* 3i hopes to raise new infrastructure funds
* Assets include hospitals, schools, transport
LONDON May 24 3i Group PLC is to buy
the European infrastructure fund management business of British
bank Barclays as part of a drive to boost its fee
income from public-private partnerships and renewable energy
The private equity firm, aiming to become one of Europe's
biggest investors in the infrastructure sector, said on Friday
the deal would help it to raise new funds and source new
investment opportunities for its 3i Infrastructure business.
Financial terms of the transaction were not disclosed.
With yields on staple investments like UK Gilts and German
Bunds hovering around record lows, pension funds are bankrolling
more government-backed projects to build new roads, bridges and
public buildings in the hope these will deliver higher,
3i has been undergoing a restructuring following shareholder
frustration at weak results from its buyout business, moving
away from just private equity to balance this better with its
infrastructure and debt-management businesses.
"This is in our view a transformational deal for the
existing infrastructure business line. Not only does it improve
its profitability, but it will result in improved deal flow and
provide a platform for future fund raising opportunities," JP
Morgan analyst Christopher Brown said in a note.
Barclays Infrastructure Funds Management Limited (BIFM) has
around 780 million pounds ($1.2 billion) of assets under
management and is run by an investment team based in London and
Paris. Since its launch in 1996, the business has invested 1.7
billion pounds across six funds.
The assets include hospitals, schools, water treatment
facilities, local government buildings and transport schemes,
which typically generate inflation-linked cash flows based on
25-30 year operating concessions offered by the government.
Barclays has been weighing up options for its future
involvement in BIFM for about a year since it became clear that
new regulation on bank capital reserves would render its
risk-weighted returns less attractive than before, one industry
source, who declined to be named, told Reuters.
The bank is currently a limited partner in the funds managed
by BIFM and is keen to retain an interest in their performance
following the proposed sale to 3i, which has more cost-effective
access to capital for new buys, the source said.
Both 3i and Barclays declined to comment on the financial
terms of the deal but the annual asset management fees earned by
BIFM are expected to cover its operating costs, 3i said.
At 1045 GMT, 3i shares were down 1.3 percent at 357.9 pence,
while Barclays' were down 0.9 percent at 318.65 pence in a lower
overall UK market.