Infrastructure assets are undervalued and a spate of forced selling by hedge funds, private equity firms and insurance firms has created a buyers’ market for infrastructure, according Markus Pressdee, the head of infrastructure for investment bank Credit Suisse.
“The intrinsic value of infrastructure assets is still higher than what is implied by the public markets. When we run the fundamental models of cashflows, even with the worst case scenario, we do not get valuations implied by public markets,” Pressdee told delegates gathered at the California Infrastructure Summit in Anaheim.
Pressdee blamed investors’ under-valuation of the sector on deleveraging, which has forced sales of infrastructure assets by hedge funds, private equity firms, insurance firms and companies that may otherwise have held on to them were it not for needed attempts to preserve capital.
Last week, in an attempt to cut down its debt burden from €19.7 billion to €12.5 billion, Spanish construction company Sacyr Vallehermoso agreed to sell its toll road concession business, Itinere Infraestructuras, to Citi Infrastructure Investors for €7.9 billion.
At the same time, Pressdee estimates that infrastructure funds globally are armed with $200 billion of capital for investment. And as banks become increasingly nervous about committing debt financing, infrastructure funds are committing more equity to deals then they have before.
As an example, he pointed to the recently closed $1.15 billion privatisation of Chicago’s metered parking system, saying that “one of the main lenders across several of the consortia pulled back their commitment at the very last minute”.
The lender, according to various media reports, was Barclays Capital.
“That and the Chicago Midway deal were very highly equitised deals where the sponsors have taken the view that they will be able to refinance in the medium term”, he added.
He said that he expects this trend to continue in the medium term. As a result, equity returns will also adjust in the medium term.
A prominent advisor to infrastructure funds and governments, Pressdee advised the City of Chicago on the sale of Midway Airport and Global Infrastructure Partners on its offer for Australian transportation conglomerate Asciano, according to a biography made available to California Infrastructure Summit delegates.