Construction companies such as Balfour Beatty, Carillion, Costain and Interserve and PPP investor/manager John Laing, have portfolios of PPP projects they have constructed. They began to seek methods of selling PPP equity to reduce corporate debt and maintain the flow of bids for new projects.
The formation of joint ventures between PPP construction companies and banks between 2004-2007 played a key role in consolidating the UK secondary market. Two large Dutch pension funds formed joint ventures with Amey, Lend Lease and BAM between 2007 and 2011, which provided another route for construction companies seeking to recycle their PPP investments.
Combining a number of PPP assets in a portfolio is claimed to have a number of commercial advantages, such as pooled portfolio insurance arrangements and other bulk buying arrangements; acquisitions of co-shareholders' interests in existing assets; proactive business plan development, for example in stimulating third party revenues, managing service delivery and regulatory review outcomes; proactive treasury management to maximise deposit interest across the Group; capital restructuring of existing funding arrangements where appropriate, including the introduction of more competitive financing; and maintaining close working relationships with clients and supply chain contractors (HICL Prospectus, 2012c).
"As a consequence of the circumstances faced by the Group, an accounting loss on disposal of £15.3 million has been recorded in the Income Statement. There was however, a substantial profit of £72.9 million on the disposals when measured against the original cost of the investment." John Laing, Annual Report & Accounts 2009 |
Ten PPP companies established joint ventures, usually on a 50/50 basis, with infrastructure funds, so that PPP equity would transfer to the JVC shortly after the PPP project was operational.
Joint ventures between construction companies and financial institutions include:
• John Laing and Commonwealth Bank of Australia (2004)
• Kajima Partnership (Japan) and HICL Infrastructure (2005)
• Lend Lease (Australia) and HBOS (2006)
• Serco Group and Infrastructure Investors (now wholly owned by Barclays Private Equity) (2006)
• Hochtief (Germany) and PFI Infrastructure Co., then Infrastructure Investors and then Barclays Private Equity (2007)
• Robertson Group and 3i (2010); Robertson retains 50.1% equity stake in portfolio of 16 projects.
Joint ventures between construction companies and pension funds:
• BAM (Netherlands) and Dutch Infrastructure Fund (2007)
• Amey (Ferrovial, Spain) and Dutch Infrastructure Fund (2009)
• Lend Lease (Australia) and PGGM Vermogensbeheer (Dutch pension fund) (2010) 10%/90% basis with initial £200m funding.
• Royal BAM Group (Netherlands) and PGGM Vermogensbeheer (Dutch pension fund) (2011) 50%/50% basis with target investment of €390m.
Joint ventures accounted for 9%-15% of PPPs engaged in the sale of equity between 2006-09 - see Table 7. This figure rose to 37.5% in 2010 but has since declined significantly.
Many diversified companies are participating in the PPP market, as it offers low-risk investment and attractive dividend yields." Kim Redding, Chief Executive, Brookfield Investment Management, Financial Times, 28 October 2012. |