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Craigs seeks to tap $125 million of private funds for Public Infrastructure Partners

Tuesday 16th March 2010

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Craigs Investment Partners and Morrison & Co. have launched a $125 million fund to invest in the government’s public-private partnership vehicle, Public Infrastructure Partners (PIP).

Craigs and Morrison have established the New Zealand Social Infrastructure Fund (NZSIF) to invest up to $125 million in PIP, in what will be the first tranche of private funds.

PIP is a fund to build prisons, schools, hospitals and other social infrastructure under a model that the government said improves taxpayer assets. It already has $100 million invested from the New Zealand Superannuation Fund.

The initial offer for NZSIF is for 50 million $1 shares, with oversubscriptions available for another $75 million. A minimum investment parcel for the public offer is 20,000 shares. The initial subscription is for 10 cents per share and the remaining 90 cents payable in tranches.

PIP fund general manager Peter Coman said after the first 10% call, the remaining 90% of investors’ monies would be called in over three to five years as the capital was invested in different projects. Under this model investors won’t necessarily see interest paid out straight away.

“For the early projects to be developed and delivered, there won’t be an income stream,” Coman said. “Once the project is operational, there will be income and capital growth that can be distributed to investors.”

He said that NZSIF’s estimated 11% return is an internal rate of return over the 15-year life of the fund, rather than being an annual return.

PIP has no investments at this point, but is “actively looking and keen to source the right deals and get the capital to work,” Coman said.

A way it could work for a school example would be that PIP contracts to the Crown to design, build and maintain the asset. Using PIP equity and third party debt, a bricks and mortar asset is delivered to the Crown, that asset having to be maintained over the 20 – 30 year life of the concession. The Crown in turn is paying for the cost of that investment at a pre-agreed rate. At the end of the concession, the asset is transferred to Crown ownership at zero cost.

The risk for PIP is to build the school on time and on budget, and to maintain it to the required standard. Provided that is done correctly, the cash flows are government-backed, and this type of investment should be attractive for investors creating a balanced portfolio in what is an emerging asset class, Coman said.

The NZSIF shares will not be listed on the NZX, but NZSIF’s administration manager will provide a facility to match potential buyers and sellers.



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