NPS to buy stake in UK high-speed railway for $350 mn in InfraRed-led investment

  • 2017-07-16

South Korea’s National Pension Service (NPS) is expected to invest around 400 billion won ($353 million) in acquiring a 30% stake in Britain’s High Speed 1 (HS1) in joint investment led by funds of InfraRed Capital Partners, after their consortium was selected as a preferred buyer of the high-speed railway.

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St Pancras railway station

Hana Financial Investment Co. Ltd., a brokerage unit of a top South Korean banking group, also has participated in the consortium and is to underwrite 100 million pounds ($130 million) worth of shares in HS1 from one of HICL funds run by InfraRed, according to investment banking sources on July 16.

Hana plans to resell the HS1 shares to domestic insurers and retirement savings funds.

A group led by funds of UK-based InfraRed and Equitix Investment Management Ltd. signed an agreement on July 14 to take a whole ownership of HS1 from two Canadian pension funds – Ontario Teachers’ Pension Plan and Borealis Infrastructure, the infrastructure investment manager of Ontario’s municipal employees’ pension plan, according to media reports.

InfraRed bid for HS1 on behalf of NPS and HICL funds.

The equity value in the transaction is reportedly 914 million pounds, and including debt, the enterprise value of HS1 is estimated at over 3 billion pounds.

Based on the estimated value, NPS’s 30% stake in the sole high-speed railway in Britain is worth more than 400 billion won.

HICL funds and Equitix will each acquire a 35% in the company.

Another consortium including Dalmore Capital Ltd. and Amber Infrastructure Group, as well as Dutch Infrastructure Fund B.V. vied for HS1 in the auction.

A group of unidentified South Korean savings funds and insurers joined in the Dalmore-led consortium with the commitment of 200 billion to 300 billion won, the Maeil Business Newspaper reported earlier this month.

HANA FINANCIAL

For Hana’s underwriting, KDB Infrastructure Investments Asset Management Co. Ltd., an arm of a state-run South Korean bank, will run a 20-year domestic fund which is expected to deliver a net IRR of 7% to 8% per annum.

NPS is likely to secure better yields than the KDB fund investors from the shareholding in the UK infrastructure asset, given that it does not need to pay a fund management fee.

HS1 runs the 109 km rail line connecting London’s St. Pancras station with the Channel tunnel. It manages the line under a 30-year concession agreement which began in 2010.

The UK government guarantees a minimum traffic volume for the domestic line of HS1 and allows basic fares to increase in line with consumer inflation until the end of 2040.

The consortium including NPS is expected to generate additional profits from the management of parking lots and commercial facilities in the four stations along the route, passenger traffic of which has been rising since 2010.

The infrastructure investment by NPS comes after it allocated A$500 million to a joint investment to win a 50-year lease on the Port of Melbourne in Australia last September.

In 2010, NPS teamed up with Kohlberg Kravis Roberts & Co to buy a stake for around $900 million in Colonial Pipeline Company which connects New York with Texas. The world’s third-largest pension scheme bought a 12% stake in Gatwick Airport in London for around 100 million pounds in early 2010.

Among cross-border infrastructure investments which NPS began in 2009, it recently exited its 100 million euro equity investment in Spain’s leading oil transportation and storage company CLH with a handsome return.

But mounting interest by pension funds in infrastructure assets has boosted deal sizes, while the number of infrastructure deals completed in recent years remained stable.

According to Preqin, a research firm, the number of infrastructure transactions completed in 2016 was up just 2% to 1,774 from a year before. By comparison, the estimated aggregate value of the 1,774 infrastructure deals jumped 16% to $645 billion over the same period, with the average deal size reaching an all-time high.

By Chang Jae Yoo and Daehun Kim

yoocool@hankyung.com

<Edited by Yeonhee Kim>