Investment trust insider on infrastructure

Investment Trust Insider on Capital Gearing Trust

Investment trust insider on infrastructure – James Carthew: infrastructure trusts look safer than equity

While we haven’t yet seen a new issue, the market for fundraising by investment companies appears to be fairly healthy despite the wider economic malaise. If you are raising money in the current environment, it helps if your investments aren’t much correlated with equity markets. Hipgnosis Songs (SONG) pulled in £236m this month and SDCL Energy Efficiency (SEIT) raised £110m last month, both issues were oversubscribed.

At the front of the queue now is HICL Infrastructure (HICL). It wanted enough to repay its £75m revolving credit facility and raise some money for future investments. Strong demand from investors has seen it raise £120m in a heavily over-subscribed ‘tap’ issue at 164p to institutional investors.

Yesterday it said it would spend £41m on buying the remaining 50% interest it does not own in the M17/M18 motorway project in the Republic of Ireland.

Most of HICL’s revenue is availability-based. In other words, as long as the asset – a school, a hospital or a police station, for example – is available for use and maintained to agreed standards, HICL can collect steady, predictable and often inflation-linked revenue.

A small part of its portfolio is invested in demand-based assets, however. HICL has stakes in the A63 motorway in France, the Northwest Parkway in Denver, Colorado and High Speed One, the rail link between St Pancras and the Channel Tunnel. For these assets, HICL’s revenue fluctuates in response to the usage of these assets. Covid-19 lockdown measures hit these hard.

When I was writing a note on Ecofin Global Utilities and Infrastructure (EGL) recently, fund manager Jean-Hugues Lamaze was picking up some bargains in the transport infrastructure sector. He pointed me towards…

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