Post- Brexit, could the UK infrastructure market weather the storm? S&P Global asks investors

Mike Wilkins

With just days to go until the UK decides on whether or not to remain in the EU, Michael Wilkins, managing director of infrastructure finance at S&P Global Ratings, writes for leading infrastructure publication, InfraNews, about the likely impact of a ‘Brexit’ on infrastructure investment in the UK. Based on the results of a recent survey of 51 UK and international institutional investors conducted by the ratings company, Wilkins concludes the that the only certainty is uncertainty. According to Wilkins, not only does a potential Brexit threaten the vital flows of EU funding to the UK’s infrastructure market – such as €19.1 billion from the European Investment Bank, and even more from the Juncker Plan’s European Fund for Strategic Investments – it also unnerves investors, with some already curtailing their allocations to the UK.

He goes on to suggest that it is the overseas investors – who currently finance more than two thirds of British infrastructure – that could be hit hardest. This is because a Brexit would likely increase currency volatility. In fact, an overwhelming majority – around 71% – of S&P’s survey respondents said they would be dissuaded from further investment in the UK if the pound was to drop in value.

Wilkins concludes that while most of the UK’s current infrastructure projects and companies could weather the immediate economic turbulence created by an ‘out’ vote, in the long term, indirect effects on creditworthiness could be significant – especially for those tied to the UK’s sovereign rating, which could face a ‘negative outlook’ rating following a Brexit.

For the full article please click here (note: subscription is required).

Siemens Financial Services paves the way for smart cities in the Wall Street Journal

CaptureIn a video interview for the Wall Street Journal’sBusiness Debate’ platform, Julie Alexander, Director of Urban Development at Siemens, and Johannes Schmidt, Head of Financial Advisory and Structuring at Siemens Financial Services, show that digitalisation will be key to global urban development. For the first time in history, the majority of the planet’s population lives in cities, while billions more urban dwellers are expected in the coming decades. The experts from Siemens argue that urban infrastructure must be optimised with advanced technology and innovation if it is to meet future challenges as populations grow.

Yet upgrading cities in this way will not come easily or cheaply – progress, therefore, relies on increased collaboration between the public and private sectors so that risk and cost is shared, and thus diluted. Alexander and Schmidt point to London’s Thameslink rail project as a prime example, where risk was successfully transferred to the private sector, while the public sector helped to allocate and prioritise funding.

The video interview and accompanying article, for which Moorgate provided the content, can be viewed here.

Moorgate also helped with the production of the related Siemens video, ‘Financing for intelligent infrastructure’.

S&P Global’s May IFR Outlook looks to a decarbonised world economy

Capture The latest issue of Infrastructure Outlook from S&P Global – which brings together the key infrastructure and project finance-related research and rating update news from the past month – focuses on why growth in the green bond market will be key to a sustainable world economy. Exploring the success of this nascent market, Michael Wilkins, head of global environmental & climate risk research and author of the front page feature, suggests that by building on prominent recent green bond issuances by Apple, EDF, Toyota and Barclays, billions of dollars of investment stand to be raised for environmental purposes. Wilkins predicts that if the green bond market can continue to tap the potential of issuers in emerging economies – such as Brazil, India and China – as much as $28 billion could be raised in green bonds this year. Meanwhile, companies in a range of industries are increasingly turning to the green bond as a means of sourcing funds, motivated by greater pressure to disclose environmental records. Wilkins notes that continued success will depend on sustaining such transparency, pointing out that the market still has a way to go before reaching maturity.

Less optimistic is the outlook for liquefied natural gas (LNG). In a second prominent feature this month, Simon Redmond, director and commodities specialist, offers an overview of the industry for the year ahead, warning that given a glut in supply and downward price trends, the LNG market will not enjoy the stability it has found in the past anytime soon.

Moving from up-stream to down-stream, the issue takes an in-depth look at the outlook for utility companies worldwide. Here, Diane Vazza, New York-based managing director, offers her insights into the growing potential for ratings downgrades, suggesting that there is higher risk in the sector than in the past due to continued low commodity prices, while senior credit analyst Tania Tsoneva explores the factors underpinning European utilities’ senior unsecured debt transactions.

In other news, S&P has adjusted its ratings for French-based energy company ENGIE, Austrian utility company Verbund, and a Maltese power distributor Enemalta, while assigning the UK’s Northumbrian Water Group a ‘BBB’ rating.

The issue also covers the effects of a long-running dispute between a healthcare trust in Newcastle and its contractor, the rating of a Dublin airline company and an Italian toll road, as well as the construction of a group of school buildings in Yorkshire.

To view these articles and more, please see the full version of S&P’s May infrastructure newsletter in PDF or e-book format.

S&P’s new infrastructure appointment covered in the specialist press

Jon ManleyIn April, Standard & Poor’s EMEA Infrastructure Group named Jon Manley as the new Global Head of Business Development. The position focuses on increasing client engagement and the global coverage of key clients, arrangers and investors in the Infrastructure asset class.

Previously S&P’s EMEA Commercial Head of Structured Finance, Manley will now work alongside Susan Gray, Global Practice Leader for S&P’s Global Infrastructure Practice. He has extensive infrastructure experience, having previously led the EMEA Infrastructure team’s coverage of UK PFI/PPP transactions, transportation projects and utilities, and has served on the Board of the International Project Finance Association (IPFA).

Targeted outreach from Moorgate secured coverage of the appointment across the specialist press, including Institutional Asset Manager, Investment & Pensions Europe, Property Funds World, and Partnerships Bulletin (note: a subscription is required).

As offshore wind takes flight, S&P explains the risks to the environmental press

offshorewindHaving rated its first offshore wind project, Meerwind, Standard & Poor’s speaks to the environmental press about the credit risks associated with this rapidly maturing sector. S&P’s lead analyst on the topic, Michael Ferguson, recognises that while wind farms located at sea present greater challenges when compared to their onshore cousins – offering a less extensive track record and greater construction and maintenance risk, for instance – with the right partner selection and project set-up he believes these challenges can be overcome.

Targeted outreach from Moorgate meant that top environmental publications, Environmental Finance and BusinessGreen (behind a paywall), published S&P’s research.

The Gulf can no longer rely on oil to fund its infrastructure: S&P’s recent findings picked up by the specialist press

Nassif_KarimWith low oil prices showing no signs of rising, Standard & Poor’s Dubai-based Director, Karim Nassif, suggests that the Gulf Corporation Council (GCC) will have to seek innovative forms of financing to foot its ever-growing infrastructure bill. In his new report, Nassif says that while Gulf states have long-relied on high export revenues from oil to meet their demands for capital expenditure, falling commodity prices present a challenge to the status quo.

Given the need to pay for the ambitious infrastructure pipeline – estimated at around $270 billion over the next four years – governments in the region will increasingly have to explore alternative forms of finance, whether via  government-related entities (GREs) or public-private partnerships.

The report also notes that growing opportunities for renewables could take root in the region as governments look to diversify their energy sources.

As a result of Moorgate’s outreach, the report’s findings were picked up across the specialist finance and energy press, including in FTSE Global Markets, Middle East Economic Digest Business Intelligence (behind a paywall),  Gulf News Banking, and Energy Voice.

S&P explores the lost infrastructure opportunity in the latest edition of Partnerships Bulletin

partnershipsbulletinDespite the great need to build and maintain infrastructure to stimulate economic growth, governments in the EU, on the whole, are shying away from providing the necessary funding – mainly due to the high risks and high costs involved. This was the conclusion of Michael Wilkins, Managing Director of Infrastructure Finance at Standard & Poor’s, in February’s edition of Partnership Bulletin.

In his article, Wilkins refers to a recent S&P survey that found that, overall, industry experts and policymakers view the combination of austerity policies and issues of affordability as the main barriers to infrastructure investment in Europe.

The solution, therefore, could lie in public-private partnerships (PPPs), Wilkins argues. By teaming up public-sector infrastructure requirements with private-sector financiers seeking high yield projects, particularly in the sale of brownfield (existing) assets, the right financing could be realised.

To view the full article, please click here. (Please note: this article lies behind a paywall)

S&P’s new rating of Belgium care home ProjectCo ‘Silverstone’ covered by IJGLobal

care-home-construction-01Standard and Poor’s new long-term issue rating of ‘BBB’ (stable) on a €186 million bond to finance the re-acquisition of 25 senior care homes in Belgium was picked up by project finance specialist publication IJGLobal. The bond, issued by Luxembourg-based special-purpose vehicle MRE-Silverstone-I S.A., pays a fixed coupon of 3.6% with an eleven-year maturity.

The credit rating reflects the relatively low operational risk, satisfactory competitive position, and supportive supply and demand dynamics for this service. The stable outlook reflects expectations that the project’s operational performance will remain stable, with occupancy rates at 96%-98% and good service standards.

The full article can be viewed here. (Please note this links falls behind a paywall).

BNY Mellon discusses the evolving LatAm-China relationship in TXF

Cristiane GomesThe China-LatAm trade corridor is booming, with trade volumes soaring in recent years. Furthermore, China is increasing its economic leverage throughout Latin America via a string of multibillion-dollar acquisitions, ambitious infrastructure investments, as well as investments in the finance industry. In TXF, Cristiane Gomes, Head of Sales and Relationship Management, South America, BNY Mellon, explores this developing economic relationship and the implications for Latin America.

To read the full article, please click here (please note, free magazine subscription required)