The £4bn Thames Tideway Tunnel has shortlisted two funding consortia to become its infrastructure partner (IP) in a major step forward for the super sewer project.
A group led by Amber Infrastructure and Dalmore Capital will go head to head with a consortium headed by Prudential subsidiary Infracapital and Borealis.
Final bids from the two consortia, one of which will provide around £1bn in equity for the project, are due in July, with a decision expected in the weeks immediately after.
It is thought that client Thames Water had wanted more bidders to help drive competition, but a source close to the project told Construction News that other funders withdrew at an early stage.
Both consortia would need a large group of investors to club together to provide the equity for the project, with a number of pension funds already lined up by the bidders.
The Amber-Dalmore consortium includes “a cohort of large UK pension funds”, according to another source, who described it as a “blue-chip team of large funds”.
The project would be “too large for any single investor to do on their own”, the source added.
They continued: “Coming together in a group of investors is quite an attractive way of doing [these deals], because you’ve got expert developers of infrastructure working with people who are interested in being long-term investors of the asset class.
“That brings together the knowledge of how to bid these things, and how to analyse them with the capital these big funds have.”
Australian fund manager QIC, formerly the Queensland Investment Corporation, has been rumoured to be involved, although it is unclear whether it is currently part of the consortium.
“Coming together in a group of investors is quite an attractive way of doing [these deals], because you’ve got expert developers of infrastructure working with people who are interested in being long-term investors”
Thames Tideway source
The Infracapital-led consortium is thought to include some overseas funds as well as the UK’s Universities Superannuation Scheme.
The structure of the deal, which is similar to that of a project finance transaction, will see the infrastructure partner take on significant amount of risk.
Lead investors would take on transactional risk should there be difficulty closing the deal, as well as construction risk. This is likely to push up the price for the client, despite the project being part of the government’s UK Guarantee scheme.
That risk is also thought to have deterred some investors from pledging equity to the project at this stage.
“If it all goes tits up your equity investment will be toast,” said another source familiar with the structure of the deal.
“There will be a whole raft of people floating around the edges; what you sometimes find is that some of the smaller equity investors jump in once the risk is passed and pay a slightly higher premium.”
A financier not involved in the project told Construction News that the “signed and sealed” contract awards may also be a problem for investors looking to reduce the risk on the project.
Last month, Thames Tideway Tunnel named its first construction partners, with three consortia of firms selected to build individual parts of the tunnel.
A Laing O’Rourke and Ferrovial Agroman joint venture will build the largest Central section, with the contract valued at between £600m and £950m.
A Bam Nuttall, Morgan Sindall and Balfour Beatty JV was selected for the West contract, valued between £300m and £500m, while the East section will be built by a JV featuring Costain and Vinci, with a value of £500m to £800m.
A spokesperson for Thames Tideway said it could not comment on the deal “because it is a live procurement process”. Amber Infrastructure declined to comment, while Infracapital- Borealis did not respond to requests for comment.