GIB sale process launched
The transaction will involve both the sale of existing shares owned by the government and the commitment of additional capital for the GIB by new investors.
An information form has been issued to potential bidders, inviting expressions of interest in participating in the process. It states that any interested party must be able to invest at least £50 million of equity into the bank.
Lord Smith of Kelvin, the Independent Chair of the GIB, has said that attracting private investors to the GIB is ‘vital’ if it is to fund its plans to double the size of its business and expand into new parts of the green economy.
Launching the sale process, the GIB says it is ‘well placed’ to expand into sectors including heat networks, low-carbon transport and energy storage, and has already established a third-party asset management business with over £800 million raised for the UK GIB Offshore Wind Fund, as well as a £200m international joint venture with the UK’s Department of Energy & Climate Change.
The bank has committed £2.6 billion of capital to almost 70 green infrastructure projects in the UK since it was established in 2012 and is marketing itself to potential investors as an ‘expert and highly flexible investor’ that offers a portfolio-wide forecast internal rate of return of over 10 per cent.
Merrill Lynch International and UBS Ltd will act as financial advisors to Secretary of State for Business, Innovation & Skills, Sajid Javid, and the GIB respectively during the sale.
Worries about losing green mission
Javid first announced plans to sell ‘at least a majority’ of the government’s share in the GIB to private investors last June, explaining that the sale would ‘allow the bank to access a much greater volume of capital than would be the case if GIB were to remain in government ownership’.
The sale of the bank attracted much criticism from MPs and others outside government, as its intended purpose was to support environmentally-friendly projects that were struggling to find funding from the private sector. In response to concern from the government’s Environmental Audit Committee that the bank’s original mandate to fund environmentally-friendly projects could be lost through the privatisation process, government announced its intention to create a ‘special share’ in the company to protect its green mission.
This special share would be held by a separate company, independent of the GIB and government. The ‘special shareholder’ would then have veto power to block any move away from the GIB’s mission to fund green projects.
Throughout the process, green groups, think tanks and MPs have been critical of the privatisation plans, with Labour MP Ian Wright, Chair of the BIS Select Committee, warning that the move could result in the GIB becoming “just another bank” and encouraging the conclusion that the government is passing up any desire to lead in the global low carbon economy.
Commenting on the sale launch, Shaun Kingsbury, the GIB’s Chief Executive, said: “In three years, the team at GIB have built a special business that is green, profitable and admired around the world. GIB is an exciting investment opportunity, providing new investors with predictable returns and significant growth opportunities.
“The business is perfectly placed to play a leading role as the world moves decisively towards an unprecedented programme of green infrastructure investment.”
Announcing the intention to sell the GIB in his speech at the Lord Mayor’s Trade and Industry Dinner at Mansion House yesterday, Business Secretary Sajid Javid said: “The Green Investment Bank was a world first, and it is a sign of its success that the idea is being copied across the world. Having proven the business model works, we now want to make an even greater impact. The challenge presented by climate change is clear – it is imperative we mobilise more funding for green energy projects. The special share structure protects the bank’s green mission meaning The Green Investment Bank will continue to do exactly what it says on the tin.”
‘Suitable investors’ must uphold bank’s reputation
The EAC’s inquiry into the sale also suggested that a privatised GIB could invest in areas that could damage its reputation and thus undermine its leadership role in the green economy.
This is also a risk noted by the Aldersgate Group, a group of figures from business, politics and civil society that drives action for a sustainable economy, which said at an event in November that the ‘botched’ privatisation process could damage investor confidence. Nick Molho, the group’s Executive Director, also warned that privatisation would threaten the UK’s access to £315 billion in the European Fund for Strategic Investment and risked investment staying away from new areas.
Commenting after the today’s launch of sale, Molho said: “What has made the GIB unique to date has been its ability to be a step ahead of the market by supporting projects that weren’t getting sufficient support from mainstream private investors such as complex energy efficiency projects and offshore wind farms using new technologies.
“This focus on projects that are both green and novel has allowed the GIB to help tackle important market failures in the area of green infrastructure. Identifying investors with a clear plan and commitment to maintain this current focus must be an important part of the GIB sale process.”
The Green Investment Bank’s bidder information form can be found on the Department for Business, Innovation & Skills website.