USS partners with Macquarie to buy Green Investment Bank for £2.3bn

The Universities Superannuation Scheme, the £50bn (€59bn) fund for UK academics, has partnered with Australian infrastructure giant Macquarie to buy the UK’s state-owned Green Investment Bank in a £2.3bn deal.

Macquarie had gone into the bidding process for the GIB as a solo bidder last year, but has now formed a consortium with USS and one of its Macquarie European Infrastructure Funds (MEIF5) to win the deal.

The bank was created in 2012, seeded with £3.8bn of public money, to stimulate investment into green projects in the UK. It is often upheld as the first and most successful institution of its kind, and has been replicated in countries around the world.

“This transaction has enabled USS to acquire a portfolio of high quality renewable energy assets on behalf of our members,” said Mike Powell, Head of Private Markets at USS.

“The assets include offshore wind projects and a portfolio of renewable loans, illustrating our capability to invest across the capital structure. We look forward to continuing our relationship with the Green Investment Bank and finding new opportunities to invest in the low carbon economy in the UK.”

The GIB will become Macquarie’s platform for principal investments in green infrastructure projects in the UK and Europe.

Bids to buy the GIB were submitted last autumn, despite major backlash against the privatization, which was announced just months after the bank began making profit for the first time.

Other bidders shortlisted by the government were widely understood to be private equity heavyweight KKR and a consortium led by UK environmental investment manager Sustainable Development Capital. The consortium included big names such as GE and Mitsui. KKR pulled out before final bids were submitted.

Macquarie garnered a lot of criticism from some corners of the market, following scandal around its ownership of another privatized UK company. Water utility Thames Water was bought by Macquarie in 2006. Since then, the firm has been accused of draining its pension provisions and restructuring Thames Water to enable major tax evasion. Macquarie sold its final stake in Thames Water last month.In January, a series of public figures including Virgin’s Richard Branson and former UK Business Secretary Vince Cable came out against the GIB sale, after revelations that subsidiaries were being created around the GIB, which some said could enable tax evasion. Macquarie was also accused of planning to asset strip the GIB.

“This has enabled USS to acquire a portfolio of high quality renewable energy assets”

An initial public offering was being considered as an alternative by the UK government, according to reports, but now it has been confirmed that initial plans to privatize the GIB will go ahead. Initially it was proposed that a majority stake was sold, but the government will now sell 100% of the GIB to the Macquarie consortium.

“The GIB Board supported the decision to privatise GIB as it believed that attracting new investors was the best available route to securing the long-term future of the business and its growing green impact,” said Lord Smith of Kelvin, an independent chair at the GIB. The move is expected to allow the GIB to raise bonds for the first time, for example.

“Macquarie has made significant and important commitments to the UK Government to maintain GIB as a discrete entity within its business, maintaining GIB’s investment focus and approach with a target to invest more capital each year than GIB has historically. Macquarie will also uphold GIB’s green investment principles and report transparently on GIB’s green impact.

“In addition, the involvement of USS and MEIF 5 as new investors in GIB’s assets is positive; these types of institutions are well-suited to the long-term ownership of large-scale green infrastructure assets.”

A body called the Green Purposes Company was recently created, comprising independent observers of the GIB, who hold a ‘special share’ which is intended to help retain the green mandate of the bank under private ownership.