Infrastructure investment trusts have put in place contingency plans to ensure continuity of services at projects where Carillion (CLLN) had provided facilities management.
The collapsed support services company worked on 10 of the public-private partnership (PPP) projects in which HICL Infrastructure Company (HICL) is invested and which account for about 14 per cent of the value of its portfolio. HICL's board said that a contingency plan had already been developed that specifically contemplated a scenario where Carillion entered liquidation and InfraRed, HICL's manager, has been working for some time with a number of potential replacement service providers. Permanent facilities management services providers will be secured as soon as practicable.
HICL had also already reduced its portfolio valuation by between £5 and £10m to reflect recent profit warnings from certain counter-parties.
John Laing Infrastructure Fund (JLIF) has nine operational PPP projects where Carillion provides facilities management – four schools, four emergency services projects and one road. Their value is worth approximately 8.5 per cent of John Laing Infrastructure's portfolio. But its managers were aware of the issues affecting Carillion and have had contingency plans in place for some time. They are looking for alternative facilities management providers and expect this can be achieved with minimal service disruption and additional cost.
John Laing Infrastructure also owns one project where Carillion is liable for construction defects, although a recently completed defects survey has not highlighted any significant areas of concern.
Carillion also provided facilities management for projects accounting for about 3 per cent of the value of International Public Partnerships' (INPP) portfolio. But the trust's board says its managers have been aware of Carillion's problems for some time and have been working to transition the facilities management to new contractors. The board adds that Carillion expects to continue with its contractual requirements in the short term and that its liquidation is unlikely to have any significant valuation impact on the trust.
3i Infrastructure (3IN) and GCP Infrastructure (GCP) also have projects where Carillion is involved, but these account for less than 1 per cent of their assets, according to broker Stifel.
"We would not expect the compulsory liquidation [of Carillion] to have a material valuation impact on portfolios [of these trusts]," say analysts at broker Numis. "The listed Infrastructure funds outsource operations and maintenance services to third parties such as Carillion. The project company has a budget for the provision of these services, and we understand that contract pricing is benchmarked fairly regularly. As a result, we do not expect that Carillion's demise will lead to any major increase in costs.
"Share prices of the listed infrastructure funds were hit by comments at the Labour Party Conference in late September. There has been a recovery in pricing since the start of December, but the sector could face further pressure on premiums in the coming days if there is significant press comment on the operational risks faced by these projects, at least until there is greater clarity over the timing to appoint replacement facilities management services."
HICL was on a premium to net asset value (NAV) of 6.4 per cent at close of play on 12 January, but had moved down to 4.6 per cent by close on 16 January, according to Winterflood.
John Laing Infrastructure was on a premium of 6.3 per cent at close of play on 12 January, and was at a similar level by close on 16 January.
International Public Partnerships was on a premium to NAV of 11.7 per cent at close of play on 12 January, and only adjusted slightly to 11.1 per cent by close on 16 January.
However, these levels are far lower than the levels at which they have traded in the past, with HICL on double-digit premiums well over 20 per cent as recently as 2016, and John Laing Infrastructure and International Public Partnerships on premiums of over 15 per last year.
