3i currently holds 132 PPP and low-risk energy projects, across three investing vehicles:
The chart below shows the proportion of committed capital by sector:
3i holds 42 investments in the health sector, which are located in the UK, France and Italy. These are typically contracts involving the design, build, maintenance and operation of acute or community hospitals.
In April 2013, BEIF II acquired a 51% interest in Vimercate Hospital, an operational PPP hospital located in the region of Lombardy, Italy.
The project reached financial close in October 2007 and became operational in 2010. The 24 year concession includes 570 beds, medical equipment, parking and commercial areas.
This was an opportunity to acquire a fully operational hospital, with an availability-based payment mechanism and over 2 years of good operational performance. The location was desirable, as the region of Lombardy held the strongest credit rating in Italy at the time of investment.
The investment helped diversify and widen the scope of our European PPP portfolio. The team also saw strong value enhancement potential in the investment.
The PPP team manages a broad range of investments in the transport sector, including roads, bridges, light rail and street lighting projects.
IXAS Zuid-Oost B.V. is a special purpose company (“SPC”) created by Ballast Nedam, Fluor, Heijmans Capital (a joint venture between Heijmans and 3i Infrastructure plc) and 3i Infrastructure plc for the A9 Gaasperdammerweg public-private-partnership (“PPP”) project. In November 2014, 3i Infrastructure plc acquired a 45% interest in this primary PPP road project located South East of Amsterdam, as part of the SPC.
The A9 Gaasperdammerweg project is the third section of the Schiphol-Amsterdam-Almere road expansion. Additional lanes will improve the flow of traffic and the accessibility of the Northern Randstad area. The approx. 3km overground tunnel will increase the quality of life in the surrounding area, ensuring cleaner air and a reduction of noise. The project involves the design, build, management, maintenance and financing of the existing and new infrastructure of the A9 motorway between Diemen and Holendrecht, as well as a new bridge over the river Gaasp.
The Netherlands has developed into an attractive PPP market, due to a substantial pipeline of opportunities, strong government finances and well disciplined procurement procedures.
For these reasons, and in order to access the market, our Infrastructure team formed a partnership with Heijmans NV, a large Dutch construction contractor, and established a joint-venture company called Heijmans Capital BV in 2012. 3i Infrastructure plc holds an 80% interest in the joint-venture, with the remaining 20% interest held by Heijmans.
This project is the fourth to have been completed by the joint venture, following the National Military Museum (November 2013), RIVM (August 2014) and the A12 (September 2014).
The project involves the rehabilitation and management of a highway network located in the London Borough of Hounslow. The scope of the works includes roads, bridges, street lights, trees, pavements and traffic management. It also includes the provision of operational services to ensure the network meets users’ needs for safety, cleanliness and general condition. Major trunk roads in the locality are not included.
Following financial close in August 2012, there is an initial 5 year investment phase during which the network will be improved to an agreed standard, with ongoing maintenance and periodic asset replacement during the following 20 years.
This project follows the standard PFI contract structure where the operating risks are substantially passed down to the operating subcontractor. It benefits from a strong counterparty, with whom the team has a good working relationship. The operator is a market leading provider of highway services and an experienced project manager.
The team manages 34 educational projects, including schools, colleges and university buildings.
Manchester Schools Services Limited (“Manchester Schools”) is a concession company under a 37-year availability based PFI contract to design, build, finance and operate the Wright Robinson Sports College in Manchester. Construction of the school was completed in September 2007.
As is typical for PFI contracts, the company receives payments from the NHS Trust to cover services and building maintenance, which are subject to performance deductions for service failures and unavailability. The provision of facilities services is sub-contracted to Hochtief Facility Management.
A 25% interest in Manchester Schools was acquired by BIIF in January 2009 as part of the I² portfolio, comprising 85 projects. The acquisition provided the newly raised fund with immediate yield from a diversified portfolio of operational UK PPP assets and a platform from which to use an active management approach to optimise value.
The infrastructure team holds a broad range of investments in the Defence sector, including investments related to communications, housing, transport, power and training.
The project involves the design, build, finance and maintenance of the National Sports Centre for the French forces (“CNSD”), located in Fontainebleau, 50km south of Paris.
The planned work is to refurbish eight accommodation buildings and a tennis hall, demolish forty buildings and three sports fields, and build three new car parks and four new facilities, including a 6,500m² athletics hall and a 7,500m² multi-sport hall.
The project was procured in December 2011 under an availability-based, PPP contract with the French Ministry of Defence and has a term of thirty years.
The market fundamentals for the project are attractive. At the time of our investment, the French Ministry of Defence was very active in the PPP sector and this investment was a good opportunity to continue to strengthen our presence in this market. The project also reinforces our relationship with the developer, a leading construction contractor in France, following partnerships on earlier projects.
3i includes two main classes of investment in this category:
The project involves the construction and operation of a 13-turbine 26MW wind farm in South Cambridgeshire. BEIF II purchased 85% of the project at financial close in August 2011 and, at the same time, issued an option to the developer RES, under which it would be able to put its retained 15% to BEIF II during a period of up to two years post scheduled construction completion.
Commissioning took place three and a half months ahead of schedule, in September 2012. This opened up bilateral discussions between BEIF II and RES, leading to the option being renegotiated and the exercise date being brought forward. The transaction was completed in December 2013, such that BEIF II now holds a 100% interest in the project.
This project was the first investment in wind renewables to be completed by the team. Like other low-risk energy investments, the characteristics of the Wadlow Wind Farm project are complementary to PPP investing. A fixed price engineering, procurement and construction (“EPC”) contract is in place, materially mitigating the construction risk. The majority of revenue is based on long-term fixed, or guaranteed, prices.
The opportunity arose though our relationship with the developer RES, the renewable energy business of the McAlpine Partnership Trust and one of the UK’s largest independent renewable energy companies. This relationship has since led to further investment activity including, in October 2012, the acquisition of a 100% interest in Black Hill, an operational wind farm located in the Scottish Borders.
In 2009 the UK’s Office of the Gas and Electricity Markets (“Ofgem”) launched an auction process for the first tranche of nine licences to own and operate Offshore Transmission Owners assets (the “OFTOs”). These are electricity transmission assets (already constructed and commissioned) that will transmit power from offshore wind farms onto the domestic UK electricity grid.
In early 2010, BIIF joined the Blue Transmission consortium, which was led by Macquarie and had already pre-qualified for the first tranche of OFTOs. Mitsubishi Corporation was introduced as an equity partner to the consortium, buying out the Macquarie stake soon after.
In October 2011, Blue Transmission reached financial close on the Walney OFTO, located in the Irish sea, 18km from Barrow-in-Furness on the Cumbrian coast. The wind farms consist of fifty one wind turbines with a total capacity of 183.6 NW.
OFTO projects have many similar characteristics to primary PPPs, including an availability-based, index-linked revenue stream that provides stable and predictable cashflows which are ideal for yield focused investors. A further benefit of OFTOs is the absence of construction risk, since assets are fully commissioned prior to investment.
By forming a consortium involved in bidding for the first tranche of projects, 3i positioned itself well in a new market that is able to deliver attractive terms. To date, Blue Transmission has been successful in investing in four OFTO projects; the others being Walney II (September 2012), Sheringham Shoal (June 2013) and London Array (September 2013).
Furthermore the consortium has won the West of Duddon Sands project, which is expected to reach financial close in Q3 2015. Together, these investments represent a market share, by capital value, of approximately 50%.
3i holds 7 investments in prisons, 2 investments in courthouse projects and 1 investment in a police station.
In January 2013, a consortium comprising Spie Batignolles, GEPSA and BIIF reached financial close on two French prison PPP projects; Batch A and Batch B. Each batch is a discrete project.
Batch A involves the expansion of three different prisons (Valence, Riom and Mulhouse), housing 456 to 732 prisoners. Batch B consists of one prison expansion in Beauvais, north of Paris, and will accommodate up to 600 prisoners.
Both projects involve a 27-year design, build, finance and maintenance concession, accommodating mainly remand prisoners.
In early 2010, the Ministry of Justice announced a new programme aimed a providing accommodation for a further 5,000 persons and replacing 10,000 existing places. Batches A & B were the first projects to be launched under this new programme.
The two investments were of a significant size and provided an opportunity to establish a partnership with leading industrial players in the French market, in term of both construction contractor and facilities management service provider.
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