IFM Investors’ Michael Hanna: ‘Countries may be increasingly vigilant over key sectors of the economy’

It can be expected that there will be a significant rise in potential infrastructure opportunities across four emerging investment themes:

Recapitalisations and restructuring

Not all infrastructure investments will survive covid, with liquidity issues placing unprecedented stress on asset balance sheets. Where government restrictions are maintained, as cash balances and sources of liquidity become depleted, vulnerable infrastructure assets, particularly those that are highly leveraged, will need to explore recapitalisation and restructuring options.

Experience from the global financial crisis showed investors that supported recapitalisations and restructurings of distressed assets played an important stabilising role, minimising the impact and fallout of additional job losses. Furthermore, oil and gas companies will look to shore up balance sheets by freeing up capital associated with capital-intensive investments. They will also potentially be looking to diversify away from traditional revenue sources, which have been hit by the fall in oil prices.

The future digitalised economy

Global work practices have been transformed during the pandemic, with deserted city centres and a global shift to remote working. To restore customer confidence in social distancing practices and support a return to a ‘covid-safe’ economy, the owners of heavily frequented infrastructure, such as train stations and airports, will need to consider further investment in constrained-access areas and crowd-intelligence technologies to minimise lengthy queueing and overcrowding.

Employee travel behaviour, both in commuting and more broadly, is likely to evolve in the ‘new normal’, with greater investment from businesses in data bandwidth, video conferencing and collaborative ‘cloud-based’ tools. Digital infrastructure across telecoms and data centres will face greater demand and will continue to attract interest from infrastructure investors.

Nation-building infrastructure

Whether it’s Snowy Hydro in Australia or Eisenhower’s Interstate Highway System across the US, nation-building infrastructure has played a key role in strong economic recoveries, providing significant economic multiplier effects through construction job creation and the resulting long- term productivity enhancements.

Government fiscal policy has played a crucial role in supporting livelihoods, businesses and the economy. However, governments are now facing colossal deficits. Accordingly, governments should be considering opportunities to maximise the value of future infrastructure commitments through ‘crowding in’ private sector financing.

There is a significant opportunity for governments to consider new models of the public and private sectors working together to support a strong post-covid recovery across the world through infrastructure projects that generate jobs and drive productivity.

Domestic capital supporting national resilience and security

Finally, we are seeing increased tension around global institutions and international cooperation in the response to the pandemic. Countries may be increasingly vigilant around sovereignty over key supply chains and sectors of the economy, such as energy, agriculture, health and defence.

Governments are likely to explore policy options to strengthen key domestic supply chains and critical onshore assets with linkages to national security. While further infrastructure investment opportunities may result, there will be increased scrutiny around sources of foreign capital, particularly where domestic capital is available to support such investments.