If the health of the infrastructure financing markets can be equated with the number and variety of innovative solutions being seen, then the outlook appears very encouraging. This is the conclusion reached by Infrastructure Investor as we perused with interest a pleasingly large number of submissions for our annual banking excellence awards.
The immediate aftermath of the Global Financial Crisis was a period when everyone was seeking to adjust to the fallout and trying to find their place in a transformed world. Back then, any kind of infrastructure financing was rare. In that environment, simply doing deals was worthy of a pat on the back – do a deal of significant size, and that alone was enough to set you apart from the crowd.
Then came a period where the respective roles of banks and non-banks in the long-term financing of infrastructure began to become clearer. It remains a generalisation but, by and large, the accepted view was that the banks would originate transactions while institutional investors would take on the long-term hold positions.
When we examined the entries for our inaugural awards this time last year, we discovered many of the submissions falling into two broad groups: those that sought to differentiate themselves on the basis of (large) size; and those seeking recognition for partnerships formed with institutional investors. In the former group, we found transactions typified by conservatism rather than innovation. While we applauded the ability to form large banking groups, such mass participation appeared to be a sign that this deal was a safe, plain vanilla one. Nothing wrong with that, you may justly reflect: true, but nothing to set the pulse racing either.
It was in the latter group that we found the more interesting case studies, but the judges were not entirely satisfied. While bank/institutional tie-ups was undoubtedly a noteworthy trend, the approaches were often similar. The thought lingered that something was missing – we wanted more and different kinds of innovation.
This year, we have not been disappointed. Without giving too much away (the results will be unveiled in the coming June 2015 issue of Infrastructure Investor), we found much more in the way of pushing boundaries and efforts being made to open up new markets. Herein lay the essence of what we had been looking for in vain previously: innovation that would demonstrate how something could be done to overcome a market obstacle, thereby giving others the confidence to follow suit.
Real-life examples included the first use of credit enhancing mechanisms, deals that showed locally based banks and institutions in emerging markets could do sophisticated transactions using the local currency, and commercial solutions that dealt with ‘roadblocks’ such as technological or merchant risk. The beauty of these deals (and these are just a few examples of many) is that they were genuinely pioneering, creating the possibility that the market may grow bigger because of the precedent they have set.
The bar has been raised higher. Can’t wait for next year.