Gcp Infrastructure Inves... Share Discussion Threads

[spectoacc] 18/9/2023 08:26

It's a fair point - GABI up 5% tho.

[spangle93] 18/9/2023 07:57

"Always looked better for GCP than GABI"

Well, I don't recall the share price rising tremendously on the announcement last month?

Let's hope that accordingly, it's not punished too much for not fulfilling it

[spectoacc] 18/9/2023 07:21

Always looked better for GCP than GABI, but have to start questioning the strategy now. This was presented as more or less set (unlike the RMII one):


"Cessation of combination discussions with GCP Asset Backed Income Fund Limited

GCP Infrastructure Investments Limited ("GCP Infra" or the "Company") notes the announcement issued today by GCP Asset Backed Income Fund Limited ("GABI") confirming that GABI is no longer in discussions regarding a proposed combination of GCP Infra with GABI (the "Scheme") and that the heads of terms ("HoTs") between GABI and GCP Infra have been terminated."

[donald pond] 06/9/2023 09:52

From liberum today. I think the conclusion is probably correct. When there is no origination possible fees need to be cut.GCP Infrastructure Investments called off the proposed merger with RM Infrastructure Income as the two parties were unable to agree on a structure and terms for the merger acceptable to both sides. However, the proposed merger between GCP Infrastructure Investments and GCP Asset Backed Income that was announced on 11 August remains on track. Heads of terms for that merger have been agreed and a shareholder feedback exercise is being conducted. A circular to shareholders providing further details of the proposed merger between GCP and GABI is expected to be published in due course.RMII has proposed a managed wind-down of the fund in response to the failed merger with GCP, citing "differing views" by shareholders on the merits of a potential combination against a managed wind-down. Given the failed merger talks, the small scale of the fund, its persistent discount to NAV and the limited liquidity of the shares, the board assesses that the best option forward is a managed wind-down of the fund. This will result in an orderly realisation of the company's underlying assets, with capital returned to shareholders as the loans are repaid and its equity and warrant assets are realised. The company will retain the ability to extend loan maturities or provide further funding to existing borrowers where the board considers that doing so will maximise the return to shareholders.The company listing will be maintained during the realisation period and the board intends to maintain its current target level of dividend until the commencement of the orderly realisation. The board intends to publish a shareholder circular by the end of October 2023 to convene a general meeting to approve the managed wind-down. Prior to the publication of this circular, the investment manager will explore the possibility of offering an opportunity for shareholders to roll over their investments into an alternative fund structure to be managed by the investment manager.Liberum viewWe are not surprised by this morning's announcement that the proposed GCP / RMII merger will not go ahead. With RMII's shares trading on a narrower discount and the short-term nature of the loan book (less than 2 years), we believe an orderly wind down will result in a better IRR for shareholders. The uncertainty around the GCP and GABI merger also made it more challenging for RMII shareholders to get on board with the proposals from GCP. Performance of the underlying portfolio has generally been robust, so we would expect capital returns close to NAV should be achievable, with an attractive 9.4% dividend yield in the meantime.Focus now shifts to the proposed GCP / GABI merger, which we believe remains in the balance, with shareholders split on the initial terms proposed by the board. Whilst we welcome both boards taking an active approach to addressing the discounts on which both funds trade, we think improved terms are required to achieve more widespread support from investors. Our view is that more can be done on the ongoing fee structure of the enlarged company and there should also be an opportunity for a larger return of capital, preferably at NAV (less costs). M&A is clearly going to be a big and important theme in the investment company sector over the next 12-18 months, but any deals need to go further than just merging to simply create a larger vehicle. Investors will want to see improved terms and structures, which will be far more effective at narrowing discounts than marginally improved liquidity

[stemis] 06/9/2023 09:38

Yeah I'm getting a bit wary of liquidations which seem to promise an easy gain from the discount, but end up dragging on with a reduced dividend, proportionately increasing costs and a rump that turns out to be tougher to liquidate than 'expected'...

[hpcg] 06/9/2023 09:17

A wind down can get expensive and be very slow. In the worst case the longest duration in the portfolio is the least liquid and one either takes a (bigger) NAV hit to shift or the cost base eats in to returns. Better IMO is for the trust to carry on and gradually refresh its portfolio under the current conditions of the day.

[stemis] 06/9/2023 08:55

I suppose the merger is orientated towards larger institutions who want a longer term exposure to the sector rather than taking advantage of the short term discount to NAV, which should hopefully close in the future anyway. Merger gives greater liquidity and reduced costs

[cc2014] 06/9/2023 08:41

I am unsurprised the Board of RMII have not gone for this. The managed wind down appears to give a better result for their shareholders and to me it was never a natural fit anyway.

I think GABI should be going down the same route but this is very hard to see given the Board of GABI have recommended it. It's not going to happen unless the GABI shareholders revolt.

The overall proposal makes no sense to me as a GABI shareholder. GABI's debts mature much sooner than GCP's and the idea seems to be to use GABI's debts to pay down the RCF's of both. I am unclear why this would be attractive to me. Instead just use the maturing GABI debts to pay down GABI's RCF and then use the surplus to buy back shares or return some capital to GABI's shareholders. I suspect soon enough the discount on GABI would close.

[hpcg] 06/9/2023 08:18

GABI and GCP are straightforward to merge; the discounts are similar, no one needs to lose a job but there are some small cost savings. Not the case for RMII.

[donald pond] 06/9/2023 07:55

I wonder if that might put some pressure on GABI to go down the same route? The long date on GCP assets make it harder here but we may be starting the process of winding up alternative funds. The model doesn't work when origination dries up and who will be borrowing at the 10/12% rates needed to be more attractive than buybacks? I expect the next general election to have both parties talking of the need to harness private sector investment into infrastructure. Why invest in new infra when you can buy the stuff that's up and running at a 35% discount to NAV and a near 10% yield?

[rik shaw] 06/9/2023 07:07

Discussions with RMII terminated:

[cc2014] 04/9/2023 16:16

Ah thanks. I was a bit puzzled when I read your post as your figures don't match the June factsheet. But I see there is a post June transaction which dropped the debt to the figures you are using.

Interesting. I don't hold but I do hold GABI where they do need to get the debt down.

[stemis] 04/9/2023 15:59

Net asset value (per 23.8.23 RNS) was 110.02/share x 874,931,308 shares = £962.6m.

Debt (same RNS) = £104.0m.

Gearing 104/962.6 = 10.8%

I take your point re cost of debt but a loss of 1.2% on £100m = £1.2m/yr or 0.14/share. Knocking it down by £50m is 0.07p/share. Hardly a strategic priority I'd have though...

Anyway

[cc2014] 04/9/2023 15:09

If the cost of the debt has to be re-done at say SONIA +3.5% = 8% that's more than the underlying yield which is 7.9%. If you add in the ongoing fees of 1.1% the underlying yield is 6.8% which means a loss on marginal geared stuff if you use an average.

I also get the gearing to be higher. For sure they are in a better place than some of the others in terms of the gearing.

[stemis] 04/9/2023 13:45

I don't really understand why GCP is making such a play about reducing gearing when it's actually already pretty low ~10%

[the deacon] 01/9/2023 14:29

Intervtwith QuotedDatahttps://youtu.be/x7-3YBr-bvM?si=doA9e22NKWaRc0eI

[hindsight] 23/8/2023 18:23

For me the question is what is the real discount
If the loan book under ZIRP was created at 7.9% then if add on gilt 10 year +2.5% shift get to 10.4%
If take 110p then with the 10.4% get 87.4p
The reduced RCF news encouraged me to add today

[mwj1959] 23/8/2023 13:11

I'm not sure that there will necessarily be many Discretionary / Income fund sellers at such a wide discount (even if there are concerns that there is further downside to the NAV), now material yield pickup and capital appreciation potential. From a MT perspective it is too late to be selling in my opinion, although I recognise that in the ST there could well be further to go. If I was an institutional investor in this I would be working closely with the board to come up with an outturn that narrows the discount. So, I presume (perhaps incorrectly)that the proposed deals announced involved some sort of consultation with largest shareholders (who would have been made insiders) beforehand.

[donald pond] 23/8/2023 07:54

Highlighting the debt reduction is helpful. A 10% yield for a loan book that has very low default rates and some inflation protection seems too high but it's about supply and demand and I suspect many of the income funds that used to rely on GCP to hit their 5% target are moving into lower yielding, but notionally safer gilts

[jonwig] 23/8/2023 07:09

Quarterly update:



They point out again that the FAV scheme will apply to the GCP-GABI merger (as it should) but the RMII deal is separate and outside that scheme.

The buyback has reached 0.7% of the share capital. Not much of a bazooka there.

[brucie5] 22/8/2023 15:35

Some seems to have got their 69p. Each time you think it can't get any lower...

[hugepants] 22/8/2023 15:30

Well the proposed GABI deal has gone down well. No guarantees it will ultimately complete though?

[hpcg] 22/8/2023 13:59

That merger is still at the discussion stage from what I can tell from the rns, with no details on the deal structure.

The Board is also pleased to announce that it is in separate discussions with the board of RM Infrastructure Income plc ("RMII") with the intention of agreeing a potential combination of the enlarged GCP Infra with RMII (the "RMII Scheme"). It is expected that this combination will be effected by way of a scheme of reconstruction of RMII and the associated transfer of a material proportion of its assets to GCP Infra in exchange for the issue of new shares in GCP Infra. The Company will provide a further update as and when appropriate.

[stemis] 22/8/2023 13:40

Surely they are going to struggle to carry out a merger with RMII at comparative NAV since the discount to NAV is only 25% compared to ~38% for GCP and GABI? Short of any immediate rerating on the combined entity, RMII shareholders would see a ~15% loss in value of their shares.

[donald pond] 22/8/2023 08:39

Divi should be fine though I think merger should be done on the basis of market cap rather than any fair value calculation. The idea seems to be to use GABIs short dated loans to repay the merged entity's longer term debt. But the cash flows look sufficient to cover the dividend