Deal value falls by half in Q3 2015

Following a strong showing in Q3 2014, infrastructure transaction volumes dropped by nearly 20% across all sectors during the three months to end September.

The average deal value across the infrastructure asset class fell by more than half year-on-year in the last quarter, according to fresh data by Infrastructure Investor Assets ( IIAssets ).

With mega-deals such as the $20.4 billion Queensland Curtis LNG Project in Australia and the $10.6 billion Cameron LNG project bumping up numbers in Q3 2014, the third quarter of 2015 had much to catch up on – and fell short of doing so. The period attracted $55.2 billion in total investments, through 126 transactions, as compared to $105.7 billion in investments through 156 completed transactions in 2014, marking a 48 percent drop in value and a 19 percent drop in volume year-on-year. 

SECTOR-BY-SECTOR

By volume, renewable energy investments flatly dominated, producing 56 of the total 126 infrastructure deals for the quarter tracked by IIAssets. This strong showing was not enough to keep up with Q3 2014, however, which saw 64 total deals in the sector. Deal value fell along with the volume shrinkage, with Q3 2015's deals sparking $9.7 billion in investment compared to $11.9 billion the year prior.

The energy sector saw the largest drop in deal value and volume, posting 29 deals worth nearly $21.6 billion, as compared to a 34-deal Q3 2014 with a combined value of $63.5 billion. 

The transportation sector experienced both fewer deals and less overall investment, with 18 deals worth $13.5 billion closed in Q3 2015 compared to 21 deals worth close to $18.9 billion. 

Social Infrastructure and waste & water deals traded places in terms of average value, with waste and water projects in Q3 2015 attracting just under $8.2 billion through nine deals, and with two waste & water projects attracting close to $1.8 billion. In Q3 2014, social infrastructure saw 28 deals worth $8.1 billion, and waste & water saw two deals worth $1.8 billion. 

Telecoms also saw a significant drop in deal value to $344 million this year from $1.5 billion in Q3 2014, though the number of projects more than doubled from two to five. 

REGION-BY-REGION 

While Western Europe, which was the second-largest infrastructure market in Q3 2014, saw both less investment and fewer deals year-over-year, a massive drop in investment in the Asia-Pacific region saw the former rising to represent more than 40 percent of the quarterly total, with 41 deals worth $22.2 billion in 2015 as compared to 53 deals valued at $25.5 billion in the same period last year.

North America also rose from bronze to silver status though it saw fewer investments and less than half the investment as in the same quarter last year, with 30 deals worth $9.8 billion this year compared to 40 deals worth $22.4 billion in Q3 2014.

Asia-Pacific experienced an Icarian fall from one year ago, soaking up just over $7 billion through 18 transactions, which appears paltry when contrasted with Q3 2014's 34 deals that brought $38.6 billion in investment to the region. 

Deal value was roughly half what it was last year in Latin America in Q3 2015 to $6.7 billion from $13.4 billion, though deal volume rose to 16 deals from 14 in the quarter.

Rising above the Middle East and Africa, Central and Eastern Europe saw deal value increase by nearly 500 percent year-over-year to $4.9 billion from $971 million one year ago, even though the number of closed transactions in the region fell by one to five deals. 

Finally, volume more than doubled to 16 deals from seven last year in the Middle East & Africa, though total investment shrank to $4.6 billion from $4.9 billion. 

PROJECTS 

While projects in the energy and transportation sectors generally soak up the largest investments into infrastructure, due to the complete lack of double digit billion-dollar projects Q3 2015 was led in unorthodox fashion by a waste and water sector project: the Thames Tideway Tunnel PPP Project in the United Kingdom reached financial close on August 24 at nearly $6.6 billion. 

The greenfield project was financed through a public-private finance arrangement, with an equity portion of $907.7 million and a debt tranche of about $1.6 billion. A consortium including Allianz, International Public Partnerships (INPP), Dalmore Capital and DIF have committed to provide the equity investment, with INPP investing GBP 210 million, equivalent to 16 percent stake. The Pensions Infrastructure Platform, a co-investor alongside Dalmore has committed GBP 370 million.

The top 10 project financial closes for the quarter included one waste & water project in the UK; three transport projects in the UK, Russia and Canada; and six energy projects in the US, Azerbaijan, Brazil (two projects), Mongolia, and France.

In line with the overall drop in deal value, total value for the top 10 projects of the quarter fell by 55 percent to roughly $26 billion from $57 billion.