GCP Infra proposes combination with GABI

GCP Infrastructure Investments announced the proposed combination of its assets with the GCP Asset Backed Income Fund (GABI) on Friday.

The FTSE 250 company said the agreement would lead to the solvent winding-up of GABI, transferring its assets to GCP Infra in exchange for new ordinary shares.

It said the shares issued would be based on a formula asset value (FAV) basis, with the combination set to be finalised by the end of 2023.

In a separate development, the board also announced ongoing discussions with RM Infrastructure Income (RMII) about a potential combination with the enlarged GCP Infra.

Post the GABI combination, GCP Infra would use £200m of the available cash for two primary objectives over the next two years, with the first being reducing the company's leverage to about £50m, and distributing £100m to shareholders via buybacks, special dividends, or other means.

The GABI combination would usher in changes to GCP Infra's investment policy, with proposed revisions including a stronger focus on sustainable assets, specifically investing in infrastructure and real assets that benefit from public-sector backing, carry no construction risks, have high sustainability standards, and are UK-located.

GCP said the combination was expected to deliver a number of benefits to shareholders, including a reduction in leverage and returning capital to shareholders, enhanced liquidity in the secondary market, a diversified investment strategy with an emphasis on sustainability, the consolidation of shareholder registers from both companies, and around £0.8m in annual cost savings post-combination.

While both companies would bear their respective costs related to the combination, Gravis Capital Management - the adviser to GCP Infra and manager of GABI – would contribute £1m towards the costs.

Post-combination, Gravis' advisory fee would be tiered, based on net assets.

Additionally, GCP said that given the long-term nature of infrastructure debt investments, GCP Infra would present shareholders with a continuation vote at the 2028 annual general meeting, and every four years thereafter.

The combined GCP Infra would be managed by Philip Kent, Ed Simpson, and Max Gilbert, supported by the wider Gravis team.

Timelines for further actions, including detailed proposals to shareholders and general meetings, would be published in due course, with the GABI combination expected to conclude by the end of 2023.

“There has been considerable consolidation amongst investors in investment companies like GCP Infra,” said chairman Andrew Didham.

“With this comes the need for consolidation amongst investment companies, to provide their investors with entities of greater scale, more liquidity and lower ongoing costs.

“GCP Infra is well placed to drive this consolidation, and the Board believes that the GABI scheme and, if progressed, the RM scheme, will deliver improved liquidity in the company's shares, a lower ongoing charges ratio and a wider pool of potential investors.”

Reporting by Josh White for Sharecast.com.