The Board seeks to manage returns on operating cash surpluses
and efficiently manage cash available for investment through
prudent use of a corporate debt facility. The Company also seeks to
use foreign exchange derivatives, interest rate swaps and other
appropriate hedging strategies to protect investment returns where
appropriate to do so, in accordance with the Investment Policy (see
Investment Policy section). Currently the Company only has foreign
exchange forward contracts in place (excluding hedging arrangements
at the underlying investment entity level).
(1) Offshore electricity transmission owner licensed entities.
Key Aspects of the Operating Model
The diagram above illustrates the Company's operating model,
which is founded upon:
> Strong independent board leadership and governance
> A long-term alignment of interest with its Investment Adviser and other key suppliers
> Consistent communication and delivery of strategy throughout the Group
>
A vertically integrated model which gives the Company visibility
of and a relationship with its public sector customers
> An experienced Investor Adviser team, expert in all aspects
of infrastructure development, investment and management
> A disciplined approach to asset selection and country risk
> A focus on acquiring controlling stakes (or minority
positions where strategically beneficial to do so)
Relationship with the Investment Adviser and its group
Board and Committees
The Board sets the strategy for the Company and makes decisions
on changes to the portfolio (including approvals of acquisitions,
disposals and valuations). Through committees and the use of
external independent advisors it manages risk and governance of the
Company. The Board has a majority of independent directors -
currently four of the five directors are independent. See the
Corporate Governance Report for further details.
Investment Adviser
The Company's Investment Adviser is Amber Fund Management
Limited (a member of the Amber Infrastructure Group Holdings
Limited group of companies).
Contractual arrangements and fees
The contractual arrangements allow for the provision of
investment advisory and certain other financial services to the
Board. In return, the Investment Adviser receives fees based on the
gross asset value and composition of the investment portfolio as
well as a contribution to expenses. The annual base fees are
detailed in note 19 to the financial statements and calculated at
the following rates:
> 1.2% for that part of the portfolio that bears construction
risk (i.e. the asset has not fully completed all construction
stages including any relevant defects period and achieved
certification by the relevant counterparty and senior lender)
> For fully operational assets:
-- 1.2% for the first GBP750 million of gross asset value of the portfolio
-- 1.0% for that part of the portfolio that exceeds GBP750
million in gross asset value but is less than GBP1.5 billion
-- 0.9% for that part of the portfolio that exceeds GBP1.5 billion in gross asset value
The Company has a long-standing relationship with the Investment
Adviser and the Board believes that the continuation of this
relationship, on a long-term basis, is in the Company's best
interest. The current Investment Advisory Agreement ('IAA') was
renegotiated in 2013 and has a ten year fixed term with a five year
notice period. The Board consider that given the long-term nature
of the Company's investments and its responsibility for the
detailed day-to-day delivery of management services and
relationships with public sector clients, it is important that it
benefits from the continuity of service provided by a long-term
advisory partner. In order to ensure that shareholder interests are
protected, termination provisions have been put in place to ensure
that, in the event of poor investment performance, the Company has
flexibility to remove the Investment Adviser.
The Investment Adviser is also entitled to receive an asset
origination fee of 1.5% of the value of new investments acquired by
the Group. It should be noted that, generally, the Investment
Adviser bears the risk of abortive transaction origination costs
and that this fee has been waived or reduced by agreement in the
past where it has been deemed appropriate to do so for the
transaction in question. No other transaction fees may be paid to
the Investment Adviser (otherwise than at the absolute discretion
of the Board). No such fees were paid in 2014 or are anticipated to
be paid.
For the avoidance of doubt, cash receipts from capital raisings
and tap issuances from the gross asset value are not within the
calculation of base fees until such receipts are invested for the
first time.
Further information and details of the Board's process for
independent management and review of the relationship between the
Investment Adviser and the Company are set out within the Corporate
Governance Report.
Group Structure
The Company holds its investments through a number of holding
entities including an English law limited partnership of which one
of its subsidiaries is the sole limited partner and a company
associated with the Investment Adviser is the general partner.
Beneath these holding entities the Company's investments are held
in special purpose investment entities so that, as far as possible,
each investment is held in a separate entity to avoid cross
collateralisation between investments.
Investment entity asset management
Underlying investment entities (particularly PPP/PFI entities)
do not typically have their own employees, although there are
exceptions to this. Instead, normal practice is for such services
to be subcontracted at the time of project inception to specialist
asset management entities. The role of the asset manager is to
manage all interfaces between the investment entity, the client,
financiers and supply chain sub-contractors.
Such services are generally provided directly to each investment
under asset management contracts specific to that investment
entity. Services typically include day to day management, issue
resolution, monitoring and reporting for the entity and can cover
operational, regulatory, compliance, accounting, tax, company
secretarial and other related services specific to each entity.
Under typical PFI/PPP structures such services are generally
provided in return for a fixed fee to third party service providers
under contracts put in place at the inception of the PFI/PPP
project after a period of competition.
The Company's preference for the majority of its investments is
for associates of the Investment Adviser to provide such services
to the relevant entity. This ensures that financial and operational
aspects are performed in house by Amber rather than subcontracted
to other third party service providers who have less incentive to
focus
on delivery of desired outcomes. The contracts and fees payable
for such asset management services (whether with third parties or,
where Amber provides these services, associates of the Investment
Adviser) are generally set in real terms for the life of the
project and agreed at the time of documentation of the project with
the public sector (which in many cases will be prior to the
Company's investment). These form part of the project costs along
with other project service related costs (and are thus outside the
Company's direct control) but the Company's projected investment
returns are calculated after taking account of all such project
costs.
A breakdown of typical project costs in the operational stage of
an investment appears on page 17. Following the adoption of IFRS 10
(Investment Entity - Consolidation Exemption) all underlying
project level costs (and project level revenues) are now excluded
from the Group's financial statements. Instead and consistent with
other investment funds, the financial statements present investment
returns received from underlying investments (received out of
investment entity net cash flows).
Investment origination
The Investment Adviser plays a key role in identifying,
developing and originating investment opportunities that meet the
Company's requirements and putting these forward to the Board of
Directors for initial consideration and, where appropriate, final
approval. These opportunities may lead to the Company investing in
such projects and/or acquiring investments from associates of the
Investment Adviser. Where investments are acquired from associates
of the Investment Adviser, such investment consideration is
undertaken in accordance with detailed procedures designed to
ensure the fair treatment of the Company and to ensure the
valuation is approved independently by a suitably experienced third
party valuer. More details are set out in the Corporate Governance
Report.
Where associates of the Investment Adviser undertake project
origination and development activity (e.g. bidding for new primary
projects) they do so at their own risk and bear the risks of lack
of success and associated abortive costs (which on large projects
can be substantial). The Company does however have a contractual
right of first look at such investment opportunities either on
financial close or, if originally invested in by an associate of
the Investment Adviser, upon disposal of that investment. Following
success in project origination and development activity, fees and
costs will in the normal course be payable on financial close of
the opportunity to a range of service providers (including
associates of the Investment Adviser) relating to matters such as
reimbursement of bid costs, and in respect of legal, technical,
development and financial advisory work. For the avoidance of
doubt, such amounts are not paid by the Company but by the project
entity formed to carry on that project and any such amounts form
part of the overall capital or project costs bid and agreed with
the public sector (and are thus outside the Company's control). The
Company's projected investment return from any prospective
International Public Par... (LSE:INPP)
Historical Stock Chart
From Jun 2024 to Jul 2024
International Public Par... (LSE:INPP)
Historical Stock Chart
From Jul 2023 to Jul 2024
