A vote of confidence

It is not uncommon for Asian investors to eye European assets, but it is a rare move for one of them to set up a dedicated fund just to invest in a European country.

However, that is precisely what Mirae Asset Global Investments, Korea's largest asset manager, has done, enlisting institutional investors in February for its new €100 million Spain-focused infrastructure fund. The latter, said to be a semi-blind pool vehicle aiming for annual returns of 7 to 8 percent, will target road and hospital PPPs across the country. 

Mirae has been considering several projects for the fund, including a new metro line in Barcelona, a hospital in Madrid and a provincial government office building in Seville – all PPPs. The first batch of projects was slated for a €46 million capital injection at the end of February. 

Spain is being favoured by Mirae at a time when interest rates and market conditions in the UK, Australia and the US are deemed to have deteriorated. “We have been investing in social facilities and infrastructure globally since 2009 and Spain has caught our attention for its industry stability,” a Mirae spokesperson told Infrastructure Investor. “There were over 170 successful projects in 50 years,” the spokesperson added. 

Managing about $75 billion of assets globally, the Korean fund manager has put its faith in Spain, where the infrastructure sector is known to have been suffering from political fragmentation and substandard infrastructure planning.

Gonzalo Cantabrana Fernandez, infrastructure analyst at Standard & Poor's, argued in a recent article published in World Finance that “Spain's infrastructure woes are more serious than they appear. Such a poor track record stems, in large part, from a lack of long-term planning for infrastructure investment on a governmental level,” he wrote in view of several failed projects in Spain over the past years. 
Fernandez cited the example of the Aragon Alcañiz Hospital project being cancelled in the wake of elections, as well as a number of airport, road and rail assets that either went bankrupt or are suffering from poor project profitability since the financial crisis.

“Not only is responsibility for infrastructure investment fragmented among various divisions of local and national government, but infrastructure investment is also influenced by the course of elections – and with different parties come conflicting infrastructure policies,” he pointed out. 
The political fragmentation and the consequent hiatus in policymaking have increased uncertainty over Spain's ability to meet its infrastructure requirements over the coming decades, said Fernandez. “There is a worrying lack of a clear pipeline of future projects,” he added.

Fernandez also commented that the PPP market, where Korea's Mirae intends to invest, “may struggle to develop in this environment.” Considering the time needed for most procurement processes, Fernandez argued “something may be eaten up by political stagnation over the next year”. 

For brownfield projects that are less likely to be affected by political uncertainty, Fernandez holds doubts for the long term. But despite these challenges, not all hope is all lost for Spain.

With the expiration of the Infrastructure, Transportation and Housing Plan of Spain, the country's current strategy for investments in national infrastructure, in eight years, a new National Evaluation Office has been set up to analyse the feasibility of large-scale infrastructure projects. 
With a promising economic recovery in 2015, investor appetite for Spanish infrastructure is growing, Fernandez observed. Recently, there has also been an increased interest in the refinancing of existing transactions through the debt capital markets.

“Having learned the lessons of the past and with a strategy for the long term, Spanish infrastructure could weather the current storm of political uncertainty,” concluded Fernandez.