Shanks Group confirmed today that it has sold the majority equity in two of its PFI contracts to John Laing Investments for £25m cash.
As a result of this sale John Laing has acquired all the subordinated debt and 80% of the equity in both the East London Waste Authority (ELWA) and the Dumfries and Galloway (D&G) PFI contracts. However, Shanks will retain the long-term operating contracts for both projects.
A Memorandum of Understanding has been signed with John Laing Investments which allows it to co-invest with Shanks when it comes to future PFI contracts and to contribute to the bid costs associated with winning those contracts.
Shanks said the impact of the sale should not affect its overall trading results but it wouldimprove the future return of assets on the PFI business. It will also simplify the reporting of Shanks’ financial results, including the removal of £105m in non-recourse debt from the balance sheet.
“The sale of the PFI equity stakes and the ongoing relationship we will have with John Laing on future bids has significantly strengthened the Group’s already solid position in one of our key strategic areas,” said Shanks chief executive Tom Drury.
“PFI is central to our UK strategy and we have a strong platform offering sustainable solutions to meet local authorities’ needs of diverting residual household waste from landfill.”
As well as the sale of the PFI contracts, Shanks also reported on its trading performance to September 30, 2010, confirming that while market conditions have remained difficult they have been generally as anticipated.
It said that these tough conditions have been made even harder by the expected one off decline in Belgian Landfill, coupled with adverse currency movements. However, it also confirmed that these problems have been offset by improved recyclate prices, new contract volumes, further cost saving initiatives, improvements in PFI margins and lower financing costs.
Drury said: “In the medium term we remain well positioned to benefit from improving market conditions and the returns from our £100m investment programme.”