HICL Infrastructure completes acquisition of a 36.6% stake in Affinity Water Group

HICL Infrastructure has announced that it has completed the acquisition of a 36.6% equity interest in the various entities that comprise the Affinity Water Group, including the regulated entity, Affinity Water Limited. HICL is part of a consortium, alongside DIF Infrastructure and Allianz Capital Partners on behalf of Allianz Group, which has agreed to acquire 100% of the equity interest in Affinity Water Acquisitions (Investments) Limited (“Topco”) from Morgan Stanley Infrastructure and Infracapital. HICL says that the investment is consistent with its strategy of investing in assets that are positioned at the lower end of the risk spectrum in three target market segments: PPPs; regulated assets; and demand-based assets.

Affinity Water is the largest water-only company in England and Wales by revenue and population served, with a regulatory capital value of £1.156 billion as at 31 March 2017. It is licenced under the Water Industry Act 1991 and regulated by Ofwat, and its principal activities are water supply and distribution and the construction and maintenance of water supply infrastructure. Affinity Water serves 1.5 million customers across an area of approximately 4,515 square km in the south east of England.

HICL’s share of the consideration for the acquisition amounts to approximately £269 million. This includes HICL’s share of Topco’s commitment to acquire a minority interest in Affinity Water. The investment has been funded using HICL’s cash resources and drawings from its revolving credit facility.

HICL says that, if calculated using an asset life of 100 years, the investment extends the weighted average asset life of its portfolio to 32.2 years and that the portfolio’s inflation correlation will be increased such that a 1% increase in inflation p.a. versus the base case valuation assumption would result in the total return to HICL’s shareholders increasing by 0.8%2 p.a.

HICL says that it is in advanced discussions to sell down a £25 million portion of this investment to a small group of co-investors, comprising UK local authority pension funds. HICL says that this exemplifies its strategy of building strategic relationships with aligned co-investors in order to enable HICL to manage its portfolio exposure to larger investment opportunities. The sell down is expected to complete in the next few weeks and will leave HICL with a 33.2% equity interest in Affinity Water and a net funding requirement of approximately £205m.

HICL Infrastructure completes acquisition of a 36.6% stake in Affinity Water Group : HICL