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Privatisation process begins

Government launches sale of Green Investment Bank

Sajid Javid 2The UK government has confirmed it will put the Green Investment Bank up for sale to raise further capital for renewables projects.

It will also raise almost £3 billion for the Treasury to re-invest in the public finances.

Business Secretary Sajid Javid, said told guests at the Lord Mayor’s Trade and Industry Dinner at Mansion House: “The Green Investment Bank was a world first, and it is a sign of its success that the idea is being copied across the world. Having proven the business model works, we now want to make an even greater impact.

“The challenge presented by climate change is clear – it is imperative we mobilise more funding for green energy projects. The special share structure protects the bank’s green mission meaning The Green Investment Bank will continue to do exactly what it says on the tin.”

The bank was set up in Edinburgh and London at the end of 2012 to back green energy projects.

It is thought that a minimum of 80% of the bank will be sold with the government retaining a special share giving certain protections over its environmental credentials.

MPs on the environmental audit committee, warned recently that a sale would remove the legal requirement for it to invest in green projects.

The government believes a sale will give the bank greater freedom to borrow on the markets and remove restrictions on state aid.

Lord Smith of Kelvin, independent chairman of GIB, said: “Attracting new investors is vital if GIB is to fund its ambitious plans to double the size of its business, expand into new parts of the UK green economy and deliver a growing green impact.

“I am confident that the sale process will provide GIB with good new owners who will support GIB’s continued growth and leadership role in the global green economy long into the future.

“This launch, and the wider plans to introduce new capital and new owners to GIB, has the full support of GIB’s independent board.”

Shaun Kingsbury, chief executive of GIB, said: “In three years the team at GIB have built a special business that is green, profitable and admired around the world. GIB is an exciting investment opportunity, providing new investors with predictable returns and significant growth opportunities. The business is perfectly placed to play a leading role as the world moves decisively towards an unprecedented programme of green infrastructure investment.”

Daily Business reported last year that Middle Eastern and Chinese investors will be attracted to the bank which has raised £2.3 billion for 60 big infrastructure schemes worth £10bn.

 

Green Bank ragout 2

Advisers from Bank of America Merrill Lynch have been working with Whitehall officials on the privatisation process.

The bank launched a £1 billion bond last year and Daily Business revealed in April that the Abu Dhabi Investment Authority, owned by the Emirate of Abu Dhabi, provided almost a third, or £150 million, of the initial external finance raised towards the bond.

Chinese investors are also making their first forays into backing UK renewables assets. They backed a big UK wind turbine project and supported a scheme backed by property agent Savills.

Mr Javid first indicated a desire to privatise the bank in June but a committee of MPs warned that a sale could threaten the bank’s purpose.

The Environmental Audit Committee was concerned said before Christmas that privatisation could encourage the bank to shift its focus towards more conventional projects and away from more complex schemes which struggle to raise funding elsewhere.

It said if the government could not guarantee the bank’s green purposes it should not be privatised.

Committee chairman Huw Irranca-Davies said: “The Green Investment Bank has done a great job of getting capital flowing to the kind of innovative green projects that sometimes struggle to secure financial backing.

“The decision to privatise the bank appears rushed and ministers have not produced convincing evidence that it will achieve its aims better in the private sector.”

 

GIB’s highlights:

 

·         In the three years since it was launched GIB has committed £2.6bn of capital to almost 70 green infrastructure projects across the UK. It is the most active investor in UK green infrastructure with leading market share and a clearly identified near-term UK pipeline of new transactions. GIB is well placed to play a leading role in a large and growing global market with compelling long term dynamics.

·         GIB’s existing portfolio of assets is performing strongly and is well diversified across different financial products, sectors, structures, technologies and counter-parties. GIB has a proven track record of enhancing the value of assets under its management.

·         GIB’s ‘green purposes’ will continue to be independently protected through the creation of a Special Share. The intentions of potential investors to commit to and protect GIB’s green values will be taken into account in the Government’s assessment of bids.

·         GIB’s position in the market as an expert and highly flexible investor offering a wide range of financial solutions has created a unique market proposition. This has resulted in lower costs, strong partnership relationships and a balanced and well-diversified portfolio delivering attractive and sustainable investment returns.

·        GIB’s current asset base offers investment returns producing a portfolio-wide forecast Internal Rate of Return of over 10%. The business has strong and stable projected cash flow generation, and costs that are below or in line with industry benchmarks for a business of this kind.

·         More than 85 investment specialists in a wider team of 129 staff located at GIB’s headquarters in Edinburgh and an office in London.

·         A platform for growth:

o    GIB is well placed to expand into new sectors of the UK green economy including areas like heat networks, low carbon transport and energy storage.

o    GIB has established strong relationships with key strategic participants in the global green infrastructure market spanning technology providers, asset operators and co-investors.

o    GIB has already established a third party asset management business with over £800m raised for the UK GIB Offshore Wind Fund, the UK’s largest renewable energy fund.

o    GIB is also working overseas through a £200m international joint venture with the UK’s Department for Energy and Climate Change.

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