the Directors in exercising their discretion to scale back the Placing and/or the Offer for Subscription in favour of the Open Offer) of the C Shares are being offered to Existing Shareholders at the Issue Price by way of the Open Offer. Open Offer Shares may be subscribed by Existing Shareholders pro rata to their holdings of Existing Ordinary Shares as at the Record Date. Existing Shareholders can also participate by subscribing for C Shares pursuant to the Offer for Subscription, and Existing Shareholders can subscribe in excess of their Open Offer Entitlements pursuant to the Excess Application Facility

- Subscription for C Shares by both Existing Shareholders and new investors will rapidly provide full exposure to the Current Portfolio of infrastructure assets;

- The market capitalisation of the Company will increase, and the secondary market liquidity in the Ordinary Shares is expected to be enhanced following Conversion as a result of a larger and more diversified Shareholder base; and

- The Company's fixed running costs will be spread across a wider shareholder base, thereby reducing the total expense ratio

Directors' intention to subscribe

As at today's date, the Directors and their spouses intend to subscribe for, in aggregate, 165,000 C Shares pursuant to the Issue.

Pre-Emption Rights

At the annual general meeting of the Company held on 26 July 2010 a special resolution was passed to adopt new Articles. In accordance with changes to the Listing Rules in relation to companies with a premium listing, the new Articles give Existing Shareholders pre-emption rights over any issue of new shares. The pre-emption rights may be disapplied pursuant to a special resolution of Shareholders. A special resolution was passed at the annual general meeting on 26 July 2010 disapplying the pre-emption rights with respect to the issue of up to 10 per cent. of the Ordinary Shares in issue for cash. A further special resolution was passed at the extraordinary general meeting of the Company held on 10 November 2010 disapplying the pre-emption rights with respect to an issue of up to 150 million C Shares for cash on or before 31 March 2011.

The Current Portfolio

The Current Portfolio consists of Infrastructure Equity in 38 Project Companies in the Government accommodation, education, health, transport, utilities and law and order sectors. It includes accommodation projects for the UK Home Office, Health and Safety Executive and the Ministry of Defence, a number of hospitals, schools, and police projects, a Ministry of Defence helicopter training facility (all of which are based in the UK), two Canadian P3 road projects, and the DHSRL project. The remaining lives of concessions within the Current Portfolio are between 7 and 31 years (other than the Junior Holdco Loan Facility for Kemble Water which has up to four years left to maturity).

With the exception of Bradford BSF Schools Phase II, the M80 DBFO Project, and the North-West Anthony Henday P3 project, the Current Portfolio projects have completed their main construction phases.

Investment Objective

The Company seeks to provide investors with long-term distributions, at levels that are sustainable, and to preserve the capital value of its investment portfolio over the long-term with potential for capital growth. The Company targets a progressive distribution policy and growth of its annual distributions to 7p per Ordinary Share by March 2013. The Company is targeting an IRR of 7 to 8 per cent. on the original issue price of its Ordinary Shares in March 2006, to be achieved over the long-term via active management, including the acquisition by the Group of further investments to complement the Current Portfolio and by the prudent use of gearing.

Investment Opportunity

The Directors and the Investment Adviser believe that an investment in infrastructure assets offers the following features, which potentially compare favourably with an investment in other asset classes such as non-infrastructure equities and real estate:

·; Very low correlation to equity investment and limited exposure to economic and business cycles;

·; Concessions which generally have central or local government counterparties, providing strong credit quality;

·; A growing income stream supported by indexation of contract revenues;

·; Underlying market demand for infrastructure remaining strong globally given political and economic imperatives worldwide and public budget constraints;

·; Recent market turmoil in financial markets has highlighted the stability of PFI/PPP/P3 infrastructure assets; and

·; Valuation of PFI/PPP/P3 infrastructure projects remaining relatively stable, reflecting the inherent value in the underlying income streams for assets in both primary and secondary markets.

The Directors also believe that an investment in the Company offers investors seeking an investment in infrastructure assets the following benefits:

·; A growing dividend;

·; Preservation of the capital value of the investment portfolio with the potential for capital growth;

·; A diversified portfolio primarily focused on equity investments in operational yielding assets with a proven track record;

·; A portfolio of assets that combine size and type to maintain balance and diversification across the portfolio;

·; The Group has the opportunity to purchase additional equity in Current Portfolio projects, giving an opportunity to enhance returns through benefits of scale;

·; The management team has strength and depth in key skills - deal sourcing, deal structuring and portfolio management - enhancing returns on a low risk basis;

·; The Group has debt facilities in place on attractive terms for Shareholders. Underlying projects have long term amortising debt and do not require refinancing;

·; The Company provides investors with a range of information assisting them to understand how the Current Portfolio is performing; 

·; The management team has a network of contacts and relationships globally from which it will continue to source investment opportunities; and

·; The management team has experience of working internationally in countries where there are strong opportunities for PPP investments.

Summary of Investment Policy

The Group's investment policy is to ensure a diversified portfolio which has a number of similarly sized investments and is not dominated by any single investment. The Group will seek to acquire further Infrastructure Equity investments with the characteristics of the Current Portfolio.

The Group will also seek to enhance returns for Shareholders by acquiring more diverse infrastructure investments. The Directors currently intend that the Group may invest in aggregate up to 35 per cent. of its total assets (at the time the relevant investment is made) in:

- Project Companies which have not yet completed the construction phases of their concessions; and/or

- Project Companies with "demand" based concessions where the Investment Adviser considers that demand and stability of revenues are not yet established and/or Project Companies which do not have public sector sponsored/awarded or Government-backed concessions;

and to a lesser extent (but counting towards the same aggregate 35 per cent.) in

- limited partnerships and other funds that make infrastructure investments and/or financial instruments and securities issued by companies that make infrastructure investments, or whose activities are similar or comparable to infrastructure investments.

The Investment Adviser and the Operator

HSFML is the investment adviser to the Company, and operator of the Partnership. Members of the Infrastructure Investment Team are responsible for carrying out the Investment Adviser's investment management and advisory functions for the Group. The Infrastructure Investment Team is one of Europe's most experienced infrastructure investment managers and has a strong track record.

Distribution policy

To date, distributions on the Ordinary Shares have been paid twice a year in respect of the six months to 31 March and 30 September, and have been made by way of dividend. This is expected to continue. The Company may also make distributions by way of capital distributions (or otherwise in accordance with the Laws and the Articles) as well as, or in lieu of, by way of dividend if and to the extent that the Directors consider this appropriate.

The Directors intend that the Company will generally restrict distributions (by way of dividend or otherwise) to the level of Distributable Cash Flows, and dividends to the level of income from the Group's investments, as recognised in the relevant financial year. The Directors may, where they consider this to be appropriate in respect of acquisitions where such assets are not fully cash generative, distribute as dividend an amount up to the level of the Group's gross income, i.e. in excess of Distributable Cash Flows. Project Companies which are operational usually make distributions to the Group twice a year, and occasionally these payments may be received shortly after a period end due to timing of payment process. The Directors intend to include such amounts in Distributable Cash Flows where it is clear these payments relate to the period concerned.

Borrowing policy

The Group makes prudent use of leverage. Under the Articles the Group's outstanding borrowings, including any financial guarantees to support outstanding investment obligations but excluding internal Group borrowings of the Group's underlying investments, are limited to 50 per cent. of the Adjusted Gross Asset Value of its investments and cash balances at any time.

Discount control

In order to assist in the narrowing of any discount to the Net Asset Value at which the Ordinary Shares may trade from time to time, the Company may, at the sole discretion of the Directors, make market purchases of up to 14.99 per cent. per annum of its issued Ordinary Shares and make tender offers for Ordinary Shares.

Summary of Risk Factors

Risk factors affecting the Company and the C Shares include, but are not limited to, the following:

- There is no guarantee that the Company will achieve its investment objectives. An investment in the C Shares is only suitable for investors who have sufficient resources to be able to bear any losses that may arise from that investment (such losses may be equal to the whole amount invested).

- It is considered that approximately 45 per cent. of the Current Portfolio Value is comprised by investments in the Project Companies responsible for the Home Office Headquarters, DHSRL, Queen Alexandra Hospital, Colchester Garrison and Oxford John Radcliffe Hospital projects. If any circumstances arose which materially affected the returns generated by any of those Project Companies (or any other significant part of the Current Portfolio), the effect on the Group's ability to meet its investment objectives could be material.

- Project Agreements for infrastructure projects may be terminated in certain circumstances. The compensation a Project Company will receive on termination will depend on the reason for termination but in some circumstances the compensation received may be insufficient to repay the Company's Infrastructure Equity investment in the Project Company.

- Infrastructure projects rely on large and detailed financial models. Errors in the assumptions or methodology used in the financial models may mean that the investment return from the Project Company will be less than expected. Returns may also be affected negatively as well as positively by, inter alia, inflation, lifecycle replacement costs and deposit interest rates where these differ from those assumed in the models.

- The financial models for Project Companies are typically based on the fact that construction and other risks of operating the relevant concessions are substantially assumed by subcontractors. The Project Companies may be exposed to cost or liability where this does not happen, for example, as a result of limits of liability, contractor default or insolvency or defective contractual provisions.

ISINs

The International Security Identification Number for the C Shares under the Open Offer is GG00B5BK6947.

The International Security Identification Number for Excess Shares under the Excess Application Facility is GG00B58PY219.

The International Security Identification Number for the C Shares under the Placing and Offer for Subscription is GG00B4TB1205.

Publication of the Prospectus

A copy of the Prospectus will shortly be submitted to the National Storage Mechanism and will shortly be available for inspection at www.Hemscott.com/nsm.do. Defined terms used in this announcement shall have the same meaning as ascribed to them in the Prospectus.

CONTACTS

Important Information

This Announcement has been issued by and is the sole responsibility of the Company.

No representation or warranty express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Collins Stewart Europe Limited ("CS"), Oriel Securities Limited ("Oriel") or by any of their respective affiliates or agents as to or in relation to, the accuracy or completeness of this Announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

This announcement is an advertisement and is not a prospectus. Accordingly, investors should not subscribe for securities except on the basis of information in the Prospectus itself.

Neither this document nor anything contained herein shall form the basis of, or be relied upon in connection with, any offer or commitment whatsoever in any jurisdiction. Any offer to acquire securities pursuant to the Issue will be made, and any investor should make his investment, solely on the basis of information that is contained in the Prospectus.

This announcement and the information contained herein is not for publication, release or distribution, directly or indirectly, in or into the United States, Australia, Canada, Japan or South Africa or any jurisdiction in which the same would be unlawful. This announcement does not constitute an offer to sell or issue or the solicitation of an offer to buy or acquire shares in the capital of the Company in the United States, Australia, Canada, Japan or South Africa or any jurisdiction in which such an offer or solicitation is unlawful.

Any offering will only be made in any jurisdiction in compliance with local laws.

Neither the C Shares in the Company referred to in this Announcement (the "C Shares") nor the new Ordinary Shares in the Company into which they will convert (the "New Ordinary Shares) have been, or will be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act") or with any securities regulatory authority of any State or other jurisdiction of the United States, and accordingly may not be offered, sold or transferred within the United States except pursuant to an exemption from, or in a transaction not subject to, registration under the Securities Act. No offering of the C Shares or the New Ordinary Shares is being made in the United States or to U.S. persons as defined in and in accordance with Regulation S under the Securities Act ("U.S. Persons"). The Company has not been and will not be registered under the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act") and investors will not be entitled to the benefits of that Act.

CS, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as sponsor to the Company and is acting for no-one else in connection with the Issue and the contents of this announcement, and will not be responsible to anyone other than the Company for providing the protections afforded to clients of CS nor for providing advice in connection with the Issue and the contents of this announcement or any other matter referred to herein. CS is not responsible for the contents of this announcement.

Oriel, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for the Company and is acting for no-one else in connection with the Issue and the contents of this announcement, and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Oriel nor for providing advice in connection with the Issue and the contents of this announcement or any other matter referred to herein Oriel is not responsible for the contents of this announcement.

The distribution of this Announcement and the Placing in certain jurisdictions may be restricted by law. No action has been taken by the Company, CS or Oriel that would permit an offering of the C Shares or the New Ordinary Shares or possession or distribution of this Announcement or any other offering or publicity material relating to such shares in any jurisdiction where action for that purpose is required. Persons into whose possession this Announcement comes are required by the Company, CS and Oriel to inform themselves about, and to observe, such restrictions.

This Announcement is for information purposes only and does not constitute an invitation to subscribe for or otherwise acquire or dispose of securities in the Company in any jurisdiction. The information contained in this Announcement is for background purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this Announcement or its accuracy or completeness, This announcement does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe or purchase, any investments nor shall it (or the fact of its distribution) form the basis of, or be relied on in connection with, any contract therefor.

Certain statements in this Announcement are forward-looking statements which are based on the Company's expectations, intentions and projections regarding its future performance, anticipated events or trends and other matters that are not historical facts. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date of such statements and, except as required by applicable law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The information contained in this Announcement is subject to change without notice and neither the Company nor CS nor Oriel assumes any responsibility or obligation to update publicly or review any of the forward-looking statements contained herein.