Higher returns and secondary opportunities keep infra investors committed to Asia-Pacific

However, political risk, regulatory instability and lack of support for PPP projects are among the main concerns for those investing in region’s emerging markets.

An overwhelming majority of infrastructure investors with a presence in Asia-Pacific are planning to grow their regional teams, a new poll from law firm White & Case has found.

The study, based on interviews with 100 equity investors that invested in at least one project of $100 million or more in the region during 2018, found that 88 percent of those surveyed were planning to increase the headcounts of their Asia-Pacific teams. Half of the respondents were not based in Asia-Pacific.

The polled investors have, on average, spent 50 percent of their total infrastructure investment in the region, thus providing further evidence that Asia-Pacific is not a one-off bet.

Nearly two-thirds of respondents – 59 percent – pointed to the strength of long-term investment returns as one of the main benefits of acquiring assets in the region.

“Competition for assets in OECD markets is high,” Paul Harrison, partner at White & Case, told Infrastructure Investor. “From that perspective, there may be fewer opportunities in those markets. Investors are therefore turning to emerging Asia-Pacific markets, as it is expected that these could offer strong, long-term returns.”

Despite this, not all countries in the region are perceived in the same way. Australia was the top destination for those surveyed, with more than half planning to invest there in 2019. India was the second hottest destination for infrastructure spending.

Countries perceived as less stable or without track records in PPP – such as Cambodia, Sri Lanka and Laos – barely registered any interest among investors.

It is no surprise that political risk remained the greatest concern for investors looking into emerging Asian economies. This was followed by inadequate regulatory regimes and lack of government support for PPP projects.

“Governments that provide a level of political and legal stability will generally attract more international investment,” Harrison said. “Projects which have compensation clauses have a greater chance of occurring. This may mean stabilisation clauses in their contracts or some form of governmental assurance against adverse changes in the laws applicable to them.”

Asked specifically about where attractive deals were coming from, more than a third of respondents pointed to “secondary opportunities.”

“Developers are looking to release funds from projects or portfolios of projects so they can redeploy their capital,” Harrison said.

In terms of sectors, two thirds of those polled were planning to invest in roads this year. More than half were looking at opportunities in energy transmission, distribution and generation, including coal, gas and nuclear projects.