Every Public Private Partnership (PPP)* contract has its own Special Purpose Vehicle (SPV) or Company (SPC) to undertake the design, construction, finance and operation of the project. It is always a company, so the latter term is used in this report.
The shareholders of the SPC are usually the construction company, bank or financial institution and the facilities management contractor. The lead bidder, usually the construction company, and the bank or financial institution, will have the largest shareholding. Large construction companies and financial institutions will have shareholdings in many SPCs. The public sector is a minority shareholder in Local Improvement Finance Trusts (LIFTCos) for primary healthcare centres and in the disbanded Building Schools for the Future programme.
The SPC signs the contract with the public authority and finances construction by borrowing, usually bank loans, that account for between 85%-90% of the required financial resources with the equity shareholding in the SPC contributing the remaining 10%-15%. The new PF2 model will increase equity finance to 20%-25%. Bond issues have financed a minority of UK projects.
This study focuses on the sale of shares and change of ownership of PPP project companies after the contract has been signed. It excludes the original investment in equity at financial close of the project, because this is primary transaction. Nor does it include financial gains from refinancing projects once they are operational. The PPP contract will normally impose a restriction on the sale of equity prior to the completion of the building works. PPP shareholders are required to inform the public authority within 30 days of any change of equity ownership.
Some PPP companies have a policy of retaining ownership of equity in SPCs, whilst others recycle their investments by selling equity to help finance new PPP projects.
Note: * The Private Finance Initiative (PFI) was introduced by the Conservative government in 1992 and Private Finance 2 (PF2) since December 2012 in UK, P3 in Canada and USA. PPP is used generically in this report.
The contract requires the public sector to pay a monthly unitary charge to the SPC, which reflects the cost of access or use of the building (including the cost of construction, debt repayments and maintenance), plus the cost of facilities management (such as cleaning, catering, waste disposal, grounds maintenance). Private Finance 2 projects exclude facilities management or soft services).
Buildings are usually automatically transferred back to the public sector at the end of the contract, because they have continuing useful economic life. The standard PPP contract requires the contractor to transfer all rights, title and interests in and to the assets to the public authority or for the authority to retender the provision of the service (HM Treasury, 2007 and 2012). This does not prevent the SPC advancing proposals on future use, management and control.