If 2008 was any indication, 2009 promises to be a year of surprises and changes in the world of finance.
What will the year in infrastructure finance look like? Predictions for 2009 vary far and wide, but there is broad consensus that the US needs a new way of financing public infrastructure. The old model of floating munis and taxing gasoline is collapsing under the weight of the global financial crisis.
What will that model look like? Some look to Spain for a hint.
Norman Anderson, chief executive officer of consultancy CG/LA Infrastructure, believes that the US will increasingly see engineering and construction (E&C) firms join forces with financial players to create infrastructure providers with significant balance sheets and infrastructure development expertise – such as Spain’s ACS.
“What ACS did was roll up a lot of local construction companies and then grafted some smart financial people on top of traditional engineering companies so they were able create a company that owns significant infrastructure projects worldwide,” Anderson explains.
Indeed, with the notable exception of Macquarie, few financial players can rival ACS’ 97 concessions in 20 countries.
But the marriage of E&Cs and financial players in the US would not be quick and easy. In Spain, the model came about because the government took an active role in trying to get the private sector involved in financing infrastructure.
In the US, with the notable exception of energy, infrastructure remains a public play. Unless all the talk of private sector participation in the US turns to action, nothing will change. Public sector employee unions worried about losing their jobs will put up fierce resistance.
Secondly, infrastructure funds to date have been much more excited about privatising existing infrastructure (so-called “brownfield” projects) rather than taking on the risks of developing new or “greenfield” projects. The latter they’ve left to the ACSs and the Hochtiefs of the world, partnering with them on a selective basis where the fundamentals of the project seem too good to ignore. For the time being, this demarcation is a convenient way to divide up the turf.
The public brownfield vs. greenfield distinction also sets up a false dichotomy for infrastructure funds seeking to deploy their capital. A third way – private-to-private sales of infrastructure from stressed and distressed sellers – is proving lucrative in the current environment.
“There’s an awful lot of stressed and distressed sellers out there at the moment and I think for our fund and for probably many of our peers, in the next 12 to 18 to 24 months that’s where most of the dealflow will come from,” says Steve Jacobs, head of the UBS International Infrastructure Fund.
No matter how they approach the opportunity in the US this year, 2009 promises to be a busy year for infrastructure investors looking for new ways to skin the cat.