Does Alinda Capital’s IPO offer an infrastructure opportunity?

The latest addition to this burgeoning investment trust sector will provide access to a proven and differentiated strategy that has delivered attractive, risk-adjusted returns.

Alinda Capital Infrastructure is hoping to raise £350m at its IPO with the issue expected to close in late November. If successful a placing programme worth up to £650m will follow in the next 12 months with the cash earmarked for a portfolio of core-plus, mid-market infrastructure assets operating in the transport & logistics, utilities and digital sectors.

The fund manager, Alinda Advisors LLC, was formed in 2005 and has invested $12.5bn in infrastructure. It switched its focus to the mid-market opportunities being targeted by the new fund in 2014 and has since deployed around $3bn in this area, generating a gross internal rate of return of 19.3% with a gross average cash yield of more than eight percent.

Alinda has identified a pipeline of around £485m of potential investments that it is currently carrying out due diligence on, or is in discussions to participate in. About £200m is expected to be committed in the first three months from admission with a total opportunity of £500m to £600m within 18-24 months.

Attractive target returns

The new trust will make direct investments on its own behalf and can invest alongside the other Alinda funds operating in this area. It will also have a stake in the boutique’s flagship private fund, the Alinda Infrastructure Fund IV.

Once it is fully invested it will target NAV total returns of 10% to 12% per annum over the medium term. This will include an initial dividend of 3.5 pence per share for the first financial year on the issue price of a pound, rising to five pence in the second year with progressive increases thereafter.

No more than a fifth of the gross assets will be invested outside the US, Canada, the UK and the European Economic Area. From the second anniversary of admission, no new investment will be made that would cause any of the three key sectors to exceed 50% of the assets, with no more than 10% invested in other areas.

Good timing

Infrastructure investment trusts are attracting a lot of attention at the moment because of the steep increase in inflation, which should help to boost the value of the real assets they invest in. As a result, most are trading at hefty premiums to their NAVs, so the new trust could quickly move to a premium rating, especially as it offers access to a different part of the market.

For example, the two new digital infrastructure trusts that I wrote about in February have both had a steady start, with Cordiant Digital (LON: CORD) up about 12% and Digital 9 Infrastructure (LON: DGI9) up eight percent.They are currently trading on premiums of 12% and four percent respectively.

Alinda Capital Infrastructure is the latest addition to the sector and follows hot on the heels of the announcement of the Pantheon Infrastructure (LON: PINT) IPO. It provides access to a proven strategy that has delivered strong, risk-adjusted returns and could do well in the current inflationary environment.