Interserve, the support services and construction company, has sold its stakes in some of the UK’s best known private finance initiative hospitals, schools and prisons for £90m, as activity in the secondary market picks up.
Dalmore Capital Fund, a UK infrastructure fund, has agreed to buy 19 of Interserve’s PFI investments, which generated £4.6m profits for the group in 2011. Among the stakes are five in hospitals – including University College London, Carlisle and Newcastle – five in schools, two in prisons and several in defence establishments.
Interserve will continue to provide management services to the projects, for Dalmore, in return for a £1m annual fee.
The company said it will use the £90m cash proceeds for further investment in PFI schemes.
Earlier this year, it was selected as preferred bidder for the new Alder Hey Children’s hospital in Liverpool, as part of a consortium including John Laing and Laing O’Rourke, partly funded through a £104m PFI scheme.
Interserve has also been shortlisted against rival contractor Carillion to build the new Royal Liverpool Hospital, in a £455m PFI deal. A decision is expected this month.
Although the government is currently reviewing the future of PFI – after George Osborne, chancellor, described the financing model as “discredited” in opposition – the Treasury has continued to approve more than £6bn of new projects that were already in the pipeline. An announcement on the future shape of PFI is expected later in the autumn.
The secondary market in PFI investments has also raised concerns. Nick Clifford, senior fellow at Manchester Business School, warned that the sale of equity stakes in PFI projects could cause problems comparable to the sale of subprime mortgages in the US when banks lost track of who was holding the debt.
“The hospital is paying that debt to someone, but the more stakes are sold on, the less connected they become to the original project,” he said. “The hospital could be paying someone in Singapore with absolutely no interest in the hospital itself. It’s all disappearing into a spaghetti of threads where no one quite knows where it’s tied back to.”
The use of PFI in the NHS hit the headlines in July when the South London Healthcare NHS Trust was put into administration, after becoming unable to service its debt. The trust has to pay £61m a year in PFI repayments, equalling 14.4 per cent of its income.
However, investor appetite for PFI assets has been increasing as established credit and equity markets remain volatile. Jo Brent, an analyst at Liberum Capital, said PFI investments could produce good returns for investors. “The vast majority of contracts are very low risk – all the more so since the government is the customer, removing any real credit risk,” he said.
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