Home is not where the heart is

Recent controversies have caused more fear than harm for France-focused infrastructure investors. But the relative scarcity of assets is leading them to diversify across markets.

Foreigners visiting Gallic lands are often surprised by the intensity of verbal exchanges occurring between the country’s citizens. This is especially the case when talk turns to politics, a topic outsiders say only seems to trigger discord among local residents. Yet to accustomed practitioners, passionate debates are a fact of daily life in France: it is as if its people could only come to an agreement through dramatic argument.

This is the context in which local industry players view the controversies that recently shook the country’s infrastructure market. It is not that they were insignificant. Protests by truck drivers last year pushed the state to tear up contracts for an “ecotax” toll road project – but only after a consortium led by Italian highway operator Atlantia had installed 173 electronic toll gates, worth €1 million each, across the territory.

This fiasco was followed by another well-publicised bump on the road last January, when Macquarie took the state to court after the government delayed toll increases for Autoroutes Paris-Rhin-Rhone and Autoroutes Rhone-Alpes that were set to come into effect four days later.

Other sectors have suffered from political flip-flops. Citing environmental concerns, Energy Minister Ségolène Royal last April announced that France would create state-controlled companies to operate hydroelectric dams, scrapping plans to hold competitive bids for the coveted contracts. And the renewables sector is pondering its future as the country’s “energy transition” law, which will determine the respective target share of various electricity sources for the coming decades, is debated.

But to local fund managers such troubles and wobbles, while contributing to giving France a mixed image overseas, are no serious obstacle to doing business. They point to the fact that while flip-flops occur, laws are respected and investors remain protected: the ecotax debacle will see the state pay €403 million in compensation to its former contractors. This is more than can be said about the Australian state of Victoria, for instance, where the government is apparently doing all it can to avoid compensating investors over the cancellation of the East West Rail Link project.

Fresh political impetus is also coming from the European Commission’s Juncker plan, which hopes to leverage €21 billion of public money to deliver €315 billion of infrastructure projects across the continent. The scheme is forcing leaders to consider which initiatives to push forward, thereby fostering dialogue with private parties and encouraging efforts to boost public project management capacity.

Yet, in the short term, the deal pipeline looks relatively scarce. That is not something fund managers easily admit, of course. They talk of a wide array of opportunities in sectors including renewables, heating networks, public transport and fiber optic. But to really assess the level of activity on the ground, it’s best is to look at French managers’ actions rather than words: of the handful of blue-chip names based in Paris, none focuses exclusively on France.

That is probably a wise strategy. From gas networks in Germany to Italian airports, as European economies recover, attractive assets come to market across the continent. France has its shares of opportunities too but – like most other European markets – these are hardly sufficient to deserve a fund manager’s exclusive attention.

The country remains an attractive destination for investors. When high-profile auctions do occur, they get remarkable traction: a Chinese consortium paid an aggressive multiple for the recently privatised Toulouse Airport. Potential bidders are now eagerly waiting the forthcoming sale of stakes in Lyon and Nice Airports.

For local players as for overseas institutions, the bottom line is much the same: originating deals and deploying one’s money increasingly requires investors to board a plane.