UBS: Private-to-private infrastructure deals to dominate 2009

Stressed and distressed sellers of infrastructure assets in the private sector will overshadow public sellers in 2009, managers of UBS’ $1.5 billion International Infrastructure Fund estimate. Fiscal pressures for public-to-private transactions will continue to build but won't translate into dealflow as quickly.

Dealflow from private-to-private transactions will increasingly dominate the infrastructure market in 2009 as public-to-private transactions continue to be weighted down by lengthy legislative and regulatory procedures, managers of UBS' International Infrastructure Fund told InfrastructureInvestor.

“That’s a space where we’ve certainly seen more activity to date and focused more of our effort to date,” said Steve Jacobs, head of infrastructure and private equity at UBS Global Asset Management. “There’s an awful lot of stressed and distressed sellers out there at the moment and I think for our fund and for probably many of our peers, in the next 12 to 18 to 24 months where most of the dealflow will come from,” he added.

We're all nervous that we do a deal and there's a better deal around the corner, which is a new state of mind to be in.

Steve Jacobs

Stressed and distressed private sellers of infrastructure assets include corporates as well as funds in need of cash, whether to re-focus their strategy on core areas or to pay down debt, Jacobs said. Among those sellers, UBS has looked at acquiring certain assets owned by Babcock & Brown-managed entities.

But with such sales being done at increasingly attractive prices, it is can be difficult to know when to take advantage of the opportunity.

“I think we’re all in the same boat, which is, we’re all nervous that we do a deal and there’s a better deal around the corner, which is a new state of mind to be in,” Jacobs said.

A good chunk of 2008's infrastructure deal value came in the form of big-ticket asset privatisations by governments, such as the City of Chicago's $2.5 billion long-term lease of Midway airport and its $1.15 billion long-term lease of its parking meter system. Such deals often involve lengthy legislative and regulatory procedures; for example, the lease of Midway was more than two years in the making.    

In 2009, fiscal pressures prompting these sorts of public-to-private transactions will continue to build, but “we're still 24 to 36 months from seeing a lot of that dealflow come through”, Jacobs estimates.

“We still see that as only one part of the dealflow,” he adds.

Ben Heap

Ben Heap, head of infrastructure asset management for the Americas at UBS and a native Australian, likens the trend to the evolution of the Australian market over the last decade. Originally, private infrastructure assets stood under the umbrella of corporate owners who viewed them as strategic businesses. They gradually leased or transferred them – with long-term operating and maintenance agreements in place – to infrastructure funds in order to raise cash or re-focus their strategies.

“I can’t think of today of any of those strategic-type infrastructure assets that haven't been transferred off-balance sheet and put into one of these infrastructure-type funds [in Australia],” Heap said.

“It’s similar to corporates taking headquarters off balance sheets and selling to REITs, but the scale of it is significantly larger than anything we’ve ever seen before,” he said. These types of transactions in the infrastructure sector tend to be one-on-one negotiated deals rather than competitive auction processes – another factor that makes them attractive to UBS, Heap said.

The UBS International Infrastructure Fund, which in November announced its final close on $1.5 billion, is headquartered in London. It was 60 percent invested as of December 2008.