Last week's decision by Carillion and Atkins to cash in their equity in PFI projects looks like signalling a trend among contractors. We look at what is driving the process
The PFI market is, it seems, finally maturing. Contractors and consultants are starting to sell their equity stakes in the first-generation projects for attractive returns, and this looks likely to gather pace over the next six months.

A fortnight ago, Carillion sold its equity in the UK's first hospital PFI, Darent Valley in Kent, to Barclays for £16.4m – four times its original investment. Within 24 hours, Atkins sold off its stakes in two road projects to Balfour Beatty.

Mike Jeffries, Atkins chairman, said the firm always intended to sell off the stakes, but that the process had taken longer than he had expected. "There will be this secondary [sell-on] market developing, but it has taken longer than we thought to get through the process – such as bidding, being named preferred bidder, construction time and refinancing the project."

Originally, Jeffries anticipated that the time taken to recycle the capital in the original investment would be four to five years. He has found that, for the first wave of projects, it has been more like six to eight years.

A spokesperson for Carillion confirmed that the Darent Valley sale was one of a series that it was planning across the 16 PFI projects in which it held an equity stake. She added that the value of the stakes was rarely appreciated: "We have always been a tad concerned that the value of our PFI portfolio is not demonstrated in our share price.

As part-owners of the PFI projects, contractors were in a stronger bargaining position with the client

The best way of demonstrating this is by selling, releasing shareholder value and releasing funds for reinvestment."

Mike Foster, an analyst with KBC Peel Hunt, said there has been a change of attitude among the leading firms. In the past, contractors were likely to see the value in holding on to their stakes, as they gave them a bit more leverage on the projects. As part-owners of the projects, they were in a stronger bargaining position with the client and other members of the project team, and would be more likely to pick up subcontracts.

But Foster added that the industry had woken up to financial realities: "Contractors are now saying that they have got to be commercial with these contracts. Kier, for example, has suggested that it is quite keen to sell, as it doesn't have a massive balance sheet to justify holding on to those large stakes."

Colin Busby, the chairman of Kier, confirmed that his company did intend to sell its equity stakes, but said he was happy with the 12-15% return it was making on them.