UK: More than just the ‘B’ word
The UK market performed strongly in 2018, primarily due to large financings in the offshore wind sector that accounted for around 40 percent of the £36 billion ($45.9 billion; €40.1 billion) of completed deals. However, beyond corporate transactions in public markets, acquisition financings and refinancings of legacy PPP projects, there was a low level of greenfield financing activity.

The political debate over the delivery of major infrastructure projects remains active given the lengthy delay to Crossrail and the cost over-runs facing Transport for London on this publicly funded project.

TfL is likely to remain in the spotlight through two key infrastructure transactions; the sale and leaseback of Crossrail rolling stock and the £1 billion Silvertown Tunnel. This is effectively a PPP project which, after a lengthy procurement process, is scheduled to close this summer. Two bidding consortia remain, testing both appetite for complex construction risk and the health of the credit market.

Somewhat ironically given the government’s announcement on PPP, the Welsh mutual investment model starts in 2019 with the procurement of the A465 road project, although that is not likely to reach financial close until next year.

In energy, offshore wind deal activity will likely be lower than in 2018 but should remain in the spotlight with the third Contracts for Difference auction taking place in May. This is likely to see strike prices below £56 per MWh for delivery in 2023-24, putting pressure on developers to continue cutting supply-chain costs and risk allowances while trying to predict interest rates, inflation, currency and the cost of credit in what is set to be a volatile economic period.

Another emerging trend is the role of nuclear. The government is due to announce if it will consider the financing of Sizewell C, a proposed nuclear power station in Suffolk, via the regulated asset base model, as used on the Thames Tideway Tunnel project. This could present a major opportunity for infrastructure investors for a project of this magnitude, with financial close targeted for 2021.

The UK offshore transmission market, however, remains the only true pipeline of projects in procurement. This year should see the close of the Galloper and Walney projects and the procurement of Rampion, followed by the start of Round 6. This will be watched closely as the licence period is extended by five years to 25 years and the financing requirement increases, which may require a revised approach to the current procurement of financing.

Rail faces an important year with the publication of the Williams Review, but the main source of activity will likely remain in rolling stock with the Southeastern, East Midland and West Coast franchises in competition.

PPP in its broadest form will remain an option, although activity is likely to be more focused on refinancings. The use of a PPP-type structure is also likely to feature in the regulated utility sector. Examples include the Direct Procurement for Customer model in the water and onshore transmission sectors to replace Ofgem’s Competitively Awarded Transmission Operator model. These concepts are likely to result in limited opportunities for investors, however.

Europe: a focus on renewables
Deal activity declined in Europe last year, with just over €100 billion of deals compared with €122 billion in 2017, even though the values were inflated by large corporate acquisition financings, such as the Spanish toll-road operator Abertis.

Activity was evenly spread across the region, a trend set to continue with limited PPP programmes. Road projects will continue in the Netherlands, Germany and Norway, but the main focus will continue to be on renewables, including offshore wind schemes in north-west Europe.

Spain firmly re-emerged in 2018 with healthy acquisition and refinancing flows, although the promise of a major new road PPP programme did not transpire due to the change in government.

Primary financings represented only 15 percent of the overall market last year, with Turkey the main contributor. The lack of greenfield opportunities is likely to continue, with a greater focus on acquisition opportunities, including Orsted’s regulated business in Denmark and the sale of part of Groupe ADP. Investors are therefore likely to continue to push into the core-plus area with associated debt opportunities in the investment-grade crossover market.

North America: fuelled by energy
Canada saw deal activity of around C$47 billion ($35.2 billion; €30.7 billion), with PPP representing 14 percent of the total. The remainder was heavily influenced by oil and gas/pipeline activity.

The Canadian market looks set to generate similar volumes in 2019, with the use of PPPs focused in Ontario and selectively in other provinces. The emergence of the Canadian Infrastructure Bank is a potentially significant development, with its focus on financing projects through the private sector rather than taxpayers. The coming year will be important for this new entity now it is fully operational, although the federal election may impact activity given it has enjoyed direct support from the Trudeau administration.

The US remains the largest infrastructure debt market globally at $150 billion, with the bulk of activity coming from liquefied natural gas, oil and gas and corporate energy financings. PPPs accounted for less than four per cent of deals last year, with the one major transaction being the $1.6bn LAX People Mover in Los Angeles.

Rest of the World: Australia rules
Australia remains at the forefront of activity in the rest of the world, accounting for $41 billion of the $139 billion total. The level of activity looks set to continue due to the breadth of investment activity in energy, mining, LNG, PPP and privatisations. There continues to be interest from long-term institutional investors in what has historically been a market driven by shorter-term, commercial bank loans.

Elsewhere, Latin America has generated consistent activity – around $40 billion in 2018 – aided by appetite among domestic investors in Chile, Colombia and Peru. This has offset lower investment in the Middle East and North America, which saw $12 billion of deals in 2018. That was almost matched by the $11 billion of transactions in sub-Saharan Africa, albeit this is a region driven by sizeable investments by multilateral development banks.