Merger to create largest infrastructure investment trust

The boards of HICL Infrastructure (LSE:HICL) and The Renewables Infrastructure Group (LSE:TRIG) have agreed to combine, which will create the UK’s largest listed infrastructure investment company with net assets in excess of £5.3 billion.

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The merger will result in a portfolio of both core infrastructure (such as utilities, transport and communication) and firms tapping into the energy transition (such as wind and solar).

The boards argue that there is plenty of crossover, stating that “traditional areas such as social, transport and regulated infrastructure now intersect with renewables, energy storage and digital networks”.

In a statement, they said: “Bringing together two established leaders in their respective sectors, it offers a compelling opportunity for both sets of shareholders, aligning the combined company with the structural evolution of the infrastructure market.”

The boards added that the portfolio will become more diversified, and that an increased size could help to pique the interest of a broader investor base, noting that greater scale provides a pathway to potential inclusion in the FTSE 100.  

Income, a key reason why investors are attracted to this area of the market, will continue to be key. An initial annual dividend target of 9.0 pence per share will underpin a target net asset value (NAV) total return of over 10% a year over the medium term, alongside a progressive dividend that will be paid quarterly.

InfraRed, which acts as investment manager to both TRIG and HICL, will continue in that role for the combined company, which is subject to shareholder approval. However, both boards are optimistic that the deal will get the green light, reporting “positive market sounding with large shareholders of both companies”.  If approved, the tie-up is expected to complete early next year.

TRIG will be merging into HICL. As a result, TRIG shareholders will have the option to elect for a partial cash exit of up to £250 million in aggregate, representing approximately 11% of TRIG’s issued share capital, priced at a 10% discount to the 30 September 2025 TRIG NAV per share.

Following completion, the name and brand of HICL will change.

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Mike Bane, chair of HICL, said: “The combination of HICL and TRIG represents a unique opportunity to capture the key mega-trends shaping the infrastructure market today, which increasingly straddle both core infrastructure and the energy transition. By combining two complementary portfolios and teams, the combined company will have the profile, expertise and access to capital to seek enhanced returns from a reinvigorated investment strategy.”

Richard Morse, chair of TRIG, said: “This is a combination that we believe offers a transformational opportunity to drive growth and deliver a resilient, forward-looking investment proposition. Together, HICL and TRIG will form the UK’s largest listed infrastructure and renewables investment company, with the scale, liquidity, and balance sheet strength to better access a broader range of global opportunities and deliver sustainable long-term value for shareholders.”

All 11 board members from both TRIG and HICL will be retained.

TRIG has produced big losses in share price total return terms over the past one, three and five years. Data from Morningstar shows declines of -13.7%, -33.0% and -24.3% over those periods. The performance of its underlying investments – the NAV return – has fared better, but is in the red over one and three years, with losses of -3.7% and -2.4%. Over five years, it produced a positive NAV return of 33%.

The trust, however, is far from alone, with many investment trusts in the renewable energy infrastructure sector having a tough time over those time periods. Interest rate rises proved to be a headwind for the sector, increasing the appeal of returns made in safer areas, such as cash and bonds. As a result, income-seeking investors were less incentivised to take on risk, which lowered demand for infrastructure trusts, particularly those focusing on renewables.

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HICL has fared better, but the past three and five years haven’t been fruitful for investors. Its one-, three- and five-year share price total returns are: 9.6%, -3.0% and 6.1%. Its NAV return over five years is much higher, up 30.0%, with its one- and three-year NAV returns standing at 3.2% and 8.9%.

HICL’s share price fell on the news of the proposed tie-up, and it was down 8% in mid-morning trading, while TRIG’s share price rose 4.4%.

Merger trend 

Over the past couple of years, investment trust mergers have increased. This year, Henderson European Trust merged into Fidelity European Trust (LSE:FEV), while another tie-up saw European Assets merge with The European Smaller Companies Trust (LSE:ESCT). 

In 2024, it was a record year for investment trust mergers, with 10 taking place. The most prominent was Alliance Trust and Witan combining to create Alliance Witan (LSE:ALW). 

The uptick in mergers reflects investment trust boards becoming more size-conscious in a bid to try and win over more investors at a time when the sector’s out of favour.

A key driver has been consolidation within the wealth management industry, with such firms being big investors in investments trusts. As a result, fewer wealth management clients now control greater sums of money and, due to this, will invest only in investment trusts of a certain size for liquidity reasons (the ability to buy and sell easily). For small investment trusts, those with assets of below £300 million, it’s more difficult for larger investors to commit a large sum.