HICL Infrastructure Regulatory News (HICL)

20 Nov 2007 07:01

HSBC Infrastructure Company Limited20 November 2007 HSBC INFRASTRUCTURE COMPANY LIMITED PROPOSED ACQUSITION OF ADDITIONAL DEBT AND EQUITY INTEREST IN THE HOME OFFICE PFI PROJECT for £14.4 million HSBC Infrastructure Company Limited ("HICL" or "the Company")*, the listedinfrastructure investment company, announces that it has today conditionallyagreed to acquire additional equity and debt interests in the Home Office PFIProject (the "Project"), one of the Company's current portfolio investments fora fixed cash amount of £14.4 million (the "Price"), from HSBC InfrastructureLimited ("the Transaction"). HICL currently holds 65.87 per cent. of the issued share capital of the HoldingCompany for the Project and 81.53 per cent. of the Loan Notes. Followingconclusion of the Transaction, the Company will be the registered holder of80.01 per cent. of the issued share capital of the Holding Company and will ownall of the Loan Notes and therefore own 100 per cent. of the subordinated debtissued by the Holding Company. The Company's investment adviser, HSBC Specialist Fund Management Limited("Investment Adviser"), is part of the same group as HSBC Infrastructure Limited("the Seller") and as such the Transaction is classified as a related partytransaction under the Listing Rules and is therefore subject to and conditionalon the approval of the Company's Shareholders. A circular will be sent toShareholders to convene an Extraordinary General Meeting in order to seek thisapproval. The Extraordinary General Meeting of the Company will be held at 12.00 noon on17 December 2007 at Dorey Court, Admiral Park, St Peter Port, Guernsey, ChannelIslands GY1 3BG. Graham Picken, Chairman of HSBC Infrastructure Company Limited said: "I ampleased to be able to announce this potential acquisition that represents anopportunity to increase the Company's holding in a quality asset with a proventrack record. This is in line with the Company's strategy of increasing itsholding in investments already in the portfolio, an approach which is both costand risk effective. We are recommending shareholders to vote in favour of theresolution at the Extraordinary General Meeting". Enquiries HSBC Specialist Fund Management Limited** 020 7991 9554Tony Roper Oriel Securities Limited 020 7710 7600Tom Durie M: Communications 020 7153 1523Ed OrlebarTilly von Twickel * All references to the Company acquiring or holding equity or debt interests inthe Project shall be construed as references to the Company acquiring or holdingsuch interests through the subsidiary of the Company making the acquisition ** HSBC Specialist Fund Management Limited is authorised and regulated by theFinancial Services Authority Background to and reasons for the Transaction One of the ways that the Company seeks to enhance value for Shareholders overthe long-term is by the acquisition of further investments in projects in whichthe Company is already invested. The Directors believe that making incrementalinvestments in quality assets with a proven track record is both cost and riskeffective. Since its initial fundraising and admission of the Shares to the Official Listin March 2006, the Company has followed this investment approach by makingfollow-on investments in five of the projects comprised in the initial portfolioof infrastructure investments described in the Prospectus and acquired shortlyafter launch. These follow-on investments were acquired from third partysellers. The Transaction is a continuation of the Company's established investmentpolicy. The Price at which the incremental investment in the Project will beacquired is consistent with the Company's current valuation methodology asapplied to the Company's existing interest in the Project. The Directors believethat the Transaction represents an attractive investment opportunity enablingthe Company to increase its holding in a quality asset that has performed well. Information on the Home Office PFI Project The Project is a 29 year concession commissioned by the Home Office to build,finance, operate and maintain a new headquarters building to replace theirformer London office accommodation with purpose-built serviced offices. The newbuilding occupies the site of the former Department of Environment in MarshamStreet in Westminster. The Project involved capital expenditure of approximately £200 million, and thedemolition of the former offices on a 4.3 acre site and the construction of aTerry Farrell Partners designed building comprising three purpose builtinterconnecting office blocks totalling approximately 75,000 square meters, forup to 3,450 staff. Construction was carried out by Byhome Limited, a jointventure between Bouygues (UK) Limited and its sister facilities managementcompany Ecovert FM Limited (both subsidiaries of Bouygues Construction S.A.).The Project was completed and has been occupied by the Home Office since January2005. More recently the building has also been occupied by the Ministry ofJustice. The contract runs to 2031 and the services being provided include health andsafety, cleaning, catering and energy management. Operations are managed byEcovert FM Limited. The Project formed part of the initial portfolio of infrastructure investmentsacquired by the Company shortly after launch and described in the Prospectus.The Seller currently holds a 14.14 per cent. interest in the equity and a 18.47per cent. interest in the subordinated debt in the Project and it is theseequity and debt interests that are now proposed to be acquired. The Company's existing investment in the Project (through the Holding Company)is not treated as a subsidiary of the Company as the Company is not able tocontrol the financial and operating policies of the Holding Company by virtue ofthe various agreements constituting the Project. Consequently, the Company'scurrent investment in the Project is accounted for as a financial asset at fairvalue in the Company's balance. This additional investment in the Project willnot change the method that the Company accounts for its interest in the Project,and the Holding Company will not be consolidated within the Company's accounts. On completion the Company's enlarged investment in the Project will notrepresent more than 20 per cent. of the Company's total assets. Summary of the Transaction and Valuation The Company has entered into a conditional Sale and Purchase Agreement with theSeller to purchase the Seller's entire interest in the shares in the capital of,and loan notes issued by, the Holding Company in respect of the Project. The Sale and Purchase Agreement provides that the Company will purchase 77,779fully paid ordinary A shares of £1 each in the capital of the Holding Companyand £5,535,965 Loan Notes of the Holding Company, in each case registered in theSeller's name. The consideration for the Transaction, payable on Completion willbe a fixed cash amount of £14.4 million, which will be satisfied from theCompany's own cash resources and/or existing debt facilities. The Price represents an amount that the Directors (with advice from theInvestment Adviser) consider to be the Fair Market Value for the equity andsubordinated debt interests in the Project proposed to be acquired pursuant tothe Transaction. The Fair Market Value has been calculated using a valuationmethodology which is in accordance with the European Private Equity and VentureCapital Association's valuation guidelines, using the discounted cash flowsmethodology and standard industry practice. This is the same methodology used bythe Company: (i) to determine the Fair Market Value of the initial portfolio ofassets acquired by the Company shortly after launch as detailed in theProspectus; and (ii) to determine the Fair Market Value of all of the Company'sinvestments as detailed in the Company's report and financial statements for theyear ended 31 March 2007. The Price for the equity and subordinated debtinterests proposed to be acquired is consistent with the Company's currentvaluation methodology for the Company's existing interest in the Project andcontained as part of the Directors' valuation in the interim financialannouncement of the Company dated 20 November 2007. The Directors have satisfiedthemselves on the valuation methodology and the discount rates used. Completion is conditional upon Shareholder approval of the Transaction beingobtained at the Extraordinary General Meeting or any adjournment thereof andconditional upon no notice being given to terminate the Project agreement and noevent of default being called under the funding documents in respect of theProject prior to the date of Completion. Subject to satisfaction of theseconditions, Completion is expected to be on 18 December 2007. No consents arerequired to effect Completion (other than the approval of Shareholders) due tothe inter group relationship between the Seller and the Company. The Sale and Purchase Agreement contains limited warranties consistent withmarket practice for the acquisition of PFI projects in the secondary marketwhere the purchaser is already an investor and includes warranties as to titleand authority of both the subsidiary of the Company making the acquisition andthe Seller. Additional information Oriel Securities Limited, which is authorised and regulated by the FinancialServices Authority for investment business activities, is acting for HSBCInfrastructure Company Limited in relation to the matters set out in thisannouncement and is not acting for any other person in relation to such matters.Oriel Securities Limited will not be responsible to anyone other than HSBCInfrastructure Company Limited for providing the protections afforded to itsclients or for providing advice in relation to the matters set out in thisannouncement or any arrangement referred to herein. This information is provided by RNS The company news service from the London Stock Exchange