S&P Global Ratings has published 2019’s first edition of Infrastructure Finance Outlook, its newsletter of key infrastructure and project finance-related research and ratings news.
In this edition, S&P Global Ratings considers global infrastructure investment trends, spanning China, the GCC and the Americas, along with the regulatory and political risk factors across these regions.
With global political uncertainties on the rise, infrastructure investors are even more focused on long-term sustainability. And, as environmental, social, and governance (ESG) considerations are rising to the fore of investment strategies, the credit rating agency dedicates this edition to providing greater insight to its newest offering, the ESG Evaluation.
S&P Global Ratings’ Gloria Lu, Senior Director of Corporate & Infrastructure Ratings, Asia Pacific, and Abhishek Dangra, Director, Asia Pacific Corporate Ratings, recently discussed the looming volatility shadowing Asia’s infrastructure market for Brink News, offering their own views and potential responses to increasing risks proliferating in the region.
Discussing the refinancing risks that China may face as a third of the market’s debt approaches maturity in the coming months, Lu and Dangra consider some options available to mitigate external pressures, such as political and regulatory reform.
In a commentary for Brink News, Julyana Yokota, Director of Infrastructure Ratings at S&P Global Ratings, highlights the geopolitical and regulatory risks that are driving a shift in investor sentiment towards Latin American infrastructure.
Yakota considers Brazil, Mexico and Argentina individually, alongside the broader regional landscape, stating that “credit conditions have significantly improved…particularly with regard to utilities’ regulatory stability and transparency.”
Financier Worldwide has published a commentary written by S&P Global Ratings’ Director and Sector Lead in the Infrastructure Ratings Practice in Latin America, Candela Macchi, in which she examines the expansion and resilience of the region’s infrastructure market and the discrepancies between its’ industries.
Emphasising the longevity within this asset class, Macchi predicts that although changes to regulatory frameworks will pose new challenges and unpredictable political landscapes could undermine market confidence, investors may still find comfort in the favourable conditions that traditionally characterize the infrastructure market.
Writing for Brink Asia, Ruediger Geis, Head of Trade affairs at Commerzbank AG, discusses China’s Belt and Road Initiative (BRI), and the green financing options being explored to fund aspects of it.
Geis considers China’s definition of ‘green’ – given that the country has been the leading emitter of greenhouse gases since 2007 – and the possibility that the project is catalysing a shift towards greener business in the region. China Development Bank successfully issued the first green BRI bond in 2017, supported by Commerzbank.
The article was published on Brink Asia in March 2019, and can be accessed here.
What key trends do infrastructure investors face in 2019? For one, nationalist and populist movements are on the rise – creating an environment of heightened political risk, which investors may find hard to navigate. The result could weigh heavily on regulatory stability, as well as country risk or sovereign credit quality.
In tandem, environmental, social, and governance (ESG) matters are beginning to rise in prominence. Increasingly, investors are stepping up their focus in their investment mandates on companies that are seen as acting more sustainably.
Against this backdrop, the latest edition of Outlook keeps investors abreast of the most-read research from the past quarter – offering insights into how the Infrastructure segment is changing and, importantly, how it may yet evolve.
In its “Industry Top Trends 2019” reports for North America’s regulated utilities and merchant power, S&P Global Ratings found that the utility sector’s credit outlook is stable – with both regulated providers and independent power producers likely to see low levels of growth next year.
The reports also found that North American utility industry weaker credit measures from tax reform will likely persist in 2019, reflecting tax-related rate reductions carryovers. However, some utilities will likely offset this reduced revenue with further equity infusions or asset sales.
In September 2018, now-outgoing California Governor Jerry Brown signed SB100: a mandate to keep California on a path to deriving 100% of its power from clean sources by 2045. In an article for Utility Dive, S&P Global Ratings’ Michael Ferguson explains how this may mean significant credit implications for the state’s power generators.
Undeniably, SB100 is a boon for renewable energy assets in California. But it’s a mistake to consider these benefits to be mutually interchangeable — instead some assets stand to benefit more than others.
Ferguson writes: “While SB100 will naturally benefit existing solar and wind power, less obvious is by how much and when. Both asset types represent most renewable installations in the Golden State. Yet they are by no means immune from risk.”
A changing geopolitical landscape could adversely affect traffic volumes in the transportation infrastructure sector, as U.S.-China trade tensions escalate and Brexit approaches.
S&P Global Ratings’ analysts recently spoke to Drew Campbell, i3 senior editor, IREI, about the ramifications for transportation assets.
Specifically in the case of Brexit, one possible outcome is increased spending to balance any downside. S&P’s analysts respond: “As U.K lawmakers attempt to offset the prospects of slower economic growth following Brexit, investment in infrastructure could accelerate.”
With Brexit fast approaching and merger and acquisition (M&A) activity on the rise, S&P Global Ratings’ senior director, Julyana Yokota, explores what 2019 may have in store for airport operators.
The primary consideration is Brexit. “Questions remain over how the impact of Brexit could hinder traffic growth – most notably for UK airport operators,” writes Yokota.
M&A activity continues to represent a key trend. In France, for instance, a recent law has permitted the sale of stakes in Aerports de Paris – the operator of the Charles de Gaulle and Orly airports. France-based infrastructure group Vinci, which currently holds an 8% stake in ADP, is keen to pursue this opportunity.