Amid the current global slump, government investments in infrastructure, from a $48.1b provision for transportation in the $787b US stimulus bill to the $586b Chinese stimulus bill, present interesting investment opportunities. The recent Infrastructure Investment World Americas 2009 provided some good insights into recent trends and signals in private sector infrastructure investments.
US public pension funds have shown growing interest in such investments, with about 49 funds currently investing with a combined capacity of $38.1b and another 28 indicating preference with a combined capacity of $27.2b (source: Brian Chase’s presentation). Recently, P3 investment in the US has been focused outside of the highway sector on shorter contract P3 terms as annuity focused assets seem to be priced too high to achieve a profit.
While the OECD/ US markets have matured, the World Bank estimates that emerging markets will present a $20T investment opportunity by 2030. The emerging markets panel highlighted some of the pure play opportunities in transportation, water, electricity, and communication. India, for example, plans to increase infrastructure investments to 4.8% of GDP this year up from 3.3% in 2003. As the Indian government steers away from fully financing infrastructure to partnering with the private sector, it is introducing measures to support private sector participation for a $500b investment needed in the power and transport infrastructure over the next five years.
The clean tech and renewable energy panels showed optimism about the long term future, as United States renewable energy use is forecast to grow more than 60% during the next ten years to $60 billion in new investment within biomass, geothermal, hydroelectric, solar, and wind technologies. Conventional energy assets are also priced attractively (equities down 30-60% since early 2008) providing high cash margin producing inflation-linked income, and have a low risk profile. Natural gas midstream, MLPs, and electric transmission, especially smart grids to support intermittent renewable energy, have drawn investor interest in both acquiring assets as well as participating in debt/ equity financing. However, major investment banks have reduced their tax equity participation in renewable projects due to their increasing losses.
Since Lehman's (LEHMQ.PK) collapse, infrastructure investments have experienced capital constraints, higher funding costs, tighter financial covenants, lower leverage, wider spreads, and fewer banks in the sector having an impact on the syndication risk, which is lending to more club deals, as pointed by Geoff Haley.
With the monoline business model questioned as they were stripped of AAA ratings, the project finance bond market has plummeted;, however, the project finance loans market is still continuing to grow. Government commitments show hope for infrastructure investments, which should pick up quickly once the credit markets return to normalcy.
US public pension funds have shown growing interest in such investments, with about 49 funds currently investing with a combined capacity of $38.1b and another 28 indicating preference with a combined capacity of $27.2b (source: Brian Chase’s presentation). Recently, P3 investment in the US has been focused outside of the highway sector on shorter contract P3 terms as annuity focused assets seem to be priced too high to achieve a profit.
While the OECD/ US markets have matured, the World Bank estimates that emerging markets will present a $20T investment opportunity by 2030. The emerging markets panel highlighted some of the pure play opportunities in transportation, water, electricity, and communication. India, for example, plans to increase infrastructure investments to 4.8% of GDP this year up from 3.3% in 2003. As the Indian government steers away from fully financing infrastructure to partnering with the private sector, it is introducing measures to support private sector participation for a $500b investment needed in the power and transport infrastructure over the next five years.
The clean tech and renewable energy panels showed optimism about the long term future, as United States renewable energy use is forecast to grow more than 60% during the next ten years to $60 billion in new investment within biomass, geothermal, hydroelectric, solar, and wind technologies. Conventional energy assets are also priced attractively (equities down 30-60% since early 2008) providing high cash margin producing inflation-linked income, and have a low risk profile. Natural gas midstream, MLPs, and electric transmission, especially smart grids to support intermittent renewable energy, have drawn investor interest in both acquiring assets as well as participating in debt/ equity financing. However, major investment banks have reduced their tax equity participation in renewable projects due to their increasing losses.
Since Lehman's (LEHMQ.PK) collapse, infrastructure investments have experienced capital constraints, higher funding costs, tighter financial covenants, lower leverage, wider spreads, and fewer banks in the sector having an impact on the syndication risk, which is lending to more club deals, as pointed by Geoff Haley.
With the monoline business model questioned as they were stripped of AAA ratings, the project finance bond market has plummeted;, however, the project finance loans market is still continuing to grow. Government commitments show hope for infrastructure investments, which should pick up quickly once the credit markets return to normalcy.
