Toll road love

The buyout of Spanish developer Abertis by its main shareholders and European private equity firm CVC Capital Partners – if successful – will likely be heralded as sign of many good things.

It will show that Spanish developers with good, quality assets can breathe a sigh of relief, safe in the knowledge that the market recognizes their portfolio value in spite of Spain's economic woes.

Given the deal size, it will also provide a strong boost to the leveraged buyout market and may even do something to help prop up the syndications market. The latter is still thought by the industry as being mostly dead.

More importantly, it will add further proof that investors are still keen on an infrastructure sub-sector which has taken a beating in recent times: toll roads. Following ports and airports, toll roads registered alarming traffic falls at the height of the financial crisis, with many roads throughout the world only now starting to recover.

Combined with some spectacular defaults in Australia, it is fair to say toll roads have lost more than just traffic. In the eyes of some investors, they have lost membership in the low-risk club known as core infrastructure.

Now, with over 70 percent of its revenues and more than 80 percent of its earnings before interest, tax, depreciation and amortization (EBITDA) coming from its toll road activities in the first quarter of 2010, Abertis is a bona fide toll road developer. This is despite forays into other areas such as car parks, airports and telecoms.

And if the current speculative consensus surrounding the buyout proves to be correct, a post-buyout Abertis will derive the entirety of its revenues and EBITDA from its toll road activities. That's because many – if not all – of the above-mentioned secondary activities – together with stakes in toll road peers Atlantia and Brisa – will be divested at some point in the transaction, returning Abertis squarely to its toll road roots.

That this refocusing appears to be very much a key part of the buyout plan shows that investors aren't as wary of toll roads as the recent crisis might have led one to believe.

The obvious parallel is Itinere, purchased last summer by Citi Infrastructure Investors (CII). Like Abertis, Itinere, the former concessions arm of Spanish construction company Sacyr, had also started as a toll road operator before diversifying its portfolio with other assets, including airports and hospitals.

A look at the assets with which CII walked away from the transaction is telling. Of Itinere's 40-plus concessions, it kept eight, most of them mature toll roads in the north of Spain. It did this at the height of the financial crisis at a time when traffic was falling severely across many of the world's roads. A glance at their performance last year shows CII’s selection paid off: they all registered growth, albeit a modest one.

In essence, CII created a custom-made brownfield toll road vehicle when it bought Itinere, with its less mature roads and other assets sold back to Sacyr as part of the deal.

Post-buyout, Itinere has been helping CII look for deals in the toll road space that fit that brownfield profile. And that's one of the reasons why it has gone quiet in the last year. With the exception of Australia's Lane Cove tunnel, for which Itinere bid but was ultimately beaten to by Transurban, brownfield road assets are not in plentiful supply these days. But that change with Puerto Rico’s upcoming toll road deals, for some of which Itinere would seem like an ideal bidder.

A post-buyout Abertis may not look much different, with a portfolio of mature roads and a mandate to continue investing in toll roads, although it might not be limited to just brownfields.

In fact, it might not need to. Sacyr's new concessions unit has managed to attract the attention of an infrastructure investor – EISER Infrastructure – with a portfolio comprising assets mostly in the ramp-up phase. In fact, three of the four assets EISER bought into recently started operating between 2007 and 2008.

In a sign that Abertis may not be the last toll road developer/infrastructure investor partnership, Spanish road operator Global Via has said it is in the very early stages of talking to investors about bringing in a new shareholder, or possibly even a group of new shareholders, to join savings bank Caja Madrid and developer FCC as its owners. Global Via has been saying that the ideal candidate is the type of investor that would channel money into an infrastructure fund.

All of which seems to point in the same direction: while the crisis has shown that toll roads correlate more closely with the general economy than many would have thought pre-2008, investors seeking long-term, stable returns do not seem ready to write them off just yet.