The chancellor’s decision to delay the date at which the retail prices index (RPI) is phased out as an inflation measure and aligned with the consumer prices index (CPI) is expected to benefit infrastructure investment trusts, according to analysts at Stifel.
In Wednesday’s spending review, the Treasury said chancellor Rishi Sunak (pictured) will not approve a plan by the UK Statistics Agency (UKSA) to phase out RPI and align it with CPIH (CPI including owner occupiers’ housing costs) before 2030, which is after two specific gilts have expired.
In September last year, UKSA launched a consultation on the move, but said “owing to the use of RPI in two specific index-linked gilts, this proposal would require the consent of the chancellor if it were to be implemented before 2030”.
However in an update on Wednesday the Treasury said: “The chancellor has announced that while he sees the statistical arguments of UKSA’s intended approach to reform, in order to minimise the impact of reform on the holders of index-linked gilts, he will be unable to offer his consent to the implementation of such a proposal before the maturity of the final specific index-linked gilt in 2030.”
A note from Stifel published on the same day as the spending review said the delay could benefit certain investment trusts that invest in infrastructure. It noted most legacy UK infrastructure projects linked to inflation use RPI or RPIx (RPI excluding mortgage payments) as the measure, whereas newer projects tend to use CPI.
It looked at how exposed three infrastructure trusts are to UK projects. International Public partnerships (INPP) has 73% in UK projects, HICL Infrastructure has 74%, while BBGI Global Infrastructure is much lower at 30%.
Stifel said according to HICL’s own estimates, the potential impact to NAV of a full alignment of RPI to CPIH in 2025 absent any compensation from clients would have been 3.1p per share.
But, it added: “Following the chancellor’s statement, we have spoken to HICL which says that the 2030 change date means that the impact is only about half of what it would have been with a 2025 implementation – so c.-1.6p per share.”
In the case of INPP, which has a similar UK weighting to HICL, Sitfel has assumed an impact to NAV of about -1.5p per share based on a 2030 implementation date, with no compensation. This compares with around -3p per share with a 2025 date.
Stifel said BBGI has much lower UK exposure; however, the assets are all in PFI/PPP projects, and it estimates an impact of c.-0.5p per share, compared with about -1p per share with 2025 date.
Stifel said: “We think it would be useful if infrastructure funds could give a breakdown as to how much of their portfolios are linked to the different measures of inflation.”
