By Joti Mangat
Like many capital markets inventions, it’s a great idea in principle. The UK’s public finance initiative, a way of funding public expenditure with private capital, can finance complex and risky public interest projects at competitive rates while providing a liability-matched, retail price indexed home for pension fund money.
But now a crisis of confidence threatens to undermine the steady growth of the market. Doubts focus on the arrival of the largest non-defence PFI financing ever arranged in the UK, the redevelopment of St Bartholomew’s Hospital (Barts) and the Royal London Hospital. Arranged by Deutsche Bank and Morgan Stanley, the deal will supply around £1.5 billion ($2.6 billion) of long-dated RPI-linked paper, insured by monolines Ambac and FSA, into a tight market.
Recent reports suggest that the government is considering abandoning the project in favour of a more suitable and cheaper location for the new facilities. The Barts and The London NHS Trust, the body set up to administer the scheme, has tried to allay these concerns. “The cancer and cardiac element of the new hospitals programme is appropriately sized and meets the needs of east London’s growing population, and there is no appropriate capacity elsewhere in London,” it says.