Lots of money, nowhere to spend it

In a new report, rating agency Moody’s Investors Service has contrasted the wave of capital available from banks and institutional investors to finance infrastructure development with the shortage of investment opportunities.

“Substantial long-term debt capacity is available from banks and institutional investors to finance well-structured infrastructure projects located in creditworthy, stable economies,” said Andrew Davison, Moody’s senior vice president, in the report.

“However, access to long-term finance remains constrained where projects are located in less creditworthy countries, or face significant or speculative risks that are difficult for the private sector to quantify and mitigate,” he added.

The report – entitled “Infrastructure Renewal and Investment: A wave of capital for infrastructure, but mismatched with investment opportunities” – said the gap between demand and supply, leading to strong competition between debt providers, could erode credit quality and potentially result in the mispricing of risk.

The report said that loan margins for the most sought-after credits have continued to be driven down in 2015. It gave the example of the Thameslink rolling stock project in the UK which in February this year refinanced £1.6 billion (€2.2 billion; $2.4 billion) of debt facilities including a £1.175 billion commercial facility. The refinancing reduced the initial loan margin for the commercial facility to 120 basis points (bps) compared with 260bps at the time of the original financial close in June 2013.

The finance available from institutional investors has “expanded rapidly” over recent years, with infrastructure debt funds targeting $22.7 billion of capital as at January 2015 in addition to $3.7 billion of commitments already secured.

However, this “understates” the amount of institutional money targeting infrastructure debt as it excludes direct investment by the likes of AXA Group, MetLife and Allianz Global Investors which are “rapidly increasing” their asset allocation to infrastructure debt. AXA alone, in June 2013, pledged to increase its exposure by €10 billion over five years.

But the report also held out hope that the demand/supply imbalance may be addressed or at least narrowed. Several recently launched schemes such as the G20’s Global Infrastructure Initiative, the European Commission’s Investment Plan for Europe (also known as the Juncker Plan) and the World Bank Group-led Global Infrastructure Facility, were all designed to bring forward “high quality, well-structured projects” and would provide new opportunities in due course.