Transport MandA set to boom as concessions expire

Higher prices are unlikely to deter developers jostling with institutional investors from going after cash-yielding assets, fresh research suggests.

Infrastructure developers and operators are set to embark on a shopping spree as they seek to source new revenues shortly before a chunk of their concessions reach their term.

European transport groups have in recent months announced a series of deals in a bid to expand their revenue base and diversify their portfolio at a time when financing costs are at historic lows. This trend will likely amplify over the next five years, according to Standard & Poor’s, which added that developers are hunting for the secure cashflows provided by concessions as well as the higher returns offered by greenfield projects.

As a result, the ratings agency said in a report, the capital expenditure undertaken by Europe’s four largest transport groups – Abertis, Atlantia, Ferrovial and Vinci – will jump by 18 percent between 2016 and 2020 compared to the five preceding years.

While S&P argued that opportunities would increase as governments court private capital providers to help revamp ageing infrastructure assets, it also recognised that prices would continue to rise. But it hinted that higher investments on the part of concessionaires would not put their credit profile under serious pressure, implying that strengthening competition from institutional investors would not deter them from going after M&A targets.

“The impact of an interest rate rise on these group’s credit standing would likely be felt more over the long term. This is because their debt is largely at fixed rates, through fixed coupons or hedging agreements, and the average maturity is about 4-5 years,” the report said.