UK’s First Listed Infrastructure Fund To Debut

(Reuters) – Gravis Capital Partners, which is set to create Britain’s first listed infrastructure fund focused on providing debt to projects, said it would successfully complete its initial public offering (IPO).

“We are very confident that we will comfortably exceed the minimum 35 million pounds ($53.7 million) we said we would accept, by how much I don’t know, but we will be closing successfully on Monday,” Gravis Managing Partner Stephen Ellis told Reuters.

Gravis is due to close the books on July 19 on a London IPO targeting 50 million pounds for its infrastructure fund to invest in subordinated debt of projects under the UK private finance initiative (PFI), such as schools and hospitals.

Demand for infrastructure debt funds soared after the onset of the financial crisis, as developers, keen to put less equity into projects, turned to lenders other than banks for, often mezzanine, debt for their infrastructure financing needs.

Gravis launched an unlisted retail infrastructure fund in June 2009, offering investors willing to commit at least 25,000 pounds a long-term, fixed, net annual rate of return of 8 percent, with subscriptions and redemptions on a monthly basis.

“A lot of people simply could not invest in something that was not London listed. It is very difficult to achieve additional liquidity when the underlying investments are by their nature relatively illiquid,” Ellis said.

 

HIGHER RETURNS

Gravis is set to become the fourth infrastructure fund listed in London, joining 3i Infrastructure (3IN.L), HSBC Infrastructure (HICL.L) and International Public Partnerships (INPP.L), which make mostly equity investments in projects.

“Because we are investing in debt and not infrastructure project companies, we are by definition more secure because we are higher up the capital structure. So it is an interesting proposition to be offering a higher yield at a lower risk,” Ellis said.

The three existing infrastructure funds average a yield of between 5.25 and 5.75 percent, whereas the Gravis listed fund is targeting dividend payments of 8 percent annually on each ordinary share, he added. “The other listed funds have to acquire an asset, drive down costs, introduce efficiencies and then they will get at some point a higher yield. We have a different model, we just enter a straightforward loan relationship right away,” Ellis said.

Rather than list its existing infrastructure fund, Gravis is publicly placing a new feeder fund at a price of one pound per ordinary share. The feeder fund, GCP Infrastructure Investments Limited, will then invest its capital in the unlisted fund.

The British government’s cuts on public works spending, including the PFI schools building programme, will have little impact on the fund, which focuses on the refinancing of existing projects rather than the financing of new ones, Ellis said.

As PFI contracts are linked to inflation, the fund also stands to benefit should investors become more concerned about the rate of price rises, he added.

Oriel Securities is acting as financial adviser and bookrunner on the IPO.

By Greg Roumeliotis
(Editing by David Holmes) ($1=.6519 Pound)