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Infrastructure trusts invested in botched NHS PFI deals

John Laing Infrastructure and GCP trusts have exposure to South London Healthcare Trust, which could face administration.

Infrastructure trusts invested in botched NHS PFI deals

Infrastructure investment trusts John Laing and GCP have exposure to the heavily indebted South London Healthcare Trust through private finance initiative (PFI) contracts.

Private finance contracts, which are partnerships between private companies and public services, have brought the NHS trust to the brink of bankruptcy and could see it enter administration next month as it struggles under a £69 million debt pile.  

John Laing has exposure to the trust through a 27.5% equity stake in the Queen Elizabeth Hospital in Woolwich, which represents 3% of its net asset value (NAV). The trust has a 30-year contract to design, build and operate the hospital until 2031.

GCP has 5% of its NAV in the Princess Royal University in Orpington through a £155 million loan to finance and maintain equipment with the Bromley Hospitals NHS Trust. The contract began in 2003 and will run to 2032.

PFI contracts are costing the South London Healthcare Trust 14% of its income, and an administrator could be appointed in the coming weeks.

However, the costly contracts will remain in place and neither John Laing nor GCP are expecting any financial impact from the possible bankruptcy of the trust.

The NHS trust is one of more than 30 struggling under debts due to poor PFI deals. A review of the PFI model was launched in December 2011 after a number of deals were criticised for delivering poor value for taxpayers.   

Shares in both trusts dipped in Wednesday morning trade. GCP is currently trading at 104.9p, a 6.5% premium to its net asset value (NAV) of 98.5p per share, and John Laing is priced at 108.4p, a 3.9% premium to its NAV of 108.4p per share.

21 comments so far. Why not have your say?

Anonymous 1 needed this 'off the record'

Jun 27, 2012 at 12:48

I know someone who is a director of what was a medium sized building company until they got involved in PFI work. Now he has a Rolls Royce, Aston Martin and a yacht with six crew in the Mediterranean. I bet he isn't the only one who has made vast amounts out of appallingly badly negotiated contracts. It would be nice to think that the so called public servants who are responsible for these decisions will be sacked for their incompetence but no doubt they will survive and end up with a pension that will make the rest of us in the private sector look like paupers.

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Anonymous 2 needed this 'off the record'

Jun 27, 2012 at 13:21

They are probably retired and crewing a yacht in the Med!!!

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Anonymous 3 needed this 'off the record'

Jun 27, 2012 at 13:27

I have some experience of looking at the aftermath of the public sector outsourcing work to the private sector. Almost every time the public sector gets taken to the cleaners. They have no concept of how to negotiate or manage a contract.

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Jun 27, 2012 at 13:57

I've invested a few bob in JLIF, HICL, BBGI and INPP. None of them will blow your socks off, but they are low volatility with reasonable yields.

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Jun 27, 2012 at 15:03

These are just a few of the hospitals which, at election time, Mr Brown proudly told everyone that he had built, as if he had arranged it, financed it and completed it. He didn't say that "These are the hospitals which I have arranged for your grandchildren to finance years into the future".

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M Kidd

Jun 27, 2012 at 15:46

If you think PFI was bad, Partnering Contracts, based on Latham's naive understanding of the Construction Industry, were obscene in the Public Sector, and probably not much better in the private sector.

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Rose G

Jun 27, 2012 at 15:55

PFI was a good way to finance projects, unfortunately, when dimwits try to take on board issues which are of a complex nature, we get the wastefulness like PFI projects - taxpayers will be funding the investors for the next 30 odd years - every time you want a shelf put up (if they let you damage the walls in the building) the contractors charge you for it, and not a reasonable charge either.

Tony Blair & Gordon the one eyed wonder both need to be hung, drawn & quartered, better still, they should be sent up north of the border, where they belong and hopefully we will never hear of them again! They were derelict in their duties as Prime Ministers and while Tony used his glib ability to convince people, Gordon just was another Scot who changed England, while still benefitting as a Scot! Tuition Fees was introduced by these two, so were many other policies which only affect England, but policies primarily made by the Scots, who still dominate at Westminster, while politicians of all except Nationalist are alive and well in Scotland - while they are debating the separation of Scotland from the UK, could we also chuck all Scots out of westminster?

PFI schemes should be thoroughly investigated - I think there was a scam going on - especially as I beleive that TB & GB know a lot more about economics - I do not believe that they did not know how investors would benefit, but the taxpayer, not - they should both be investigated for fraud!

As for TB, I believe that he should face the International Tribunal for war crimes - he is just another con merchant!

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Jun 27, 2012 at 16:30

Renegotiate all PFI contracts immediately in the light of the country's changed circumstances. After all this is what is being done to pensions etc. and what the governmment promised to do prior to election!

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Jun 27, 2012 at 16:41

HMG made a feeble attempt to renegotiate these legally binding contracts but after they'd had "legally binding contract" explained to them a few times, they gave in and wandered off.

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Jun 27, 2012 at 16:54

... and legally binding contracts with HMG as the ultimate Guarantor?

A common error, to believe that "It's only a guarantee, no problem, no money involved."


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June Beddows

Jun 27, 2012 at 17:04

Many of the computer tenders I have looked at showed a similar lack of awareness by the council staff writing the bids. Indeed I wrote to one telling them their bid was so full of holes that as a competent professional it was to vague for me to respond to. I wonder what they selected in the end, and did it do what they needed as they clearly didn't know what they needed when they wrote their tender document?

I know of some outsouced computer services contracts which mean that if Councils do subsequently find new and better ways to run their services more economically they cannot make any savings themselves because the computer services contracts permit the supplier to retain any subsequent operational savings as profits anyway.

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Jun 27, 2012 at 17:35

The private companies ran out of money to fund the builds so the government lent them the money. If the government had the money to lend to the private companies why didn't the government just build the hospitals?

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Jun 27, 2012 at 18:11

I guess because the government wanted the borrowings off balance sheet, and HMG could borrow for less than it could charge in interest.

BTW, PFI/PPI isn't some flash-in-the-pan that came and went. It's ongoing via many different projects, in many different countries. Just because someone once cut a bad deal doesn't mean the whole concept is flawed.

I have a relative who used to work in the public sector handling tenders and contract negotiations. He always said that anything less than 75% "no bids" meant he'd got the terms of the RFT wrong.

He's now retired at age 50, which shows that HMG has got public sector pension terms wrong!

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Jun 27, 2012 at 19:54

Interesting Jonathan. I agree with sgjhaghsdg.

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Bernard Bedford

Jun 27, 2012 at 19:57

It's popular but wrong to entirely blame Labour for PFI. It is the policy of all the main parties. Norman Lamont launched it in the Autumn budget 1992, although he envisaged a transfer of risk from the public sector. Ken Clark relaunched it in 1995. Sir George Young (transport) apparently spotted that in a service free at the point of delivery there would be little or no transfer of risk, but the bandwagon was rolling. Labour continued and hidden debt certainly suited Gordon's ludicrous Fiscal Rules. It continues apace under the Coalition.

With contracts signed for the next 30 years I agree it looks a relatively safe investment during my expected lifespan. INPP has a performance fee, the others don't.

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Jun 27, 2012 at 20:28

@Bernard - yup, like it or not, PFI is off and running, and is IMO a useful way to diversity a portfolio. INPP is my least favoured, but I held slugs of the others in my SIPP so took a tickle of it in my wife's ISA.

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Anonymous 4 needed this 'off the record'

Jun 27, 2012 at 21:26

I have experience working as an interim in the public sector and I have seen in some areas a total lack of business / commercial acumen when dealing with suppliers. I have also seen the the aftermath of PFI on office costs where the PFI cost per square metre was at least 5 times greater than the in house costs in other similar buildings. I agree these contracts need to be renegotiated, they will not evict a hospital trust ( or will they??). The charges must come down to a realistic level -- PFI suppliers the gravy train should come to a halt given the some political will -- ( this is probably the flaw in this suggestion?)

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Jun 27, 2012 at 21:37

The problem is that har- as-nails private sector suppliers come up against "Hey, I get my wages and pension come whatever" liberal arts public sector peeps and hence gravy train contracts are signed. Yes, there are some sharp public sector people, but lacking reward and recognition, they soon resign and switch sides and use their skills to pull money in the other direction.

What's right, what's wrong, how do we fix it? I haven't got a clue, I just look at asset classes.

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Jun 27, 2012 at 22:08

I was reading the news a few months ago that hospitals couldn't even put pictures up in the corridor to brighten them up as the PFI firms have taken ownership of the walls and charge £600 just to hang three pictures on the wall. This isn't for the pictures just the hanging of them. I think someone is being ripped off.

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Jun 27, 2012 at 22:56

That reminds me of the cost of access to a TV and telephone within a hospital. Is that under the same sort of contract?

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Jun 27, 2012 at 23:05

The TV and 'phone contracts are similar but not the same. Patients used to have one shitty TV in some distant room and a dodgy payphone a few floors down. Now it's at the bed but there is an optional cost.

The evil part is that hospitals were contractually required to blanket ban cellphones as part of the deal.

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