Dinham: institutions ‘not appreciating’ lending possibilities

Michael Dinham, head of infrastructure finance in Europe for banking group ING, believes institutional investors may be missing a trick by over-estimating the risks and difficulties of long-term lending to infrastructure.

Michael Dinham, a managing director and head of infrastructure finance for Europe, the Middle East and Africa (EMEA) at banking group ING, believes institutional investors such as pension funds are failing to appreciate the opportunity to provide long-term lending to infrastructure assets as they are failing to understand the risks and level of complexity. 

One example of this is construction risk, which he thinks institutions are unnecessarily troubled by. “I can’t understand why construction risk is such a problem,” he told the May 2012 issue of Infrastructure Investor. “In 20 years of infrastructure lending on greenfield projects we have barely encountered a problem with construction risk. I’ve had a few problems with commissioning, with getting something to work. But getting things built is rarely a problem.”

He added: “Institutions need to get round it. Our experience is that construction risk is no problem at all relative to other risks like traffic risk. Ultimately, there is an embedded view that institutions won’t take construction risk and I think they need to challenge this.”

He also thinks that institutions suffer from not having structured finance teams – but that this is something they should be prepared to address. “It’s a bespoke product that needs a bespoke team,” he said. “And it’s hard to justify the expense unless there’s steady deal flow. But I think it would pay for itself fairly quickly. Of course, you will still have the issue of liquidity to address, but how liquid are most bond issues? I don’t think institutions are fully appreciating the possibilities.” 

Despite an active past year for ING in the infrastructure market, especially with respect to refinancings, Dinham does not believe banks are well suited to providing long-term loans, arguing that they have a “fundamental flaw”. “One party is free to change the price and the other party isn’t.  As a bank you have a fixed term and margin but the client can refinance at any time without penalty.” 

A full version of the interview with Dinham, in which he talks in detail about the range of opportunities for banks in infrastructure today, can be found here