HICL buying a third of Affinity Water for £270m

Listed infrastructure investment company HICL Infrastructure Company announced on Tuesday that it had reached agreement to acquire a 36.6% equity interest in the various entities that comprise the Affinity Water Group, (including the regulated entity, Affinity Water Limited.

The FTSE 250 firm said it was part of a consortium, alongside DIF Infrastructure and Allianz Capital Partners on behalf of Allianz Group, which agreed to acquire 100% of the equity interest in Affinity Water Acquisitions from Morgan Stanley Infrastructure and Infracapital.

It said the investment was consistent with its strategy of investing in assets that were positioned at the lower end of the risk spectrum in three target market segments - public-private partnerships, regulated assets, and demand-based assets.

HICL claimed Affinity Water was the largest water-only company in England and Wales by revenue and population served, with a regulatory capital value of £1.156bn as at 31 March 2017.

It was licensed under the Water Industry Act 1991 and regulated by Ofwat, and its principal activities were water supply and distribution and the construction and maintenance of water supply infrastructure.

Affinity Water currently served 1.5 million customers across an area of approximately 4,515 square kilometres in the south east of England.

HICL's share of the consideration for the acquisition amounted to approximately £269m, the board said.

That included HICL's share of Topco's commitment to acquire a minority interest in Affinity Water.

The investment would be funded using HICL's cash resources and drawings from its revolving credit facility, and completion was scheduled for later in the month.

HICL said it would have a net funding requirement of around £230m following completion of the acquisition.

If calculated using an asset life of 100 years, the board said the investment extended the weighted average asset life of HICL's portfolio to 32.2 years.

Additionally, the portfolio's inflation correlation would be increased such that a 1% increase in inflation per annum against the base case valuation assumption would result in the total return to HICL's shareholders increasing by 0.8% per annum.

“InfraRed is delighted to have secured this £269m investment in Affinity Water, the largest water-only service company in England and Wales, for HICL,” said Tony Roper, director at HICL’s adviser InfraRed Capital Partners.

“The investment is in line with HICL's stated acquisition strategy and supports the delivery of the company's investment proposition to produce long-term income for shareholders from a portfolio of infrastructure investments positioned at the lower end of the risk spectrum.

“The investment in Affinity Water will be accretive to the existing HICL portfolio in terms of total return, weighted average asset life and inflation correlation.”

In a separate announcement, HICL also confirmed it had negotiated an increase in the size of the its revolving credit facility to £400m from £300m.

The terms of the enlarged facility remained the same, the board said, with a margin of 1.70% over LIBOR and expiry in May 2019.

It said the banks providing the facility had expanded with Santander ‎joining National Australia Bank, Lloyds Bank, Royal Bank of Scotland, Sumitomo Mitsui Banking Corporation, ING and HSBC in the banking group.

"The company has increased the size of this facility in light of the pipeline of new opportunities which the group is evaluating," the board said in a statement.