- Infrastructure trusts to merge
- Deal continues trend towards consolidation
- Asset manager Abrdn leads the way
Against a backdrop of falling NAVs (net asset values) due to higher UK interest rates, and with the average discount across the investment trust sector hitting its widest level since 2008 in the second quarter, it seems more managers are biting the bullet and agreeing to merge.
After consolidation in the Japan trust sector, with Atlantis Japan Growth Fund (AJGF) agreeing to merge with Nippon Active Value (NAVF) to reduce the discount to NAV, three infrastructure trusts could be set to join forces.
STRONGER TOGETHER
In a first step, GCP Infrastructure (GDP) will absorb the assets of GCP Asset Backed Income (GABI) after an orderly wind-up, after which it has proposed merging with RM Infrastructure (RMII).
FTSE 250-listed GCP Infrastructure, which has a market cap of around £650 million and trades at a 30% discount to NAV according to the AIC (Association of Investment Companies), has agreed to take over the smaller GCP Asset Backed Income in exchange for new shares which will be issued on a ‘formula asset value’ based on the NAV of both trusts minus each side’s transaction costs.
Under the terms of the deal, GCP Infrastructure will repay GCP Asset Backed Income’s £40 million RCF (revolving credit facility) while GCP Asset Backed Income has agreed to hand over £200 million of cash over two years, £100 million for debt repayment and £100 million for share buybacks or special dividends.
The enlarged company would have a market value of around £900 million with lower fixed costs, better access to long-term funding and better daily liquidity in the shares.
GCP Infrastructure is also in parallel talks with RMI Infrastructure to combine the two businesses post-merger through the wind-up of the latter and another share issue.
RMI Infrastructure revealed last month that as part of its strategic review it had received another ‘proposal’ although there was no guarantee it would develop into a ‘recommendable’ deal.
GCP Infrastructure shares slipped 1.5% to 74.3p and GCP Asset Back Income shares gained 5% to 60.4p, while shares in RMI Infrastructure added 1.8% to 71p.
We suggested last month there could be a wave of takeovers or mergers in the infrastructure sector given the wide discounts to NAV compared with underlying demand for the assets.
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ABRN AT THE FOREFRONT
The merger of Atlantis Japan Growth Fund and Nippon Active Value follows the earlier agreement to fold Abrdn Japan Investment Trust (AJIT) into Nippon Active Value.
Abrdn has taken the lead in merging sub-scale trusts, combining two Asia-focused vehicles, New Dawn (ABD) and Asia Dragon (DGN), to create the second-biggest fund in its sector with a market cap of close to £700 million, as well as folding its Smaller Companies Income Trust (ASCI) into stablemate and largest shareholder Shires Income (SHRS).
