JLIF (John Laing Infrastructure Fund), the FTSE 250 listed infrastructure investment company, has announced that it has signed a Sale and Purchase Agreement with respect to an indirect 6% minority shareholding in the Intercity Express Programme Phase 1 (IEP) project, from John Laing Investments Limited, a wholly-owned subsidiary of John Laing Group.

The total consideration for the acquisition will be approximately £42.4 million (US$52.3 million), which will be financed by drawing on JLIF's revolving credit facility. Completion of the transaction is subject to completion of certain formalities and expected to be in early 2017.

The IEP project, which is still in the construction phase, involves the provision of 57 new high speed intercity trains to be deployed on the Great Western Mainline (GWML) in UK. The contract with the Department for Transport (DfT) benefits from a 27.5-year concession from acceptance of the first train (scheduled 2017). Payments are on an availability-basis, whereby revenues are received in return for the trains being made available for use and for certain performance and reliability criteria being met. Hitachi are contracted as both manufacturer and maintainer of the trains for the duration of the concession period, with typical pass-down of delivery and operational risk. They are also a 70% shareholder in Agility Trains West Ltd, the project company.

The first trainset is scheduled for delivery in 2017 with the remainder delivered over the subsequent 15-month period. The design life of the trains is 35 years and Agility Trains West Ltd retains ownership of the trains at the end of the concession period, providing a residual design life of 7.5 years. Current and projected demand for these types of modern trains is strong and around 10% of the consideration is due to that expected residual value of the trains.    

The discount rate applied to the forecast cash flows to establish the valuation is well above the equivalent discount rate for a fully-operational UK availability-based project, and a higher discount rate has been applied to the residual value elements to allow for the additional uncertainty of those cash flows.

JLIF retains the right of first offer with respect to John Laing's remaining interest in the project.

Andrew Charlesworth from John Laing Capital Management (JLCM), Investment Adviser to JLIF, said:

"IEP was a cornerstone project of JLIF's Rail First Offer Agreement with John Laing, approved at the EGM in February 2014. JLIF is therefore very pleased to have reached agreement for a stake in this important project, which will be JLIF's first investment in rail rolling stock. Although JLIF had anticipated acquiring the project in full operation, John Laing offered 20% of their 30% share of the project, at a stage of around two thirds of the way through its construction phase. This will allow JLIF to not only secure this project early but also to benefit from the potential capital uplift generated by the project moving from construction into operations. Rail rolling stock is a sector of significant interest and targeted by many infrastructure investors, and JLIF looks forward to working in collaboration with all stakeholders to make the project a success."