HICL Infrstrct Co Ld - Interim Update Statement

The Board of HICL Infrastructure Company Limited ("HICL" or "the Company" or, together with its subsidiaries, "the Group"), the listed infrastructure investment company advised by InfraRed Capital Partners Limited ("InfraRed" or "the Investment Adviser"), is issuing this Interim Update Statement, which relates to the period from 1 October 2018 to 28 February 2019.

Ian Russell, Chairman of HICL Infrastructure Company Limited, said:

"I am pleased to present an update on the Company's activities in the period since the Interim Results. Portfolio performance overall has been steady, with some operational challenges alongside positive value enhancements and progress in a number of areas.

"The Company is still on track to achieve the target dividend of 8.05p per share for the year to 31 March 2019. The confidence the Board has in the foreseeable cashflows also allows us to reiterate the guidance previously published of 8.25p per share for the next financial year to March 2020 and 8.45p per share for the following year to March 2021.

"The Board announced in November 2018 that we believed it was in the best interests of shareholders as a whole to move the domicile of the Company's investment business from Guernsey to the UK. Shareholder approval for this will be sought at an EGM on 26 March 2019, following the publication on or shortly after 4 March 2019 of the EGM Circular and a Prospectus for the listing of the new UK plc's shares. UK residency should help to mitigate the potential impact of future changes in the continually evolving cross-border tax landscape and the new UK plc will be aligned geographically with the majority of its shareholders and the bulk of its portfolio."

Investment Activity

The Group has a portfolio of 117 investments located in the UK, France, Ireland, the Netherlands, Canada and the USA.

 

In November 2018, the Company announced that its consortium with Diamond Transmission Corporation Limited (a subsidiary of Mitsubishi Corporation) had been selected by Ofgem as the preferred bidder to own and operate the Galloper offshore windfarm transmission infrastructure, a regulated asset, with HICL's 50% share of the consideration expected to be approximately £15m when the project reaches financial close in H2 2019. The consortium is now preferred bidder on two bids for offshore transmission owner ("OFTO") projects, the other being the Race Bank OFTO which is due to reach financial close in Q2 2019.

 

In the Company's Interim Report published in November 2018, the Company confirmed it had entered into an agreement to dispose of its 9.7% interest in AquaSure Desalination PPP project (Australia). This disposal completed in November 2018, following the receipt of third-party consents and the consideration of AUD$161m (£90.1m).

 

Fulfilling a commitment made in 2014, the Company completed the acquisition of a further 40% interest in the N17/N18 Gort to Tuam Road (PPP) in the Republic of Ireland for consideration of €23m.

Dividends and Financing

 

The Company announced a second quarterly interim dividend for the financial year ending 31 March 2019 of 2.01 pence per Ordinary Share (the "Q2 Dividend") on 14 November 2018. The shares went ex-dividend on 22 November 2018 and the Q2 Dividend was paid on 31 December 2018. The take-up of the scrip dividend was approximately 2.52% of the Ordinary Shares in issue.

 

The third quarterly interim dividend for the financial year ending 31 March 2019 of 2.01 pence per Ordinary Share (the "Q3 Dividend") was declared earlier than previously announced in the Company's Scrip Dividend Circular, on 12 February 2019. The Relevant Quarterly Ex-Dividend Date and Relevant Quarterly Dividend Payment Date were also moved forward by a week to 21 February 2019 and 22 March 2019, respectively. This was done in order to allow sufficient time to administer the scrip option in respect of the Q3 Dividend ahead of the expected change in the Company's domicile.

 

The Company is still on track to deliver its target dividend of 8.05 pence per Ordinary Share for the financial year to 31 March 2019, and the Board reiterates a target dividend of 8.25 pence per Ordinary Share for the financial year to 31 March 2020 and 8.45 pence per Ordinary Share for the financial year to 31 March 2021.

 

The Company expects the dividend for the year to 31 March 2019 to be fully cash covered, despite lower portfolio cash generation attributable to the distribution lock-ups resulting from the Carillion liquidation and the impact on distributions from operational challenges at Affinity Water.

 

Market and Outlook

 

The Group's portfolio has historically had low exposure to construction risk on greenfield PPP projects. The Investment Adviser continues to seek opportunities in this area across HICL's target geographies (UK, Europe, North America and Australia / New Zealand).

 

Following the incremental investment in the A63 Motorway, the Group is close to the 20% limit on demand-based assets with GDP-correlated returns and therefore there is limited appetite to seek further acquisitions of this type at this time.

 

Regulated assets remain of interest where appropriate opportunities can be found. The Company continues to bid for OFTOs in Ofgem's Tender Round 5 in the UK, alongside consortium partner, Diamond Transmission Corporation Limited (a subsidiary of Mitsubishi Corporation).

 

Market pricing generally remains elevated and competition is high for good quality assets in HICL's target markets. The Investment Adviser regularly assesses opportunities and, where deemed appropriate, makes bids on behalf of HICL with a strong focus on maintaining the discipline necessary to ensure that new acquisitions improve the Company's accretion metrics for the portfolio.