International Public Partnerships sees modest hit from COVID – International Public Partnerships says that it had a successful year in 2020, particularly against the wider backdrop of the global Covid-19 pandemic. The company met its dividend target of 7.36p per share for the year (2.5% more than for 2019) and has set out an ambition of raising dividends to 7.55p for 2021 and 7.74p for 2022. 2020’s dividend was covered by cash generated from the portfolio by 1.2 times.
COVID-19 did have some impact on the company’s investments in Tideway (the Thames ‘super sewer’) – where the pace of construction was affected – and the Northern Diabolo Rail Link (Brussels airport rail link) – where revenues are indirectly linked to usage. However, these are two of 130 public and social infrastructure assets in the portfolio. The hit to NAV from provisions against these and other investments including Cadent (see below) resulted in a fall in the NAV from 150.6p to 147.1p.
2020 saw the company complete £30m of new investments and it also now has an investment pipeline totalling £220m (including its tenth UK offshore energy transmission project).
Thames Tideway Tunnel, UK
The tunnelling of a new “super sewer” beneath the Thames reached 60% completion during 2020, despite delays to the project’s construction timetable as a result of the first UK national lockdown in March 2020, where only essential and safety-critical works were carried out, as well as ongoing distancing requirements. With appropriate processes and procedures in place to protect the health and safety of workers and the wider community, construction activities progressed over the period and the final tunnel boring machine was launched in January 2021. In August 2020, Tideway indicated that Covid-19 will cause the project cost to increase from £3.9bn to £4.1bn and the completion date to be delayed from June 2024 to March 2025. Existing contractual and regulatory safeguards will help mitigate the financial impact on investors (the company is a 16% shareholder in Tideway) and Tideway is in discussions with Ofwat, its regulator, regarding a package of further mitigations.
Diabolo, Belgium
The investment in Diabolo, a rail infrastructure investment which integrates Brussels Airport with Belgium’s national rail network, runs until 2047. The majority of revenues from Diabolo are linked to passenger use of either the rail link itself or the wider Belgian rail network, and as a result of the impact of the Covid-19 pandemic on international travel and national lockdowns in Belgium, passenger numbers were significantly lower over the course of 2020. Following proactive discussions with the project’s lenders and the Belgian state railway since the onset of the pandemic, and as announced in December 2020, International Public Partnerships committed £9.1m in December 2020 to protect Diabolo’s liquidity position and ensure its debt covenants will continue to be met. A further £12.6m in contingent funding was committed to support the project’s future liquidity position and ensure compliance with debt covenants, noting that any unutilised funding will be cancelled. To inform the 2020 valuation of Diabolo, the company commissioned advice from a specialist independent technical adviser to help forecast future passenger numbers as lockdown restrictions ease and international travel resumes. The company has continued to take a cautious approach to near-term uncertainty by assuming that no distributions will be made by Diabolo until 2023.
Gas distribution, UK
International Public Partnerships has an investment in the UK’s largest gas distribution network, which serves 11m customers and is the company’s largest asset by investment fair value. Cadent’s revenues have remained largely unaffected by Covid-19, but an increase in costs from delays to planned works and new working protocols to accommodate social distancing is likely. Separately, Cadent and the UK energy regulator, Ofgem, have been negotiating ahead of the next five-year regulatory period, which is due to start in April 2021. Following Ofgem’s final determination for Cadent in December 2020, Cadent sought an independent review by the Competition and Markets Authority. The value of Cadent in the accounts reflects Ofgem’s December announcement. If the appeal succeeds, there is scope for the valuation to improve.
INPP : International Public Partnerships sees modest hit from COVID