Cordiant Digital first of new breed of investment trust to IPO
Investor appetite for all things digital and technology related has started to become apparent as a new breed of investment trust has launched on the London market.
The UK’s first digital infrastructure investment trust, Cordiant Digital Infrastructure (CORD), floated this week after raising £370 million, smashing its initial target of £300 million.
Hoping to follow in its footsteps is another trust of the same ilk, Digital 9 Infrastructure, which is seeking to raise £400 million.
Cordiant Digital, which targets a 9% total return a year on net assets, will invest across the UK, Europe and North America in what it calls the core infrastructure of the digital economy, or ‘the plumbing of the internet’, comprised mostly of data centres, mobile towers and fiberoptic networks.
It plans to capitalise on the ‘surging growth in data consumption and traffic’, and thinks consumption trends and traffic patterns, as well
as the adoption of 5G technology, will provide ‘an economic tailwind’ that could last for over a decade.
Digital 9 Infrastructure will invest in similar assets to Cordiant but also subsea cables. It’s been reported 98% of the world’s data is carried by subsea cables, and clients include almost all of the world’s big technology companies.
The fact Cordiant actually managed to float, let alone beat its target, demonstrates the demand from investors for differentiated ways to play the ongoing digitisation of the economy, and brokers Numis call it a ‘strong result’ for the trust, given the fact investors are ‘typically highly reluctant’ to participate in IPOs.
Numis bemoans that ‘a frustrating number’ of investors ‘give feedback that they like the idea’ of a trust, but will back it in the second fundraising round and adds: ‘We believe this reflects the higher due diligence requirements on an IPO and the potential wasted time and reputational risk if it fails to get away.
‘As a result, many IPOs struggle to get away and we have also seen a number of IPOs coming back to the market and raising capital relatively shortly after launch.’
In the case of Cordiant, it’s also worth highlighting it has issued subscription shares as part of its IPO, which could’ve boosted demand as these have been used in the past to give a ‘kicker’ to IPO investors.
Cordiant has issued subscription shares on a one-for-eight basis, which could lead to issuance of up to 12.5% of share capital, exercisable if the shares trade on a premium in the first six months or if the share price total return exceeds the target return over the first five years.
Numis warns the cost of holding subscription shares for retail investors on platforms ‘can be significant compared to their value’.