Investors troubled by major infrastructure trust merger announcement

HICL Infrastructure [LON:HICL] and The Renewables Infrastructure Group [LON:TRIG] have agreed terms for a landmark all-share and cash transaction that will create the UK’s largest listed infrastructure investment company, bringing together more than £5.3bn in net assets and signalling a strategic reshaping of the country’s listed alternatives sector.

The proposed combination, announced after months of discussions and shareholder sounding, will merge two of the London market’s most prominent infrastructure vehicles at a time when core infrastructure and energy transition assets are increasingly converging. The boards of both companies said the enlarged group would offer investors enhanced scale, improved liquidity and renewed strategic impetus following a challenging period for the listed funds sector.

Under the terms, TRIG will be wound up through a Guernsey reconstruction process, with its assets transferred to HICL in exchange for newly issued HICL shares and a partial cash alternative of up to £250mn. Sun Life, the parent of InfraRed Capital Partners (investment manager to both companies) will commit a further £100mn to support secondary market liquidity once the deal completes, expected in the first quarter of 2026.

On an illustrative basis, applying the companies’ latest reported net asset values, TRIG shareholders would receive roughly 0.71 HICL shares for each TRIG share, leaving existing HICL investors with 56 per cent of the enlarged company and TRIG shareholders with 44 per cent, assuming full take-up of the cash option.

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A broadened investment mandate

The merged entity will adopt a broadened investment mandate spanning the full spectrum of infrastructure, from regulated utilities and social infrastructure to renewables, storage and digital networks, reflecting the increasingly interconnected nature of global infrastructure markets. It will target an annual NAV total return above 10 per cent and pay a higher dividend of 9p per share, underpinned by what the boards describe as highly diversified and resilient long-term cashflows.

Mike Bane, HICL’s chair, called the combination “a unique opportunity to capture the megatrends shaping the infrastructure market”, adding that the enlarged portfolio and capital base would leave the company better placed to pursue growth opportunities across both core and energy-transition assets. Richard Morse, TRIG’s chair, described the deal as “transformational”, offering an investment proposition with greater scale, liquidity and access to global markets.

HICL, listed in 2006, has built a portfolio of more than 100 assets across social infrastructure, regulated utilities and transport concessions, while TRIG, launched in 2013, has become one of the largest renewables investment vehicles in Europe, with 2.3GW of operating capacity and a growing development pipeline. Both companies have struggled in recent years with a sector-wide derating driven by higher interest rates and reduced demand for closed-end funds.

Shareholders in both groups will be asked to approve the transaction at meetings in December. The deal remains subject to multiple regulatory approvals, including the FCA’s sign-off for HICL’s new investment policy, foreign-investment clearances and lender consents.

InfraRed to continue as investment manager

InfraRed will continue as investment manager of the enlarged group under a revised fee structure designed to deliver economies of scale, while Renewable Energy Systems (RES) will remain responsible for operational management of the renewables portfolio at reduced fee levels. Cost savings and revised management arrangements are expected to support an operating expense ratio of 92–96 basis points.

The new board will bring together all existing directors from both companies, with Bane serving as chair and Morse as deputy chair. The combined company plans to adopt a new name and brand after completion, which shareholders will vote on at the 2026 annual meeting.

If approved, the deal would represent the most significant consolidation move yet in the UK’s listed infrastructure and renewables sector, an industry increasingly focused on scale, flexibility and access to capital as global investment needs accelerate.

CG Asset Management voices opposition

That said, the proposed meger was already attracting opposition from investors on Monday.

“We are appalled by the announcement of the proposed merger,” said fund manager CG Asset Management. “The market reaction is telling, as we write this the share price of HICL is down more than 8% and the market cap has fallen by more than £190m. The increase in TRIG’s share price is less than half the fall of HICL’s.”

CGAM said that it could see no strategic rationale for the transaction.  It argued that TRIG’s portfolio and HICL’s portfolio are invested in entirely different asset classes and their combination will not result in material cost savings. “If investors wish to have exposure to both these asset classes they can easily do so by buying shares in both TRIG and HICL,” CGAM argued in a letter to the board. “However, many investors, like us, have made an explicit decision not to be invested in TRIG and have no desire to be forced to do so by the board of HICL.”

If the merger proposal was with another core infrastructure fund that holds similar assets and resulted in material cost savings, the strategic case would be far stronger. “With this proposal the only clear overlap between these companies is the manager, Infrared Capital Partners, who appear to be the principal beneficiary from the transaction,” CGAM said in its letter on Monday, which was shared with The Armchair Trader.

TRIG is likely to hold a continuation vote next year due to its persistent wide discount. Under this proposal TRIG will no longer need to hold that continuation vote so Infrared Capital Partners is not exposed to a potential loss of assets under management.

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