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UK Infrastructure Bank

  • United Kingdom
  • Tax planning and consultancy - Budget
  • Governments and Infrastructure

03-03-2021

On 3rd March 2021, the UK Government published further details of the UK Infrastructure Bank, building on the National Infrastructure Strategy published in November 2020.

The announcement confirms that the UK Infrastructure Bank intends:

  • To crowd-in private investments by bridging the gap between traditional market appetite and the elevated risk profile associated with innovative projects and structures and which have not previously been banked.
  • In addition to focusing on climate change mitigation, to directly invest in projects that introduce social benefits as well as financial returns. In time, the bank’s focus will grow further to include the UK’s natural capital. Investments will be long-term.
  • To help coordinate the participation private co-investors and work in partnership with public and private sector institutions, thereby creating new markets in projects and infrastructure.
  • To provide £7 billion of senior debt, £5 billion of equity, £10 billion of guarantees (and hybrid products which have characteristics of both senior debt and equity). Of these figures, £4 billion will be available for local authorities at gilt + 60 bps which is slightly lower than the standard PWLB rate of gilt + 80 bps but equal to the previous local infrastructure rate. 
  • To work alongside the British Business Park, the Local Government Association, Local Partnerships, UK Export Finance, Homes England and the Scottish National Investment Bank. Memoranda of Understanding are expected to be entered into to formalise these relationships.

This presents a number of interesting opportunities and challenges for our clients:

  • The express objective of bridging the gap between current investment appetite and increased risk in innovative projects is to be welcomed and offers a step change from the broader financial coverage previously offered by the European Investment Bank.
  • The traditional infrastructure debt finance market currently sees more capital available than projects to finance. By the UK Infrastructure Bank financing elements of projects which the market would not otherwise take, this gives hope to infrastructure debt financiers who have struggled to find a home for capital in recent years but who would be willing to lend alongside first-loss debt or as part of a guaranteed finance structure.
  • Although local authorities are mandated to plan a central role in meeting the UK Infrastructure Bank’s objectives, it will be interesting to see whether local authorities feel comfortable investing in infrastructure at scale after the challenges of UK PFI, the depletion of internal resource after several years of austerity and also whether the benefits of tapping the UK Infrastructure Bank outweigh the convenience of borrowing 20 bps higher from the Public Works Loan Board.
  • The devil will be in the detail but today’s announcement provides some encouraging further detail. Across innovative social, digital, transport and energy infrastructure which has to date been unable to attract investment from traditional players, there is new hope and we anticipate that our clients will be looking forward to reviewing the UK Infrastructure Bank’s detailed lending criteria when published in the coming weeks.

The Bank will be based in Leeds, a city in which Eversheds Sutherland has an office which already extensively advises on banking and finance and infrastructure transactions.