Energy markets in the spotlight: S&P Global Ratings releases the latest edition of IFR Outlook

captureThe latest edition of IFR Outlook – S&P’s monthly newsletter summarising key infrastructure and project finance-related research and rating news – suggests energy markets around the world are under tough scrutiny. In the front page feature, Pierre Georges, director of EMEA utilities, explains that in an environment of weak power prices, Europe’s nuclear fleets face constrained creditworthiness – noting that ratings on six of Europe’s main nuclear operators carry a negative outlook. Further afield, associate director Karim Nassif finds that low oil prices continue to test the resilience of corporates and infrastructure companies in the Gulf, and suggests that large Government-Related Entities (GREs) with important infrastructural mandates will be best able to weather the storm as the market shifts and the region adapts to tightened purse strings. In a separate feature, S&P’s Thomas Watters looks ahead to the next official meeting of OPEC, suggesting that depending on the deal reached there, commodity prices could stabilise.

This month’s issue also welcomes a guest contribution from Ben Caldecott, director of the Sustainable Finance Programme at the University of Oxford, who offers a run-down of the next big thing to hit environmental risk analysis in debt markets: asset level data. He highlights the ways in which this new method of assessing risk can improve transparency and accuracy for analysts and investors alike.

When it comes to transport infrastructure, the November edition has got it covered. S&P’s Maria Lemos shows that while demand for infrastructure assets has risen among both corporate groups and institutional investors, the stability of ratings on transport groups is unlikely to be affected. Philip Baggaley, meanwhile, looks at the potential impact of the newly signed global airline emissions agreement, the ‘Carbon Offset and Reduction Scheme for International Aviation’ (CORSIA). Announced by the UN’s International Civil Aviation Organization (ICAO), Baggaley explains that this historic agreement will have little near-term credit impact but could potentially lead to long-term costs.

In other news, S&P has downgraded its rating on energy company EDF to ‘A-/A-2’ in the wake of the UK’s approval of Hinkley Point C, while its rating on High Speed Rail Finance PLC has been put on CreditWatch ‘Negative’ after a proposed debt issuance is likely to weaken the project’s financial profile.

To view these articles and more, please see the full version of the newsletter in PDF or e-book format

S&P Global Ratings goes green with its latest edition of IFR Outlook

captureThe latest edition of IFR Outlook – S&P’s monthly newsletter summarising key infrastructure and project finance-related research and rating update news – is out now, and the outlook is green-tinted. This month, Michael Wilkins, Managing Director of Infrastructure Finance and Head of Global Environmental & Climate Risk Research, describes a new product to analyse and estimate the environmental impact of bond projects or initiatives via a ‘green’ bonds rating, while Laurence Hazell, Director, explains S&P’s proposal for, and methodology behind, Environmental, Social, And Governance (ESG) Assessments. The timing couldn’t be better, as green bond issuance in real estate is showing real signs of growth, particularly in Europe, according to the article contributed by Analyst and Senior Director, Eric Tanguy.

Of course, the issue of Brexit’s impact on investor appetite for the UK’s infrastructure sector remains a running theme. Michael Wilkins suggests that while confidence is still shaken, things could pick up in the longer term.

Also under scrutiny are the UK’s top six energy companies, Centrica, EDF, SSE, RWE, E.ON, and Scottish Power. Pierre Georges, Director in Utilities, explains that government reforms designed to stimulate competition in the power sector threaten to constrain revenues and market shares for the ‘Big Six’.

Across the Atlantic, Michael Ferguson, Director of US Energy Infrastructure, explores the future of the US nuclear industry, explaining that low gas prices are putting pressure on generators, resulting in the retirement of more nuclear plants.

And from Dubai, Karim Nassif, Regional Head, suggests that low oil prices, subdued economic growth and cheap bank funding relative to the capital markets are to blame for the sluggish corporate and infrastructure sukuk market in the Gulf Cooperation Council (GCC).

In other news, S&P has improved its rating on Scotland And Southern Gas Networks to ‘BBB+’, while its outlooks on oil and gas companies Azerenerji and SOCAR have been revised to negative following similar updates on the state of Azerbaijan.

To view these articles and more, please see the full version of the newsletter in PDF or e-book format.

S&P’s June edition of Infrastructure Outlook considers the impact of Brexit on U.K. infrastructure

brexit-shutterstock2 (1)With a Brexit now confirmed, Michael Wilkins, Managing Director of Infrastructure Finance Ratings, S&P Global Ratings (S&P), explores the impact on U.K. infrastructure investment in the most recent issue of Infrastructure Outlook – S&P’s monthly newsletter summarising key infrastructure and project finance-related research and rating update news.

In this special edition – published in line with S&P’s recent ‘Infrastructure Finance Seminar 2016’ – Wilkins suggests that despite the inevitable impact of Brexit on short-term investment, the choice to leave the EU could also spark some unexpected activity in the UK. That said, the extent to which the ‘leave’ vote will impact investment largely depends on the outcome of post-Brexit negotiations. From a ratings perspective, however, Wilkins notes that implications are limited, as the majority of infrastructure companies and projects rated by S&P boast highly stable operations and are, therefore, well-positioned to weather the economic consequences, at least in the short term.

However, it is the long-term consequences that the majority of institutional investors are more concerned with. This is the conclusion of a recent survey of 51 investors conducted by S&P. Drawing on the survey’s findings, Wilkins highlights the three main concerns are: reduced funding, depreciation of the pound and changes to policy and regulation. Indeed, these factors could well lead to investors postponing investment, at least until the U.K.-EU relationship has been renegotiated or the economy stabilises.

More positive are the growth prospects for the energy storage sector, discussed in a second prominent feature of the June edition. S&P’s research concludes that considerable declines in electricity generation costs and a growing emphasis on renewable options has led to significant developments in energy storage technology, and therefore both public and private sector involvement.

Productive relationships between the public and private sector also feature as a key solution in modernising U.S. infrastructure. In a separate piece, Doug Peterson, President and CEO, S&P Global Co-Chair, Executive Council on Infrastructure, encourages the establishment of a new model for infrastructure investment, in which he argues increased transparency, better risk allocation and public benefit should be the main targets for infrastructure projects under the new framework.

In other news, S&P has adjusted its ratings for French energy giant EFD, German utility company E.ON and Spanish Power Company Iberdrola S.A., while revising its outlook on Central Nottinghamshire Hospitals bonds.

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

 

S&P Global Ratings talks to The Treasurer about why appetite for project finance is on the up

CaptureCited in the latest edition of The Treasurer – the flagship publication of the UK’s Association of Corporate Treasurers (ACT) – Michael Wilkins, managing director of infrastructure finance at S&P Global Ratings, offers his insights on why we have seen interest for infrastructure assets growing across the capital markets in recent years.

In the article ‘If you build it…’(pp.24-27), Wilkins explains that while commercial, multilateral and export finance banks have traditionally accounted for the lion’s share of project finance – typically around 80% – we are now seeing more institutional investors, such as pension funds and insurers, attracted by the high yields and long-term returns the sector can offer.

Please read the full article online here.

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.

Europe’s offshore wind sector offers growing opportunities for investment, writes S&P’s Michael Ferguson

MichaelFergusonEurope’s offshore wind market is becoming an increasingly attractive investment option as it grows and matures. Writing a special report for Investment & Pensions Europe, Michael Ferguson, Director at Standard & Poor’s, describes how offshore wind will play a leading role in European power generation as technology costs continue to fall, efficiency improves and governments seek low-carbon sources of power. In fact, he notes that over 11,000 megawatts (MW) of capacity have already been installed across the continent.

Ferguson also outlines the various risks faced by institutional investors: from the complexities of construction, operations and maintenance at sea, to the challenges of variable wind resources and technological performance – not to mention the specialised contracts and subsidies needed to mitigate market risks. Building on S&P’s experience of rating the 288 MW farm Meerwind, off the coast of Germany, he shows that understanding where such risks exist can help to mitigate them.

Please read the article online here.

Uncertainty on the horizon for LNG – S&P explores the sector in the specialist energy press

CaptureLiquefied natural gas (LNG) has historically enjoyed stable prices as a commodity. Yet the outlook for 2016 is less certain, according to Simon Redmond, Director at Standard & Poor’s and commodities specialist. Writing for specialist monthly journal, Petroleum Review from the Energy Institute, he explains that a glut in global supply has driven down prices.

Redmond argues that while most LNG supply remains covered by long-term off-take contracts, any supply that is deferred or left uncontracted is at risk of these low prices. Importantly, such market uncertainty has important ramifications for the ratings of energy projects.

Please find the article here (note: a membership is required).

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).

S&P discusses the challenges of funding Europe’s infrastructure in Global Banking and Finance Review

CaptureEurope needs infrastructure to help spur its growth – but faced with high levels of debt and policies of austerity, governments are finding it difficult to justify funding expensive projects. Writing for Global Banking and Finance Review’s latest monthly issue, Standard & Poor’s Michael Wilkins, managing director of infrastructure finance ratings, points to greater collaboration between the private and public sectors as a solution. Building on a survey of key industry experts, he notes that with the support of such collaboration, government authorities can better identify and prioritise the correct projects, while institutional investors can channel financing according to risk, cost and demand.

The obvious means for fostering this collaboration, as highlighted in S&P’s survey, is improved public-private partnerships (PPPs). Given Europe needs a more developed and flexible PPP framework, Wilkins suggests that ‘capital recycling’ – that is, the sale of existing ‘brownfield’ infrastructure assets to free up funding for new ‘greenfield’ projects – or the raising of new dedicated taxes, like those used to source the funds for London’s new Crossrail, can help.

The magazine can be viewed in full here – please turn to pages 37-39 for S&P’s article.

S&P says the LNG market is fighting to stay afloat in Energy Voice

lng-carrier-main for blogIn an article for Energy Voice, Simon Redmond, commodities specialist at Standard & Poor’s Ratings Services, outlines the contours of today’s liquefied natural gas (LNG) market. Overall, he does not expect a material improvement in current declining markets conditions or LNG ‘spot’ price – the price of the moment – in the foreseeable future. He explains that a predicted surge in global supply, coupled with falling prices, could lead to reduced headroom in LNG projects’ financial profile – mainly because production costs are, for the most part, fixed. Importantly, this negative outlook could lead to rating downgrades for this historically stable sector over the coming year.

For more details and quotes, please see the full article here.