TIDMINPP
RNS Number : 6919M
International Public Partnership Ld
29 August 2013
29 August 2013
Changes to Investment Advisory Agreement
International Public Partnerships Limited (INPP), the listed
infrastructure investment company, which invests internationally in
public infrastructure projects, today announces that further to the
announcement of 2 July 2013, the Board has agreed to amendments to
the Investment Advisory Agreement that it believes are beneficial
to the Company's shareholders ("Shareholders").
A circular (the "Circular") is being sent to Shareholders today
to convene an Extraordinary General Meeting of International Public
Partnerships Limited ("INPP" or "the Company") on 23 September
2013. The Extraordinary General Meeting is being called in order to
seek the approval of Shareholders to certain amendments to the
terms of appointment of Amber Fund Management Limited ("Amber") as
Investment Advisor to the Company. Since the changes are treated as
a related party transaction for the purposes of the Listing Rules,
approval of the Company's Shareholders is required.
In particular, the Board is proposing to Shareholders the
following changes to the Investment Advisory Agreement under which
Amber is appointed to provide investment advisory services to the
Company:
-- abolition of any right to receive any future incentive fee
under the Investment Advisory Agreement with effect from 1 July
2013 (although the fee accrued to 30 June 2013 will be paid);
-- reduction in base management fees such that they will reduce
to 0.9% on such part of Gross Asset Value ("GAV") as exceeds
GBP1.5bn;
-- exclusions from the definition of GAV for the purpose of
calculating base management fees of the amount of any additional
cash raised from shareholders in any future capital raisings or tap
issues until that cash is invested for the first time;
-- a revision to the term of the Investment Advisory Agreement
by changing the start date of the existing term provisions to
September 2013;
-- the replacement of the existing mechanism for early
termination of the Investment Advisory Agreement, which is linked
to the relative performance of the Company's shares to UK gilts,
with (i) a new mechanism allowing for early termination if less
than 95% of the Company's assets are available for use for certain
periods and the Investment Advisor fails to implement a remediation
plan agreed with the Company, and (ii) enhanced rights for the
Company to monitor and manage Amber in order to reflect certain
changes to the Listing Rules that were effective from 1 August
2013; and
-- the abolition of the reference to specified individuals in
the clause in the Investment Advisory Agreement requiring
sufficient resource to be applied to the Company's affairs in
recognition of growth at Amber since its management buyout in 2009
(but otherwise maintaining that clause).
Also, the Company proposes to make payment of 60% of the accrued
incentive fee as at 30 June 2013 in new shares (issued at the
volume weighted average trading price for the Company's shares over
the 20 business days from 1 July 2013) in accordance with the power
granted by Shareholders at the Company's annual general meeting on
12 June 2013.
Consequential changes would also need to be made to the
Partnership Agreement under which International Public Partnerships
Limited Partnership, a limited partnership through which the
Company holds assets (the "Partnership") is constituted and the
general partner of which is an Amber group company, and to the
Operating Agreement under which Amber is appointed to operate the
Partnership, in order to bring these documents in line with the
amendments being proposed to the Investment Advisory Agreement.
These changes will also need to be approved by Shareholders. In
this announcement, references to changes to the Investment Advisory
Agreement should therefore be understood to include the necessary
consequential changes to these other documents.
BACKGROUND TO THE CHANGES
Business Growth
The Board believes that the INPP - Amber relationship has worked
well and continues to do so. This has resulted in continued
investor support for the growth of the Company, including a series
of successful capital raisings.
In order to facilitate further growth of the Company, however,
consideration needs to be given to changing trends in the market
and the views of shareholders. A clear message from both existing
and prospective investors relates to the existence of the incentive
fee and the possible impact this may have on some investors'
willingness to support future growth in the Company.
Background to the Proposed Reductions to Fees
The current incentive fee has applied since the Company's
initial public offer (the "IPO"). The concept and mechanism for the
incentive fee was tested at the time of the IPO and was seen as
appropriate. However, the Board has been advised that over time,
investor attitudes to the incentive fee have changed, to the extent
that it believes removing the incentive fee would now be
appropriate. The Board believes that removing the incentive fee is
significantly in the interests of shareholders as in certain
situations future incentive fees could, depending on circumstances
out of the control of the Company, otherwise be material. It would
also bring the Company in line with those funds that the Board
views as the Company's peers.
With respect to base fees, the Board has kept these under
regular review. In June 2012, the base fee charged to the Company
by Amber was reduced (in respect of that part of the GAV relating
to operational assets in excess of GBP750 million) from 1.2% to 1%.
This reduction kept the base fee in line with that charged in
respect of the peer funds.
The Board now believes that in order to bring the Company in
line with certain of its peer funds, the base fee should be amended
so that, if and when the Company's GAV relating to operational
assets exceeds GBP1.5 billion, the base fee on amounts in excess of
this figure will be further reduced to 0.9%.
Finally, the Board believes that the current calculation
methodology for GAV should change in order to exclude from the
definition of GAV for the purpose of calculating base management
fees the amount of any additional cash raised from shareholders in
any future share issues (including tap issues) until that cash is
invested for the first time.
Contract Term and Performance Conditions
As with the incentive fee, the original term of the Investment
Advisory Agreement was researched carefully prior to the
establishment of the Company. A long term contract was, and still
is, viewed as desirable for both the Company and its Investment
Advisor, due to the long term and (relatively) illiquid nature of
infrastructure assets and the fact that both the Company and its
Investment Advisor recognise that the Company's success depends on
the long term performance and management of its assets. In
addition, the focus that the Company has on construction assets
requires a longer term investment horizon and also differentiates
it from its peer funds.
The original term of the Investment Advisory Agreement was a ten
year contract to October 2016 with a five year termination notice
period capable of being given at any time after that date. The
Board believes that a long term contract is in the interests of
investors and is in fact desirable as it promotes management
stability provided that the Company is able to terminate the
Investment Advisory Agreement earlier in certain circumstances such
as where its Investment Advisor breaches the Investment Advisory
Agreement in a way that has a material adverse effect on the
Company or where performance falls below expectations. As a quid
pro quo of removing the incentive fee, reducing the base fee and
removing the possibility of base fees being charged on uninvested
capital from future share issues, it is proposed that the term now
be amended to renew the ten year fixed term and five year notice
period, with the fixed term starting on the date the changes take
effect. This would mean that the fixed term (subject to earlier
termination for breach or poor performance by Amber) would end in
September 2023, after which five years' notice could be given at
any time (so the earliest the contract could be terminated
ordinarily would be September 2028), which effectively grants a
seven year contract extension to Amber.
The Company already has the right to terminate the Investment
Advisory Agreement in various circumstances including if, in the
reasonable opinion of the Company, a material amount (in number and
seniority) of the Investment Advisor's employees have ceased to be
employed by the Investment Advisor or are no longer dedicated to
the provision of services to the Company. No change is proposed to
this right. However the Investment Advisory Agreement also
currently provides that if any two of Giles Frost, Hugh Blaney or
Michael Gregory cease to be employed by the Investment Advisor then
this may be prima facie evidence of an insufficiency of resources.
While there is no current suggestion of any change in the
Investment Advisor's senior management, given the growth of the
Investment Advisor's business and the broadening of its senior
management since the time this provision was first included, it is
proposed that it be deleted as no longer being of relevance.
In addition, a new provision is proposed to be introduced
granting the Board additional rights which could in certain
circumstances lead to early termination of the Investment Advisory
Agreement in the event of underperformance in the Company's
portfolio due to continued and unremedied failings by the
Investment Advisor. The bulk of the Company's revenues ultimately
depend on the infrastructure assets that it invests in being
available for use by their public sector and other users. It is
therefore proposed that to the extent that less than 95% of these
assets are available for use (or are unable to come into use
because of delayed construction) then the Company should have
additional rights. In particular if less than 95% of such assets
are available for use (or are unable to come into use because of
delayed construction) for a period of three months or more twice
during a rolling period of two years due to an act or omission of
the Investment Advisor then the Company shall have the right to
require the Investment Advisor to implement a remediation plan and
upon any further recurrence in the following 12 months in
circumstances where the Investment Advisor has not implemented the
remediation plan, the Company will have the right to terminate the
Investment Advisory Agreement on six months' notice. This new
provision would replace the existing performance test in the
Investment Advisory Agreement (which is linked to the relative
performance of the Company's shares compared to UK gilts) which is
believed by the Board to be insufficiently linked to the
performance of the Company's assets and does not necessarily
reflect the Investment Advisor's performance.
These proposed changes are additional to and without prejudice
to the Company's other existing rights to terminate the Investment
Advisory Agreement in certain circumstances including where the
Investment Advisor is no longer able to provide services, including
insolvency, lack of relevant authorisation, change of control,
material departures of employees and in the case of a breach of any
service level agreement that has occurred more than three times and
which has not been remedied within 30 calendar days of it first
occurring.
Enhanced Ability of the Board to Monitor and Manage the
Investment Advisor
On 1 August 2013, the Listing Rules were amended to include a
requirement for the board of directors of an investment company
whose shares are listed on the Official List to effectively monitor
and manage the performance of its key service providers, including
any investment manager appointed by the issuer, on an ongoing
basis.
Whilst the Board believes that it currently effectively manages
and monitors Amber, and the existing Investment Advisory Agreement
gives the Board rights to information and obliges Amber to act in
accordance with its proper instructions, certain changes are
proposed in order to enhance and formalise these rights. In
particular it is proposed that the current practice of Amber
submitting a quarterly report (and more often upon reasonable
request) setting out details of the performance of each of the
underlying infrastructure investments invested in by the Company in
order that the Board can effectively monitor and manage the
Investment Advisor be formalised in the Amended Investment Advisory
Agreement. Similarly, in order for the Company to comply with its
obligations to effectively manage the performance of the Investment
Advisor, it is proposed that a new provision is added to the
Investment Advisory Agreement that requires the Investment Advisor
(so far as it is legally able) to act in accordance with any proper
instructions that the Company may give it with regard to the
management of the underlying infrastructure investments invested in
by the Company.
Benefits of the changes
The Board believes that changing the contract terms in this way
would be beneficial to the Company and its Shareholders for the
following reasons:
(a) the Company will avoid the risk of being obliged to make
significant future incentive fee payments to the Investment Adviser
which do not reflect the true underlying performance. The Company
believes that in the absence of such changes this would be a
likelihood;
(b) the Company will obtain additional prospective future
reductions in the base management fee as detailed above;
(c) the changes would not require payments from either party to amend the agreements;
(d) a long term contract is a worthwhile quid pro quo for the
Company and allows the Investment Advisor the confidence to develop
prospective investment opportunities over the period of time
necessary for them to become viable investments for the Company,
ensuring that the Company can benefit from the full range of
investment opportunities open to it;
(e) the projects in which the Company invests, particularly the
construction assets, and their return profiles are long term (for
instance, the current average concession length remaining of the
Company's investments is 23 years) and therefore require a long
term perspective in their management;
(f) the replacement potential termination right linked to the
non-availability of the Company's assets means that notwithstanding
the extended term of the appointment, the Board will have a right
of termination where the Company's revenues (and thus its ability
to pay dividends) are adversely affected due to infrastructure
projects being unavailable for use for extended periods due to the
culpability of the Investment Advisor;
(g) the Board will have enhanced ability to monitor and manage
Amber, and the provisions of the Investment Advisory Agreement in
this regard will reflect the recent changes to the Listing Rules;
and
(h) the Board believes that by giving Amber some certainty of
duration in the length of its contract with the Company, Amber can
feel more comfortable in devoting its resources and time to the
Company rather than diversifying its focus to hedge against the
risk of termination of its agreement with the Company.
Structure of changes
The proposed changes are being put forward for adoption as a
package; unless all of the changes are approved, none of them will
be made. As such, if the single resolution being proposed at the
Extraordinary General Meeting (the "Resolution") is not passed, no
amendments will take effect and the current provisions of the
Investment Advisory Agreement, Partnership Agreement and Operating
Agreement will remain in force (including the current fee
structure) and could result in incentive fees becoming payable in
future periods that do not reflect true underlying performance. The
Independent Directors of the Company do not believe that retaining
the current provisions is in the best interests of the Company.
The amended agreements have been agreed by their respective
parties but will not be entered into until, and are conditional
upon, shareholder approval of the amended agreements. Accordingly,
the changes would be implemented immediately (and in the case of
the incentive fee only, retrospectively from 1 July 2013) upon
Shareholder approval.
MATTERS REQUIRING SHAREHOLDER APPROVAL
Since Amber is a "related party" of the Company within the
meaning given to that term in the Listing Rules and the impact of
the relevant changes is such that Chapter 11 of the Listing Rules
therefore applies, before the changes to the Investment Advisory
Agreement, Partnership Agreement and Operating Agreement can take
place, the Shareholders are required to provide their approval.
Accordingly, the Company is seeking Shareholder approval to the
entry into the following agreements with Amber or its associated
companies:
(a) an agreement between the Company and Amber to amend and
restate the Investment Advisory Agreement;
(b) an agreement between International Public Partnerships Lux 2
S.à r.l. ("Luxco 2") as limited partner of the Partnership and
International Public Partnerships GP Limited (the "General
Partner") as general partner of the Partnership to amend and
restate the Partnership Agreement ; and
(c) an agreement between the General Partner as general partner
of the Partnership and Amber to amend and restate the Operating
Agreement ,
(such agreements together being the "Amended Agreements").
A single resolution has been proposed approving all of the
agreements as a package and as such, none of the amendments will
take effect unless the Resolution is passed.
RECOMMENDATION AND DIRECTORS' VOTING INTENTIONS
The Board has established a committee comprising all of the
Independent Directors (which excludes Giles Frost) for the purpose
of evaluating the matters set out in this Circular. Mr. Frost has
not participated in these deliberations due to the fact that, as an
associate of Amber, he has an interest in the implementation of the
proposed changes.
The Board considers that the Resolution and the entry by the
Company and its subsidiary entities into the Amended Agreements are
in the best interests of the Company and its Shareholders as a
whole. In addition, the Board, which has been so advised by Numis
Securities Limited, consider the changes to the Amended Agreements
to be fair and reasonable so far as the Shareholders are concerned.
Accordingly the Board unanimously recommend all Shareholders to
vote in favour of the Resolution.
Each of the Independent Directors intends to vote in favour of
the Resolution in respect of their shares.
Expected Timetable
Deadline for receipt of Form of Proxy 2.30pm on 19 September
2013
----------------------------------------- -----------------------
Extraordinary General Meeting 2.30pm on 23 September
2013
----------------------------------------- -----------------------
Announcement of results of Extraordinary No later than 8am
General Meeting on 24 September 2013
----------------------------------------- -----------------------
Effective date of changes (assuming the 23 September 2013
Resolution is passed)
----------------------------------------- -----------------------
The Circular was published yesterday and will be posted to
Shareholders today, as well as being available on the Company's
website (http://www.internationalpublicpartnerships.com).
Unless otherwise defined, capitalised words and phrases in this
Announcement shall have the meaning given to them in the
Circular.
Amber Infrastructure
Erica Sibree +44 (0)20 7939 0558
Numis Securities
Nick Westlake
Hugh Jonathan +44 (0)20 7260 1000
FTI Consulting
Ed Berry +44 (0)20 7269 7297
Harry Stein +44 (0)20 7269 7141
About International Public Partnerships:
International Public Partnerships (INPP) is a listed
infrastructure investment company which invests in global public
infrastructure projects developed under the public private
partnerships (PPP), private finance initiative (PFI), regulated
asset and other similar procurement methods.
Listed in 2006, INPP is a long-term investor in 122 social and
transport infrastructure projects, including schools, hospitals,
courts, police headquarters, transport and utility and transmission
projects in the U.K., Europe, Australia and Canada. INPP seeks to
provide its shareholders with both a long-term yield and capital
growth through investment across both construction and operational
phases of 25-40 year concessions.
Amber Fund Management Limited is the Investment Advisor to INPP
and consists of approximately 70 dedicated staff who manage, advise
on and originate projects for INPP.
Visit the INPP website at
www.internationalpublicpartnerships.com for more information.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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