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.
Outlook is available in PDF here
Moorgate compiles, edits and designs Infrastructure Finance Outlook.
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.”
Read the article here
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.
Read the article here
S&P Global Ratings has published two comprehensive studies of defaults and recoveries in the infrastructure sector.
The first report found that infrastructure sector experienced net positive rating movements in 2017, with 114 upgrades and 87 downgrades – reversing the negative trends seen in 2015 and 2016.
The second report, which explores defaults and recoveries between 1995 and2016, found that the 10-year cumulative default rate for unrated project finance bank loans was 6.3%, though this figure drops to 5.85% when only core sectors are considered. The default rate is lower still for public-private partnership (PPP) projects, including the U.K.’s PFI scheme (5.6%), which according to S&P demonstrates these schemes’ comparatively lower-risk nature.
The same report also concluded that the annual default gap between OECD and emerging markets has narrowed over the past decade – a probable result of the financial crisis, which affected advanced economies more.
Following Moorgate’s outreach, Global Capital, Project Finance International, and TXF covered the news (these items sit behind paywalls).
Growth in regulation impacting lending, along with rapid globalization have put pressure on capital providers’ due diligence capabilities. Pair this with the inherent complexity of trade and project finance transactions and it is clear why many capital providers are now choosing to outsource their due diligence. Matt Reed, Associate Director at RedRidge Diligence Services, explains the trends in the sector.
Read the full article here
On October 29th the U.K. government announced that the Private Finance Initiative (PFI) model for future projects will no longer be used – potentially making a significant shift for the means through which public projects are funded.
However, a new report published by S&P Global Ratings suggests that any resultant financing routes are unlikely to be game changing. Instead, they believe PFIs could still be used, albeit under a different guise.
Following Moorgate’s outreach, FT advisor , TXF News, and Public Finance covered the news.
On the recent November ballot, Colorado’s citizens voted against measures that would have changed the nature of the state’s oil and gas development. Before the vote’s defeat, S&P Global Ratings published a report outlining the possible risks for energy exploration and production (E&P) companies, should the proposal be made law.
Proposition 112 would have required that E&P companies extend well setbacks (the permissible distance between a wellhead and surrounding structures) from 500 feet to 2,500 feet. This distance would have, in effect, rendered 85% of the state unusable for oil and gas drilling. By some estimates, this could have decreased the state’s GDP by some US$26 billion annually by 2030.
Michael Grande, director, S&P Global Ratings, said: “Passage of Proposition 112 is clearly a credit negative for the energy companies we rate, and it will affect some companies more than others.”
Following Moorgate’s outreach, Upstream (behind a paywall), Oil Voice, and Oil Gas Journal covered the news.
The U.K. government’s recent budget marks the beginning of the end for the Private Finance Initiative (PFI) and Private Finance 2 (PF2). While the government plans to honour all existing contracts, the model will not be used going forward.
But is this likely? In an article for Construction News S&P Global Ratings’ associate director, Joest Bunse, explains how the end of PFI may not create markedly different financing options, after all.
Following Carillion’s collapse PFI contracts have come under heavy fire. But, the public sector allocating risks to the private sector makes sense, argues Bunse. This is especially true in the U.K., which boasts the largest and arguably most efficient public-private partnership (PPP) market in Europe. As a result, PFI – the U.K.’s PPP model – will likely continue albeit in a different form and under a different name.
Read the article here (behind paywall).
Anne Selting, analytical manager, infrastructure and renewables, S&P Global Ratings, discusses the ongoing concerns surrounding U.S. infrastructure maintenance in Partnerships Bulletin.
Following the devastating collapse of the Morandi Bridge, Italy, ageing infrastructure around the world has attained a highlighted focus. In 2016, 56,007 bridges across the U.S. were deemed structurally deficient, yet state and local governments are deferring maintenance on critical infrastructure assets “due to a lack of standardized reporting”, according to S&P Global Ratings.
Despite cross-party support, Selting believes that a coherent federal infrastructure plan is absent. And, though maintenance budgets are set at a federal level, a disconnect exists because infrastructure is predominately maintained at the state, local and municipality level.
Selting says: “The economy has recovered. So if we now have a recessionary environment, it will be tough to have this conversation. We are somewhere at the end of the credit cycle and have not really seized the moment to come up with an infrastructure plan. We have missed a window.”
The full article can be read online here
Christopher Ash, the Managing Director of ExWorks Capital UK describes how trade finance in the Middle East is at an inflexion point. As the discipline innovates and evolves, it becomes a tool to help businesses grow, rather than being a heavy weight in the firm’s debt repayment schedule. There’s still much to be done but also much to gain. Ash outlines some exciting developments that are driving change throughout the region.
Read the full article here