1

E3G Briefing

Macquarie’s acquisition of the UK Green Investment Bank

Detail:

1. Introduction – p1

2. Investigation Findings – p2

3. Diagram on Findings – p3

4. Concerns raised by former government Ministers, MPs and Lords – p4

5. About Macquarie – p5

Annex:

Investigation Methodology – p 7

1. Introduction

The UK’s Green Investment Bank (GIB) is to be sold by the UK Government to its preferred bidder,

Australian investment bank Macquarie for an estimated £2 bn. The sale and process surrounding it

has created significant opposition, given Macquarie’s controversial track record and known business

model and a lack of clarity on safeguards secured by Government as part of the process.

Investigative research by E3G and Greenpeace show changes in the corporate structure of the GIB

being made in the final stages of the sale process. The measures, synonymous with those used in

asset stripping, could well mean Macquarie is planning fundamental changes to the GIB following

completion of the acquisition, many of which could be detrimental to the UK’s national interest.

Irrespective of Macquarie’s present intentions, safeguards proposed by Government as part of the

sale – establishing an independent ‘special share’ which has final say over the Bank’s green purposes

in its articles of association – would be impotent in preventing asset stripping or the break-up of the

Bank post-sale.

This background briefing outlines the changes being implemented at the GIB, Macquarie’s existing

track record of asset stripping in the UK and context on growing opposition to the sale.

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2. Investigation Findings

An investigation by think tank E3G and Greenpeace UK, has uncovered a process within the

Green Investment Bank (GIB) establishing corporate structures commonly used in preparations

for ‘asset-stripping’, ahead of its purchase by controversial Australian bank Macquarie from the

UK Government for an estimated £2bn.

Between 22 November and 1 December 2016, 10 new companies have been incorporated and

registered to GIB’s London offices. This sudden proliferation of companies is uncharacteristic of

the GIB, which has to date had a simple, stable and transparent structure (see fig.1).

These new companies correspond to the GIB’s largest assets, and create significant complexity in

the GIB company structure (see fig.2 and Annex).

The establishment of holding companies, and multiple corporate layers, is often synonymous

with practices such as excessive debt, asset stripping and financial engineering, including tax

avoidance.

The timing suggests this is being done to accommodate an asset stripping by Macquarie, the

company who were strongly rumoured to be preferred bidder in October. It was expected that

the outcome of the sale process would be formally announced in December 2016, but

widespread opposition has delayed the process to mid January.

This new evidence suggests that the GIB, under Macquarie ownership, could be stripped of its

four largest assets, totalling almost £1 billion:

o Galloper Offshore Wind Farm – £119 million

o Rampion Offshore Wind Farm – £306.5 million

o Westernmost Rough Offshore wind farm – £240.8 million

o GIB Offshore Wind Fund – £200 million (GIB share)

What would this mean?

Not a significant asset base and not an enduring institution: selling down the GIB’s assets

means it will be a less substantial institution with less capital to invest in the UK economy. This

puts at risk the GIB as an ensuring institution making productive investments in the UK economy.

No guarantee on capital commitment: The Government has not provided any information on

what guarantees/commitments there are from Macquarie on new capital commitments going

forward. Based on Macquarie’s track record, it is most likely that money from any asset sales will

not be reinvested in the UK, but transferred out of the UK economy with little or no tax paid on

profits.

Green promises mean nothing: After much campaigning the Government has agreed to protect

the GIB’s green purposes through an independent trustee company. But if the assets are sold,

there will be little to which this ‘special share’ would apply. The effect would be to undermine or

circumvent the application of the special share, the creation of which provided a significant basis

on which Parliament agreed to allow the sale to proceed.

Who will benefit?: The structuring suggest that these asset sales could be imminent. Based on

Macquarie’s track record, it is most likely that money from any asset sales will not be reinvested

in the UK, but transferred out of the UK economy with little or no tax paid on profits. If so,

Macquarie could be set to make a windfall at the taxpayer's expense.

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GIB Structure – 31 March 2016 (fig.1)

GIB Structure – 1 December 2016 (fig. 2)

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3. Concerns raised by former Government Ministers, MPs, Lords

Conservative: Rt. Hon. Gregory Barker, the Lord Barker of Battle – former Energy & Climate

Minister, 2010 – 2014

“Am increasingly alarmed that sale of #GIB will now see it broken up it threatens its future as

enduring institution #slamonthebreaks” (Twitter, 16 Dec 2016)

Liberal Democrat: Rt. Hon Vince Cable – former Secretary of State for Business, 2010 – 2015

Macquarie is "notorious for pursuing short-term profitability at the expense of long-term

sustainability. This is the worst kind of company to be entrusting maintaining the integrity

and green mission of the bank,"1

The government risks "effectively destroying" the Green Investment Bank (GIB) as an

institution if it presses ahead with its plan to sell the bank into private hands.2

“The @GreenInvBank I helped establish secured billions of investment in green projects now

#Gov wants to sell off & stripped by #MacQuarie?” (Twitter, 20 Dec 2016)

SNP: Keith Brown MSP – Scottish Government Economy Minister, 2016 – present

“I have been made aware of some concerning reports that the privatisation has become

more of a fragmentation or asset stripping process which runs counter to the previous

commitments made to the Scottish Government. This is deeply troubling...”3

Mr Brown said that he was "disappointed" by the Conservative Government's approach,

which he said had been "characterised by an unacceptable lack of communication".4

Green: Caroline Lucas MP

“Macquarie, have a deeply regressive approach to environmental issues, and, in selling off

its stake without the appropriate safeguards, the Government is placing the GIB at risk of

being dismantled – putting at risk all the green projects it has invested in.”5

Labour: Clive Lewis MP, Shadow Business Secretary, 2016 - present

Safeguards are required “to ensure beyond any doubt that the bank will be retained as a

single institution … even if it causes Macquarie to pull out of the deal."6

UNISON General Secrerary, Dave Prentis on Macquarie takeover of National Grid:

“Macquarie has poor form already — in building up huge company debt, repatriating

massive dividends to the southern hemisphere and charging more for a poorer service. The

company has proved it can’t be trusted with the nation’s water supply, but now it is to be in

charge of gas pipes to millions of homes and businesses.”7

1 http://www.smh.com.au/business/banking-and-finance/worst-kind-of-company-alarm-in-britain-over-

macquarie-banks-proposed-takeover-of-britains-green-investment-bank-20161221-gtg55k 2 http://www.businessgreen.com/bg/news/3001567/privatisation-could-destroy-the-green-investment-bank-

warns-vince-cable 3http://www.heraldscotland.com/politics/14986674.Fears_grow_over_jobs_at_Green_Investment_Bank/?ref

=rss 4Ibid.

5 https://www.carolinelucas.com/latest/caroline-lucas-lets-save-the-green-investment-bank

6 Ibid, note 2.

7 https://www.thesun.co.uk/news/2362886/aussie-bank-slammed-for-poor-treatment-of-the-british-after-

buying-up-large-chunk-of-the-uk-gas-network/

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4. About Macquarie

Macquarie is an Australian financial giant that has been hit with the unflattering "asset stripping" tag

for more than a decade. In 2005, the board of the London Stock Exchange deemed the bank unfit for

a takeover. The Telegraph cited a source close to the LSE describing Macquarie Bank as "purely a

financial asset stripper."8

Since then Macquarie has gone on to acquire and dispose of large parts of Britain’s infrastructure,

and not without controversy.

Some of the most controversial assets have been: Thames Water, the monopoly supplier to London;

the M6 toll road; Airwave, the telecoms provider to the emergency services; and Arqiva, the mobile

phone and television transmitter.

Each of these four companies was saddled with huge debts whose interest payments outstripped

their profits - the Macquarie Fund and the investment partners have nevertheless pulled out big

dividends. 9

Analysis by The Sunday Times revealed that between 2005 - 2013, funds controlled by Macquarie

and its investment partners have paid only £1.8m in tax despite banking £2.2bn in dividends and

interest payments on its then four biggest British assets10. In addition, they, and others, have

uncovered the following:

Thames Water

Since taking over the company in 2006, Macquarie has withdrawn 80% of its profits out of

the company.11

By the time Macquarie put its stake in Thames Water up for sale in February 2016, it and

fellow investors had extracted around £1.2billion of profits.12

In four out of five years, between 2007 and 2012, Macquarie and its fellow investors took

out more money from the company than it made in post-tax profits. They “crippled” the firm

with billions in debt, while Thames customers paid ever more in water bills and got among

the worst service offered by any water company.13

Despite this, Thames has paid just £100,000 in corporation tax since 2006. 14

It loaded the water supplier with loans, which has increased the amount of debt for

investments on its balance sheet from £1.6bn ten years ago to around £10bn in 2016. 15

Its pension deficit has ballooned from £38m to £250m.16

8 http://www.telegraph.co.uk/finance/2928243/LSE-hits-at-asset-stripper-predator.html

9 http://www.thesundaytimes.co.uk/sto/business/article1210967.ece

10 Ibid

11 http://www.thesundaytimes.co.uk/sto/business/energy_and_environment/article1202082.ece

12 http://www.thisismoney.co.uk/money/news/article-3611509/Australian-bank-selling-share-Thames-Water-

rinsed-firm-millions-saddled-debts-dodged-tax-created-250m-pensions-black-hole.html 13

http://cjres.oxfordjournals.org/content/6/3/419.full.pdf 14

Ibid n.12 above 15

Ibid n.12 above 16

Ibid n.12 above

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M6 Toll Road

Macquarie Motorways Group, the British holding company for the M6 toll road, loaded the

firm that runs the road with big debts in 2006. 17

It replaced loans of £620m with borrowings of £1 billion. 18

The controversial refinancing saw the bank pay itself a £392m dividend.19

Sold in December 2013.

Arqiva

Arqiva was created in 2007 when Macquarie orchestrated a debt-fuelled merger of National

Grid Wireless and Macquarie UK Broadcast Ventures (formerly NTL Broadcast).

The British company was owned by a Macquarie offshoot in Bermuda, a tax haven,

according to its 2009 accounts. 20

Between 2009 and 2013, Arqiva paid no corporation tax, despite earning hundreds of

millions of pounds. 21

The borrowing binge left Arqiva saddled with about £4bn of debts. Some of the loans came

from Macquarie itself and carrying interest rates of 18%, paid back to Macquarie

subsidiaries.22

Arqiva is also now up for sale.23

Airwave

In April 2007 two Macquarie infrastructure funds bought the network used by the fire

service and police from its previous owner, O2, for £1.9bn. To fund the deal the company

borrowed £1.6bn from HSBC (full amount still outstanding when company sold off in

2015).24

Airwave took out £430m in loans from a pair of financing arms Macquarie set up, including

Guardian Digital Communications Luxembourg. 25

The loans carried 12% interest, well above the market rate. 26

Interest repayments have pushed Airwave from profit to loss ever since. 27

It paid no corporation tax. Macquarie did well however. Between 2007 and 2013, Guardian

Digital Communications Holdings, the parent company, has taken £93m in dividends and

£109m in interest payments. 28

17

http://www.thesundaytimes.co.uk/sto/business/Industry/article1032071.ece 18

Ibid 19

Ibid 20

http://www.thesundaytimes.co.uk/sto/business/Tech_and_Media/article1193203.ece 21

Ibid 22

Ibid 23

http://news.sky.com/story/mobile-masts-giant-arqiva-telegraphs-1635bn-sale-plan-10669235 24

http://www.thesundaytimes.co.uk/sto/business/Companies/article1210777.ece 25

Ibid 26

Ibid 27

Ibid 28

Ibid

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ANNEX – SUMMARY – INVESTIGATION METHODOLOGY

GIB is a transparent organisation and publishes all its investments. So starting there, you can see which

ones are likely to be sold first (i.e. the biggest)

o Galloper wind farm £119m,

o Rampion wind farm £306.5m,

o Westernmost Rough wind farm £240.8m

o GIB financial services managed Offshore Wind Fund owns other big investments including: LID

offshore wind farm, Sheringham Shoal offshore wind farm and Gwynt y Mor offshore wind farm

Going to the GIB Annual Report, you can see what entities existed for these investments as at 31 March

2016. http://www.greeninvestmentbank.com/media/118884/gib-annual-report-2016-web-single-

pages.pdf

o UK Green Investment Galloper Limited (Note 13, p134)

o UK Green Investment Rampion Limited (Note 13, p134

o Galloper Wind Farm Holding Company Limited - Associate (Note 14, p137)

o WMR JV HoldCo Limited (Note 14, p 137)

Based on this, going to the Companies House search function (https://beta.companieshouse.gov.uk/), and

looking for entities with Galloper, Rampion and WMR in the name, you find a rather curious development:

o Under the search term “Galloper”: there are two companies – one that existed at 31 March 2016

and a new entity. All are registered to UK GIB’s London offices:

New: GALLOPER HOLDCO LIMITED, 10492131 - Incorporated on 22 November 2016,

13th Floor 21-24 Millbank Tower, Millbank, London, United Kingdom, SW1P 4QP

Original: UK GREEN INVESTMENT GALLOPER LIMITED, 09793796 - Incorporated on 24

September 2015, 13th Floor 21-24 Millbank Tower Millbank, London, SW1P 4QP

o Under the search term “Rampion”, there are now three companies – one that existed at 31

March 2016 and two new entities. All are registered to UK GIB’s London offices.

New: RAMPION HOLDCO LIMITED, 10492132 - Incorporated on 22 November 2016, 13th

Floor 21-24 Millbank Tower, Millbank, London, United Kingdom, SW1P 4QP

New: RAMPION INVESTCO LIMITED, 10507143 - Incorporated on 1 December 2016, 13th

Floor 21-24 Millbank Tower, Millbank, London, United Kingdom, SW1P 4QP

Original: UK GREEN INVESTMENT RAMPION LIMITED, 09579083 - Incorporated on 7 May

2015, 13th Floor 21-24 Millbank Tower Millbank, London, SW1P 4QP

o Under the search term “WMR”, there are now three companies – two that existed at 31 March

2016 and one new entity. Only the new entity is registered to UK GIB’s London offices.

New: WMR HOLDCO LIMITED, 10492129 - Incorporated on 22 November 2016, 13th

Floor 21-24 Millbank Tower, Millbank, London, United Kingdom, SW1P 4QP

Original: WMR JV HOLDCO LIMITED, 08921440 - Incorporated on 4 March 2014, C/O

Hackwood Secretaries Limited, One Silk Street, London, EC2Y 8HQ

Original: WMR JV INVESTCO LIMITED, 08921584 - Incorporated on 4 March 2014, C/O

Hackwood Secretaries Limited, One Silk Street, London, EC2Y 8HQ

Based the searches to date it was evident that new companies were setup in November and December

2016. We can also see that companies were being registered at GIB’s London office.

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Next, going to the Companies House Free Company Data Product reports

(http://download.companieshouse.gov.uk/en_output.html) and obtaining listings of all entities registered

at 1 December 2016. Searching these files under each registered address associated with GIB entities, and

looking at common officeholders to check for entities that could relate GIB, it can be seen that a further 6

new companies have been created and registered to GIB offices, taking the total to 10 new companies.

These are in the table below.

Company Name

Company

No. Registered Address

Incorporation

Date

GALLOPER HOLDCO

LIMITED 10492131 13TH FLOOR 21-24 MILLBANK TOWER 22/11/2016

OSW CO HOLDINGS 1

LIMITED 10490912 13TH FLOOR 21-24 MILLBANK TOWER 22/11/2016

OSW CO HOLDINGS 2

LIMITED 10491763 13TH FLOOR 21-24 MILLBANK TOWER 22/11/2016

OSW LP HOLDCO

LIMITED 10492133 13TH FLOOR 21-24 MILLBANK TOWER 22/11/2016

PROJECT G HOLDCO

LIMITED 10491295 13TH FLOOR 21-24 MILLBANK TOWER 22/11/2016

PROJECT G HOLDINGS

1 LIMITED 10489802 13TH FLOOR 21-24 MILLBANK TOWER 21/11/2016

PROJECT G HOLDINGS

2 LIMITED 10490358 13TH FLOOR 21-24 MILLBANK TOWER 22/11/2016

RAMPION HOLDCO

LIMITED 10492132 13TH FLOOR 21-24 MILLBANK TOWER 22/11/2016

WMR HOLDCO

LIMITED 10492129 13TH FLOOR 21-24 MILLBANK TOWER 22/11/2016

RAMPION INVESTCO

LIMITED 10507143

13th Floor 21-24 Millbank Tower, Millbank,

London, United Kingdom, SW1P 4QP 01/12/2016

The creation of these companies was confirmed to us by the GIB on 24 December 2016.