HM Treasury only began tracking changes in PPP equity ownership in 2008 and the information records the current ownership of equity and the percentage shareholding - it does not include the value, profit/loss, date of sale, reason or any other data. Earlier versions of the database recorded the percentage of equity held by each shareholder, but this is now simply recorded as a proportion of 1. There is no justification to reduce the quality of information.
Companies are required to publish Regulatory Notices, Interim and Annual Reports and Corporate Press Notices geared to satisfying market information needs. The fact that virtually all PPP projects are ultimately totally reliant on public expenditure is regarded as a commercial advantage because of risk reduction, particularly in Prospectus and Offer documents of new infrastructure funds, as this reduces risk. This is not reflected in public disclosure requirements. Most company annual reports describe their commitment to Corporate Social Responsibility, but PPP equity sales provide further proof of its limited relevance and authenticity. A radical overhaul of regulatory requirements is urgently required.
John Laing, a major PPP company, ceased to be a public limited company in January 2006 following a takeover by Henderson Global Investors. It is no longer required to make Stock Exchange announcements, hence its website 'news' section contains information only about being appointed a preferred bidder or financial close of projects, industry awards or the project completions. There is little or no information about the disposal of equity in PPP projects. The John Laing Annual Report bundles all the disposals and reports on the total income and profit. No information is provided on the profit/loss for separate transactions.
The John Laing Infrastructure Fund is required to issue Stock Exchange announcements and regularly reports the acquisition of stakes in PPP projects when these are of a material financial interest. However, the infrastructure fund is buying, not selling assets, and is not responsible for the profit/loss earned by John Laing. The end result is reduced disclosure and the release of less information about the profit/loss of transactions from 2007 onwards.
The NAO claims that "…most of what happens in the secondary market falls outside the remit of the National Audit Office. Whilst the National Audit Office has access rights to the documentation of PFI sub-contractors (where they relate to the accounts of a body we audit), we do not have access rights to documents belonging to shareholders. Our information on the secondary market is thus restricted to data collected from public authorities and contractors, as well as our general monitoring of the sector (and) has an interest in the effect of the secondary market on the value for money of PFI contracts" (House of Lords, 2010b).
Transparency is minimal in most PPP equity transactions. Notice of the sale of equity rarely gives the sale price, purchaser and/or profit. The sale of bundles of projects makes matters even more opaque, for although the overall price and/or profit will be stated, but not for individual projects.
There is a high degree of obfuscation or concealment of the details of PPP equity transactions. Limited additional information is sometimes available in annual reports when there is a vested interest in promoting the company's performance and financial acumen. However, the time gap can be up to twelve months before this information is available.
There are few disclosure requirements. Many publicly listed company's issue a Regulatory Notice or Stock Exchange announcement disclosing the acquisition or disposal of PPP equity, but larger companies usually consider the transaction is not of material financial interest. There is no requirement to disclose the name of the vendor, the percentage of shareholding being sold, the profit/loss or rate or return. Privately owned companies and private equity funds have no comparable disclosure requirements.
Some companies issue press releases to announce PPP equity acquisitions/disposals but most corporate media communications focus almost exclusively on contract awards, statutory notices on share dealings and changes in company directors. A company may report the details of an equity sale or acquisition in their interim or annual report, but may not indicate the price, level of profit nor to whom they sold their shareholding. There is no common practice or standard requirement.
Obtaining information about PPP equity deals in companies subject to takeover or merger is also extremely difficult, as annual reports and regulatory news announcements are often removed from corporate web sites shortly after acquisition. Companies may not wish the market to know they are selling a shareholding in case this is taken as a sign of financial instability and thus affect the company's share price. Non-profit companies or social enterprises, such as care providers, release little or no information on the sale of equity in projects, presumably because this does not fit with the image they seek to portray.
The NAO analysis of 99 equity transactions is a good example of the lack of transparency (NAO, 2012). They calculated the rate of return, but did not disclose the return for each project nor did it reveal the level profit from the transactions, despite some companies publicly disclosing this information. Some additional information was provided in three case study projects.
Similarly, the Audit Commission refused to disclose the names of local authorities and contractors in its study of 14 PPP strategic partnerships, even when contracts had been terminated? (Audit Commission, 2008 and Whitfield, 2008).
A common pattern of minimal or non-disclosure serves to protect the interests of private capital. The solution lies in regulatory changes and new comprehensive disclosure requirements. Freedom of Information should be extended to include private companies in the delivery of public infrastructure and services, but the emphasis should be on public disclosure supplemented by the right to request additional information.
Minimal public disclosure of PPP equity transactions has led to the growth of a secret market. New PF2 disclosure requirements are likely to make only marginal change.
The next section sets out the background to PPP equity research, the objectives, establishes a theoretical framework and the methodology used to compile the database.