Global political uncertainty and ESG are influencing infrastructure investment, says S&P Global Ratings

Across the globe, political uncertainty is increasingly becoming the rule rather than the exception. Meanwhile, trade tensions continue to define relationships between major players – such as China the U.S. and Europe. Both factors may induce caution among infrastructure investors.

Writing for Institutional Investing in Infrastructure, S&P Global Ratings’ Karl Nietvelt, Head of Research in Global Infrastructure, agrees that geopolitical events are influencing the market.

Indeed, infrastructure is “an asset class with typically lengthy lifespans that, therefore, benefits from political and regulatory calm,” according to Nietvelt. Yet today’s uncertain political climate, underpinned by elections in 2019, could dampen market confidence.

Another influential trend is the rising impact of environmental, social and governance (ESG) concerns throughout the infrastructure sector. Organisations prioritising these issues “have achieved reduced costs, mitigated risk potential, and created revenue-generating opportunities,” continues Nietvelt.

Read the full article in Institutional Investing in Infrastructure here.

Investor confidence in U.K.’s water companies still adequate despite tougher regulation, says S&P Global Ratings

According to S&P Global Ratings, the long-term investment prospects for U.K. water companies remain adequate despite the forthcoming introduction of AMP7 from April 2020.

While many industry professionals perceived the U.K regulator Ofwat as taking a tougher stance on water companies, director for EMEA Utilities at S&P, Matan Benjamin, recently told Utility Week that the new targets reflect the “requests of society” on environmental, social, and governance (ESG) concerns.

Benjamin says: “This remains a strong industry. On the one hand, things are becoming more challenging for [water] companies because the regulator aims to make them work more efficiently. But that efficiency is good for society.”

Read the full article here.

Risks caused by corporate PPAs should be manageable, says S&P Global Ratings

In a challenge to the traditional power market model, large corporations are increasingly entering long-term contracts to buy power directly from energy producers – rather than from utilities. While these arrangements – known as corporate power purchase agreements (PPAs) – could pose new risks for producers and consumers, these should be largely manageable, says Trevor d’Olier-Lees, S&P Global Ratings’ senior director, Infrastructure North America.

Commenting on the model’s increasing uptake in an interview with Power Technology, D’Olier-Lees says: “Given the strong demand from corporate corporations to buy renewable power, [this model] will continue to grow. And there’s always innovation around mitigation.”

Read the article in Power Technology here.

Absorbing the risks of corporate PPAs; S&P Global Ratings writes for PFI’s 2020 Yearbook

To ensure cost certainty and to meet environmental goals, corporate power purchase agreements (PPAs) have become increasingly common. In 2018, 121 corporates reportedly signed such agreements to buy 13 gigawatts (GW) of electricity directly from power generators (rather than from utilities) for a fixed period and at an agreed price.

Despite their advantages, the rise of corporate PPAs has heightened credit and operational risks for market participants. For the Project Finance International (PFI) 2020 Yearbook, S&P Global Ratings’ senior director, Trevor d’Olier Lees, and associate director, Luisina Berberian, assess why corporate PPAs may not offer credit support comparable to traditional PPAs. However, they conclude that strong corporate demand for these arrangements could provide the impetus to finding appropriate mitigants.

Berberian and d’Olier Lees write: “The renewables sector has often overcome teething problems – with market participants finding innovative ways to finance structures and to mitigate any resultant risks.”

You can access PFI’s 2020 Yearbook here. S&P Global Ratings’ contribution is available on page 40 or via this link.

S&P Global Ratings crowned “ESG Opinion Provider of the Year” in IFR’s 2019 Awards

Following a milestone year for the credit rating agency’s sustainable finance team, IFR has named S&P Global Ratings as its “ESG Opinion Provider of the Year”. The award recognises S&P Global Ratings’ extensive work in the environmental, social, and governance (ESG) space this year, from the launch of its ESG Evaluation in April, to its recent acquisition of the ESG ratings business from award-winning ESG specialist RobecoSAM.

“For accelerating the push to standardise disparate ESG information, identify risk, and ultimately link it to the cost of debt, S&P Global Ratings is IFR’s ‘ESG Opinion Provider of the Year’,” said the publication.

To read the full write-up, please click here.

Los Pelambres’ proposed US$875m green loan scores E2/68 under S&P Green Evaluation

S&P Global Ratings has awarded a Green Evaluation score of E2/68 to Minera Los Pelambres’ proposed US$875 million loan – the second highest score available on the Green Evaluation scale of E1-E4 – making Los Pelambres the first mining company globally to receive a Green Evaluation. The loan facility will fund part of the company’s US$1.3 billion copper mine expansion project, based in Chile.

Roughly US$530 million of the US$875 million loan is labelled as a green financing since proceeds will be deployed at the new water desalination plant and the associated pipeline. The plant will bring seawater to the plant in Choapa Valley, instead of competing for fresh water in neighboring municipalities, where water resources are scarce and expensive.

Following outreach from Moorgate, TXF News covered the Green Evaluation.

ESG-based investing is here to stay, says S&P Global Ratings, covered by the specialist press

According to a recent report by S&P Global Ratings, executives and asset managers are in agreement that the rise of environmental, social, and governance (ESG)-based investing will likely accelerate as a younger, more values-oriented crop of investors enter the global markets.

Doug Peterson, S&P Global President and CEO, told attendees of  launch event for S&P Global Ratings’ ESG Evaluation tool, “Now more than ever, companies understand and have a much better appreciation of their responsibilities as corporate citizens. We see ESG matters as an essential component of sustainable company performance.”

Following outreach from Moorgate, the report was covered by Aqua Now, Wealth Adviser, SDG Knowledge Hub, and Institutional Asset Manager.

 

S&P Global Ratings explores the upcoming trends for North America’s regulated utilities and merchant power; covered by the specialist press

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.

Following Moorgate’s outreach, Utility Dive covered the news

 

S&P Global Ratings’ Michael Ferguson explains the credit implications of California’s renewable mandate in Utility Dive

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.”

Read the article here.

S&P Global Ratings details infrastructure default and recovery statistics in landmark studies; covered by the specialist press

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).