2The sale of the Green Investment Bank
6.In June 2015, the government decided that it could not afford to continue to invest public money in Green Investment Bank plc (GIB), and announced it was considering both selling GIB and other means of bringing private capital into GIB. In March 2016 it launched a process, run by UK Government Investments (UKGI), to sell GIB. The Department for Business, Energy and Industrial Strategy (the Department) had two primary objectives in selling GIB: to remove GIB from the public sector balance sheet and therefore reduce public debt, and to achieve value for money, which it defined in terms of maximising the sale price. Subject to achieving these objectives, the Department also wanted to ensure that GIB was an “enduring institution” and continued to focus on green outcomes.13 Following a competitive process the Department awarded “preferred bidder” status to a consortium led by the Australian banking group, Macquarie Capital (Macquarie). The Department agreed to sell GIB to Macquarie in April 2017, and completed the sale in August 2017 for £1.6 billion and moved responsibility for around £500 million of GIB’s future commitments to Macquarie.
The sale process
7.The process for selling GIB took the form of a standard two-part auction, and was marketed to over 120 institutions. The Department received only five bids in Round 1, with UKGI considering the level of interest to be “satisfactory” but “subdued”. The Department told us that the subdued level of interest is characteristic in transactions of this kind. UKGI told us that the subdued level of interest was due to the complexity of the GIB business.14 Nevertheless, at the time UKGI became aware of risks which would cause the transaction to be unsuccessful. At the end of the final round of bidding, the Department received just two bids: one from a consortium led by Macquarie, and the other from a consortium led by Sustainable Development Capital Limited (SDCL). The Department decided in April 2017 to sell GIB to the Macquarie consortium.15
8.Overall, the sale process took nearly 18 months, more than double the time expected. The delays were caused by a range of factors to which the Department had to react, including: increasing the time allowed for bidders to conduct due diligence of GIB; undertaking the restructuring Macquarie required of GIB before completing the sale; and an application for judicial review towards the end of the sale process.16 The Department told us that this was a complicated asset to sell, but it did not appear to have made any allowances for this when considering how long the sale was likely to take.17
9.In response to its concerns regarding the low level of interest shown by bidders during Round 1 of the sale, in May 2016 the Department began to develop an alternative option: a phased sale process that would start in late 2018.18 This alternative gave the Department a fall-back in its negotiations with Macquarie and helped secure a higher price. However, the Department only fully evaluated the potential benefits and risks of the phased sale option in February 2017, 11 months after launching the sale and after several key decisions had already been taken.19 The Department told us that it was only possible to properly analyse and develop a credible alternative towards the end of the sale process.20
10.The Department estimated that the phased sale option would raise £63 million more than selling GIB to Macquarie. At the upper end, it estimated that the phased sale could raise £197 million more than selling GIB to Macquarie, but it recognised that it could also result in £75 million less. The Department told us that, while potentially raising more money, the phased sale option involved greater risks and would have delayed removal from the balance sheet, which was one of its primary objective.21 In April 2017, the Department sold GIB to Macquarie for less money than its mid-estimate in order to minimise its exposure to the risks associated with the phased sale option. The sale to Macquarie also assumed that government would retain a 90% stake in five of GIB’s assets, which the bidder valued below government’s own valuation. The Department told us that it considered the discount was a fair price to pay to avoid these risks.22
13 Q 2
14 Qq 35, 88, C&AG’s Report, para 3.13–3.14
15 Q 89, C&AG’s Report, para 3.16–3.18
16 Q 90, C&AG’s Report, para 13
17 Q 90
18 C&AG’s Report, para 3.14–3.27
19 C&AG’s Report, para 15
20 Q 91
21 Q 37
22 Qq 47, 92
14 March 2018