LONDON: London-listed infrastructure investor HICL agreed Sunday to invest about £68 million (roughly $91 million) in Hector Rail, the largest private rail freight operator in Scandinavia, the company said.

HICL will acquire a 42% stake in Stockholm-based Hector Rail AB alongside other funds managed by InfraRed Capital Partners, which manages HICL. Together, the InfraRed-managed funds will buy 100% of the company from infrastructure investment manager Ancala.

The deal is HICL’s first “Enhancer” investment, a category the company introduced on July 2 at its Capital Markets Seminar as part of a revised strategy. HICL has said it aims to deliver total annual returns of more than 10% over the medium term by adding Enhancers to its existing “Yielder” and “Grower” investments.

HICL will pay for the purchase with cash on its balance sheet. The deal is expected to close by Dec. 31, pending customary third-party consents. Once completed, it will represent about 2.3% of HICL’s portfolio by value.

“Hector Rail is a high-quality infrastructure business with a strong position in the Scandinavian rail freight market, supported by clear opportunities for value creation,” said Edward Hunt, head of Core Income Funds at InfraRed. He said the deal shows HICL’s “disciplined approach to selectively enhancing returns for shareholders while remaining focused on essential infrastructure.”

Growth outlook

HICL said Hector Rail’s revenue has grown about 7% a year over the past five years. Contracts are multiyear and linked to inflation, with energy and track-access costs largely passed on to customers. Revenue is generally based on the number of trips operated, not the volume of commodities carried.

The company expects growth to continue, citing a shift from road to rail freight, better rail links between Scandinavia and continental Europe, and supportive government policy. Swedish track access charges are set to fall about 20% starting in 2028, while road haulage costs are expected to rise over time.

The Fehmarnbelt Tunnel between Denmark and Germany, expected to open in the early 2030s, should also cut journey times on Hector Rail’s international routes.

HICL’s investment plan assumes Hector Rail will add several locomotives as it wins new contracts and carry out a program of heavy maintenance, both funded from operating cash flow. InfraRed expects that, combined with revenue growth and operational improvements, to produce double-digit average annual EBITDA growth over the next five years.

HICL said the deal improves the diversification of its portfolio by sector and geography and helps its inflation correlation. It said the investment offers returns “materially in excess” of what share buybacks would imply.

About Hector Rail

Founded in 2004, Hector Rail began by running services between Sweden and Norway and has since expanded into Denmark and Germany. It serves industrial customers in sectors including timber, intermodal freight and energy. Its five largest customers have been with the company for an average of more than 16 years.

The company employs about 400 people, including roughly 300 train drivers. It operates about 100 locomotives, around 75% of them electric. Its services include providing locomotives and drivers, route planning, timetable management, and wagon and shunting services.

Investment policy

HICL said the investment falls within the 35% of assets its investment policy permits for “more diverse infrastructure investments.” The company said it expects to seek shareholder approval in due course to update the policy, including by adding a specific limit on the share of total assets that can go to Enhancers.