Types of equity participation in JVs

1. Types of equity participation in JVs Rob Hann and Martin Forbes, Local Partnerships London 3rd March 2010

2. 1997 Recession/General Election year! LACAP published Powers issues, Audit Commission, Hammersmith and Fulham swaps etc Allerdale DC, swimming pools and time share- risk transfer but not replicable! Waltham Forest, Sutton, etc PFI, Local Government (Contracts) Act Accounting and balance sheet issues Part V of the LG and Housing Act 1989 LG Minority interests encouraged – (less than 20% equity due to capital finance and other consequences) Some controlled companies eg LAWDCs Other equity structures? 2010 Recession/General Election year LACAP updated! Powers issues Brent and Laml case Procurement issues and remedies regs – much more complexity Teckal re public sector inter-authority? ; Accounting and balance sheet issues – what standards, what rules to apply, what consequences follow? Part V – much less of an issue but less than 20% remains the norm e.g LIFT/BSF/other Some experimentation with new structures LLPs, LABVs Local authority JVs 1997 cf 2010

3. Allerdale – Keswick Leisure Centre and Pool

4. Equity participation in JVs • Minority interest (less than 20%) • Substantial minority interest (20-49%) • Deadlock (50-50) • Control (or substantive control)? • Risk and reward implications for different levels of share holdings • Administrative implications for different levels of share holdings • Golden shares and reserved rights? • Different classes and voting rights • Local government scratching the surface of what’s possible

5. Equity – financial perspective

6. Equity – accounting treatment 5.19The relationship between the ONS statistical classification, financial accounts and the Treasury budget setting process is not straightforward. HM Treasury 2010 Joint Ventures: a guidance note for public sector bodies forming joint ventures with the private sector

7. Role of equity • A mechanism for exerting Control • A source of Funding • Represents an Investment • Demonstration of Commitment

8. Funding Cost of Capital

9. Investment • Different investment motives – different views, appetites & requirements for risk and return • Finding equilibrium – role of business plan & shareholder agreement • Capacity – how much funding can be supported? • Dealing with change – dilution and disposal

10. Local partnerships role? • Soon to be owned by HMT and the LGA • Unique position to work with Local authorities (and other public bodies) to pilot new projects, new JVs and find what works best; • To lobby for changes to legislation where necessary; • To provide clarification where necessary; • To develop templates and model constitutions, shareholders agreements bespoke to sector and project; • To use multi-disciplinary approach, public/private experience to deliver answers to some of the tricky issues which have helped to restrict innovation and limit equity participation to minority interests.

11. Rob Hann Director Legal Services 0776 890 6391 rob.hann@Localpartnerships.org.uk Martin Forbes Senior Executive, Housing & Property 07899 965739 martin.forbes@localpartnerships.org.uk Layden House 76-86 Turnmill Street London EC1M 5LG +44 20 7296 6777 www.localpartnerships.org.uk Contact details