HICL pickle – “a pig’s breakfast”

When you’re met with lines like “a pig’s breakfast” and “a dog’s dinner” in the same call when hitting the phones for the low-down on the HICL / TRIG debacle… there’s only one thing this week’s Friday Editorial can be on?

For those who’ve been living under a rock, you’ll be amused to learn that the proposed merger between listed funds HICL Infrastructure and The Renewables Infrastructure Group has fallen flat on its face.

The fanfare petered out with a flatulent parp and everyone’s either running for cover or trying their best to hide smiles while adopting sympathetic demeanours.

News broke last month (17 November) that InfraRed-owned HICL and TRIG had signed detailed heads of terms to combine the trusts and create a listed investment infra company with net assets valued at more than £5.3 billion ($6.9bn).

Back-slapping had hardly settled into the awkward British silence that inevitably follows uncomfortable displays of emotion… and the deal was off (1 December) as both players crunched gears into reverse.

Even at last Thursday’s IJGlobal Investor Awards in The Savoy, some wag had set their phone up as a hot spot under the banner “Buy more HICL” – so the snickering was well-and-truly underway by 27 November.

Now that the dust’s settling on the tear-stained heads of terms, let’s just take a look at what folk thought of the record-breaking divorce that didn’t survive engagement – a victim of TRICL-down economics.

If anyone has a reason why these two…

Well now, reaching out to folk around the industry this week a lot are interested to hear what other people have to say… but those who are deep in the weeds aren’t speaking as they mostly have mouths full of mud (think it’s mud).

One writes it off as “two wildly disparate strategies being mushed together essentially so the fund manager could continue to keep their hands on fees”.

And while there is a view that “there was some logic” to the merger based on “scale, diversification, merchant upside potential, etc” it was also written off as “badly thought out” and “not well presented”.

The consensus is that it fell down primarily based on the boards having met only large investors who have “disproportionate influence and push their own agendas” which “don’t hold up to scrutiny once the wider shareholder base is canvassed”.

Having come up with this splendid wheeze – the first step was to get advisers on board. Cue Goldman Sachs, Investec and BNP Paribas with smiles as wide as the gulf between the big investors… and everyone else.

As one source says: “Someone comes up with the idea, it gains momentum and nobody wants to say no… especially not the advisers as it’s a big fee-fest for them… which means they’re conflicted in terms of giving sensible advice.”

The notion that both boards would sit on the final vehicle went down like a lead balloon with one infra fund veteran saying that it was “never going to look good” and was “a bit cack-handed”.

Most folk out there are wondering where InfraRed goes from here. “What do you tell your investors? Damage limitation? There’s no good outcome.”

Given that investment management centres on trust and reputation, it’s not a good look when people are openly asking whether both vehicles are now “holed beneath the waterline”.

HICL isn’t looking too pretty and another TRIG continuation will be challenging as “if that ain’t moving over the next 12 months, then it’s toast,” according to another source.

The only options on the table are to accelerate disposals – taking the route favoured by Bluefield and VH Global Energy Infrastructure (ENRG) – or try to buy something… which would be difficult.

One fund manager says: “The Bluefield mistake was to announce it was setting up a developer model, go for capital growth – merging the manager with the vehicle and no longer be a yield vehicle.” However, the source adds wryly: “Investors thought that was a sh*t idea.”

Switching to a growth vehicle when everyone invested for yield could end in a situation where you have to “sack current investors and look for new ones” which one talking head says would be “bloody crazy”.

A financial adviser of renown adds: “No amount of clever financial engineering – or cocktail party chatter on NAV for NAV exchange and mini tender offers – can fix a fundamentally flawed transaction. This holds true in investing and equally in M&A.”

On the TRICL merger that never was, perhaps the last word should be that opined by one grandee, that it was “a step too far… and the wrong step” swiftly followed by “someone’s going to have to fall on their sword”.