The company revealed yesterday (November 30) that it aims to sell an 80% share in the two companies set up to deliver both the East London Waste Authority and Dumfries & Galloway PFI deals. The companies are known as special purpose vehicles (SPVs).
A fundamental part of our strategy is selling our non-core assets
Tom Drury, chief executive, Shanks
Shanks is also looking to sell off the subordinated debt for the projects. This kind of debt is deemed as less secure because it is less of a priority when money is being paid back to project backers than the senior debt, which is often provided by banks.
However, Shanks stressed that it would continue to operate both PFI contracts, which, in the case of East London, were signed in 2002 (see letsrecycle.com story) and, in Dumfries & Galloway, in 2004 (see letsrecycle.com story) once any sale was completed.
And, a financial analyst told letsrecycle.com that it was “quite normal” to sell shares in the SPV used to deliver a PFI deal once the initial construction phase of a project had been completed.
“There are a lot of people who do invest in PFI and, once the thing is up and running, it's a fairly low risk investment,” he added.
Opportunities
Shanks' chief executive, Tom Drury, explained that the sale of the stakes was aimed at helping the company to grow in specific areas and to take advantage of opportunities as and when the economy recovers.
“A fundamental part of our strategy is selling our non-core assets. The proceeds of this will help fund our growth strategy,” he said.
“When the economy recovers we will be well positioned to take advantage of the market opportunities that will emerge,” he added.
Priorities
Shanks' current priorities, as outlined in its half-yearly results which were published last month, include “investing selectively” in its growth areas of recycling, organics reprocessing and PFI, as well as ensuring it has “rigorous” management of costs and cash.
The company raised money in May 2009 through a rights issue – where new shares are offered to existing shareholders to raise capital – and also through the May 2009 sale of its 50% interest in Avondale Environmental, which together raised £66.9 million.
However, by selling stakes in the companies set up to deliver what represent two of the three PFI deals Shanks has currently signed, the company will miss out on some of the future revenues from the contracts as they progress.
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