Manager considering sale of entire infrastructure portfolio

09 October 2017 - 06:39 pm UTC

Corsair Capital is considering a sale of all investments in its Gateway Infrastructure Partners fund as part of a strategic review of the portfolio, six years before the fund matures, Inframation has learnt.

The fund owns a 30.3% stake in Kelda Water and 38% in Spanish toll road concessionaire Itinere, which manages six motorway concessions in northern Spain, as well as 75% with co-investors in DP World Australia. Corsair is Gateway's sub-adviser.

It also owns 100% of the sprawling airport operator Vantage Airports Group, which manages stakes in around 10 airports, including LaGuardia Central Terminal B, Larnaka and Pafos airport in Cyprus, and ones in the Bahamas and Jamaica. 

Corsair has mandated Credit Suisse and Evercore to carry out the review into the USD 3.4bn fund's investments.

The fund’s 10 limited partners, which include PSP Investments, Future Fund and a division of Citigroup, are understood to have prompted Corsair to launch the review. The sub-advisor took over management of the 15-year fund from Citigroup in 2015. 

The review launch follows bids by third party investors for both the entire fund as well as individual assets, Inframation understands. Corsair, a private equity company, decided in most cases to reject these offers, it is understood.

In the summer, Corsair rejected a bid for Itinere by Globalvia and Macquarie, one source with knowledge of the fund said. 

This bid was led by Juan Bejar, the co-founder in 2007 of Citi Infrastructure Partners. The fund was subsequently rebranded Gateway Infrastructure Partners in 2015. 

Bejar, who negotiated the acquisition of Itinere in 2008, is currently both president of Globalvia and also an adviser to Greenhill, a US investment bank. He also worked closely with Macquarie during his years managing Ferrovial.

The source said that Corsair’s decision to reject Bejar’s offer for Itinere “has unified [the Gateway Infrastructure Partners’ LPs] to ask Corsair what it plans to do with its investments”.

Also, Itinere’s other shareholders, Sacyr (15.5%), Abanca (23.8%) and Kutxabank (16.2%) have launched an arbitration against Corsair in Spain, which is expected to take around one year to complete. The case centres on whether Corsair's actions made it not possible for the other shareholders to sell.

Borealis and Wren House also failed in their earlier bid in to buy Kelda, partly due to disagreements between the then called Citi Infrastructure Partners, now Gateway, and other shareholders. The two unsuccessful bidders went on to buy stakes in Thames Water.

Meanwhile, some Gateway LPs are understood to be frustrated that the fund has not performed as well as they would have hoped. “Ultimately, they haven’t performed [well] as a GP,” one source close to Gateway told Inframation.

Last year, Alaska Permanent Retirement Board, which committed USD 500m to the fund, reported a - 8.96% five year IRR on its commitment the Citi fund. It also valued its commitment at USD 233.91m, although it is understood only around 80% of its USD 500m was invested.

In March, New Mexico Educational Retirement Board reported a net - 4.7% since inception for its USD 50m commitment in the Gateway fund. However, a source close to Corsair, while not disputing these figures, also said the fund has had a gross IRR of 15% since 2015.

The four investments have had mixed performance. Itinere reported losses for last year of EUR 29.4m, although this was an improvement on its EUR 60.1m loss in 2015.

The launch of the strategic review follows the departure in January of Holly Koeppel as managing director and co-head of Corsair Infrastructure Management (CIM). She is now an independent director of tobacco giant R.J. Reynolds Tobacco and AES Corp, according to her Linkedin page. 

The current head is Corsair investment committee member, Hari R. Rajan, although sources said the PE firm’s managing partner Ignacio Jayanti also has a background management role.

One of Corsair’s preferred options is to sell down the LP investments in the Gateway fund to a single large investor, given it could then continue overseeing this investment as a managed account. 

APG was singled out by two sources as a potential buyer, partly given it recently acquired Eiser’s portfolio and is set to buy Ardian’s second infrastructure fund. It also manages commitments on behalf of Stichting Pensioenfonds ABP, which committed USD 325m to the original Citi fund. 

GIC, an investor in Kelda, also has a USD 325m commitment to the Gateway fund via the Leigh Investment PTE Ltd LP. However, one source said GIC is not interested in increasing its stake.

Such a sale might also prove Corsair’s ability to exit investments and return capital to its LPs, which will stand it in good stead should it decide to launch a second infrastructure fund. Its co-advisor on the strategic review, Credit Suisse, acts as both an M&A advisor and a placement agent.

Alternatively, the GP could negotiate for its LPs to increase their stakes in the investments, a particularly likely option in the case of Itinere, one well-placed insider said. It is understood that while Gateway’s investment period has ended, it still has the ability to continue to call capital for follow-on investments and management fees.

A separate source described the most likely option as being a sale piece by piece of the four assets. “This, however, presents flight risk of the management team,” this person said.

Corsair Capital