Lloyds, the infra bank

The UK bank's bet on developing a fully fledged infrastructure equity platform to complement its debt activities sends a clear message to the market: Lloyds is banking on infrastructure.

There was much to raise eyebrows in UK bank Lloyds' recent announcement on the closing of its first European greenfield infrastructure fund – and we're not just referring to Lloyds' awkward decision not to disclose how much it had actually raised for the fund.
Of more interest was the equity team's ability – under the auspices of co-heads Gershon Cohen and Sameer Amin – to actually raise the €200 million-plus that market sources indicate they managed to get from a group of European pension funds.
That's €200 million-plus in blind-pool capital to be invested in greenfield public-private partnership (PPP) projects, managed by a captive infrastructure team – possibly the most unfashionable affiliation an infrastructure fund manager could have on his business card these days. And did you even know Lloyds invested equity in greenfield PPPs to begin with?
As it turns out, Lloyds, via the infrastructure team it inherited from HBOS/Halifax, has been doing greenfield equity investments since the late 1990s – and you can learn more about that in our exclusive interview with Cohen and Amin, to be published in the March issue of Infrastructure Investor magazine.
But what really grabbed our attention about the bank's recent announcement is what it says about Lloyds' dedication to the infrastructure space. With fully functioning debt and equity arms, Lloyds is clearly saying it likes infrastructure and is in the space to stay.
Bear in mind that Lloyds' project finance team was born when the bank bought ailing UK counterpart HBOS, and asked Cohen, HBOS' head of infrastructure, to set up Lloyds' project finance business – when it could have just killed that unit.
Consider also that Lloyds allowed the integrated HBOS infrastructure team to keep pursuing its infrastructure equity strategy – when it could have easily pulled the plug on that legacy business too – going as far as providing it with a €150 million 'warehouse facility' that allowed it to build up seed assets as it raised funds for three vehicles.
Now consider that one of the biggest secondary trades of 2011 came when a large European bank sold its entire portfolio of equity stakes in 10 infrastructure funds to several investors for some $500 million and you'll be able to better appreciate the significance of Lloyds' move.
Simply put, the number of banks fully committed to the infrastructure space has narrowed over the last few years and will continue to dwindle over the next few. One particularly pessimistic market source even suggested that the core might have a single-digit figure attached to it in the near future.
Former infrastructure giants like Dexia and Royal Bank of Scotland have either collapsed or became a shadow of their former selves; the mighty French banks are being shaken by the Eurozone crisis; and new players like the Japanese banks, while welcome, will not be able to make up for the shortfall.
In this context, Lloyds' decision to grow its infrastructure activities at a time when so many others are retrenching is, regardless of future success, an encouraging statement in its own right.