What Does the Future Hold for Infrastructure Investors?

March 1, 2011 - PRLog -- In early February InfraNews hosted its fifth Infrastructure Investors Forum: Europe (IIF Europe) in which fund managers, direct investors and banks talked about their hopes and fears for the next 12 months. The conference heard how infrastructure investors have the dilemma of trying to outperform a market still hampered by financial uncertainty, and capitalize on a wealth of investment opportunities at the same time. The conclusion was that investors needed to exercise caution before making investments, particularly given the still unsophisticated – but improving – level of regulation in continental Europe, and hedge their bets by not narrowly focusing their strategy on a limited number of jurisdictions.

InfraNews’ editor, Brendan Malkin identifies eight main take-outs from this year’s conference.

(1). Infrastructure investors are seeking to invest in a growing number of countries as the scale of M&A in the infrastructure space continues to grow. The priority targets are the UK and Spain but other European countries also offer opportunities.
While privatisations by some European governments offer opportunities to investors, the majority of acquisitions during the year ahead are likely to be in the private market. This is being driven largely by the need among Europe’s infrastructure transport developers and utilities to deleverage and, in the case of the latter, to unbundle their networks. More opportunities could emerge in Scandinavia and parts of Central and Eastern Europe, in addition to traditional markets such as the UK and Spain. Focus in the future is likely to be centred less on such countries such as Germany where regulation is still relatively opaque.

(2). A cautious response is needed to European government asset privatisation programmes.
Australian state governments like Queensland, through its recent round of asset sales, have proven themselves genuinely open to privatisation. The same, in the main, cannot be said of those European governments currently considering large-scale divestment of infrastructure assets. Many would prefer to retain state ownership of those assets and, given the opportunity, would cancel privatisation programmes. Infrastructure investors, therefore, need to exercise extreme caution before investing their time and money in due diligence for bids for such assets. Despite this, investors should keep a watchful eye on any infrastructure privatisation-related announcements made by the governments of Spain, Ireland and Greece.

(3). The bid/ask spread has narrowed, but buyers and sellers of assets are still not entirely in agreement about asset valuations, notably in those countries affected by the sovereign debt crisis.
Disparity over asset valuations remains. The amount buyers are willing to pay for assets is still significantly lower than it was before the financial crisis. However, there has not been a material shift in sellers’ valuations of infrastructure assets. Consequently there is still a difference between what buyers are prepared to offer and what sellers are willing to accept for an asset, particularly in jurisdictions most affected by the European sovereign debt crisis. This is less often a problem in European markets with greater financial stability.

(4). Infrastructure investors are targeting acquisitions in the utility sector (so called wires and pipes). Depending on their appetite for risk, they are also looking for more complex transactions.
Infrastructure investors are seeking new and innovative ways of maximising their returns. In particular, fund managers are aiming to differentiate their investments in the utility sector and also combine assets with those in their existing portfolios for synergy effects. More complex transactions offer those higher returns. Institutional investors, with a lower appetite for risk, are seeking the lower return profile afforded by less complex assets such as pipelines and storage facilities. The renewable energy sector is interesting for some infrastructure investors, but not all. There are opportunities to invest in existing renewable energy portfolios, such as ACS’ EUR5bn renewables business, but the mood is one of caution than excitement.

To read the full article, click here: http://www.infra-news.com/analysis/opinion/840948/what-do...

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InfraNews is the most relevant, timely & accurate provider of news, analysis & research about the latest greenfield & brownfield infrastructure projects & deals across the European and global infrastructure communities from the most informed journalists.