Cautious response from SP to OECD principles

Standard & Poor’s Ratings Services (S&P) has said that re-building a solid environment for long-term financing for areas such as infrastructure will continue to be challenging, in spite of the best efforts of the Organisation for Economic Cooperation and Development (OECD).

Following the drying up of long-term finance in the wake of the global economic and financial crisis between 2007 and 2009, the OECD has been seeking ideas about how to reinvigorate the market in order to give a boost to areas such as infrastructure and lending to small and medium-sized enterprises (SMEs).

This led to the OECD issuing a public consultation paper called “Draft High-Level Principles Of Long-Term Investment Financing By Institutional Investors”. The deadline for comment about the paper – which aims to find ways of tapping into $85 trillion of liquidity held by institutional investors globally – elapsed last week.

The principles focus on areas such as pre-conditions for long-term investment, governance, financing vehicles, regulation and investment restrictions.

Responding to the paper, Peter Tuving, S&P’s managing director of infrastructure finance ratings, said: “Even if public authorities were to adopt and implement the principles quickly and in full, we believe that it may take a number of years for the market to build critical mass.”

He added: “We note that when transaction structures are supported by independent, stable and transparent regulatory frameworks enshrined in legislation, the risk of periodic policy change is reduced. Such policy changes have in our experience discouraged investor participation, and in certain cases have the unintended effect of being a principal driver of increased default risk on infrastructure debt.”

An S&P statement said that while there was an opportunity for institutional investors to provide long-term capital for infrastructure and SMEs, it expected that pricing transactions appropriately from a risk-adjusted perspective “will be challenging”.

The principles were drawn up by the OECD Task Force on Institutional Investors and Long-Term Financing and were circulated for public consultation at the beginning of this month. A final draft of the principles will be discussed at the G20 Leaders Summit in St Petersburg in early September.

A survey from AMP Capital, reported by Infrastructure Investor yesterday, discovered that infrastructure was the most popular asset class among 62 institutional investors representing $1.9 trillion of capital. Eighty-four percent of these investors said they were planning to increase their allocations to either infrastructure equity (56 percent) or infrastructure debt (28 percent).