The Bubble Floats: Key Themes From The Infra-News Seminar On 28 February 2008;

The infrastructure bubble is not a bubble: instead the froth has gone, credit analysis and covenants are king, but the asset class is stable. Over 200 representatives from banks, infrastructure funds, monoline insurers, financial advisers, the public sector, technical advisers, accountants and lawyers attended the Infra-News seminar 'Investing in European Infrastructure as an Established Asset Class' hosted by our firm on 28 February 2008.

The primary focus of the six panel discussions was the impact of the liquidity crisis on infrastructure as an asset class. The following key themes emerged.

  • The credit crunch has validated infrastructure as an asset class. There have not been the sharp reductions in value for infrastructure assets when compared with other sectors.
  • There is less appetite for pushing the definition of infrastructure assets but there was much less debate around 'what is infrastructure'; provided an asset has strong credit features there is no point in debating whether it is a 'hybrid'.
  • Since debt is less plentiful, particularly junior debt, it remains to be seen whether equity will pay the same price and contribute more equity or whether vendors' price aspirations will come down.
  • Long-term players, pension funds, infrastructure funds and corporate infrastructure players are still in the game and private equity and hedge funds less so.
  • Debt and equity investors have returned to sensible asset valuations and due diligence (although classic and stable infrastructure assets are still attracting high multiples).
  • Sovereign wealth funds are increasingly raising their profile and will play a key role in the infrastructure space but it was noted that they are not likely to be investors in smaller infrastructure assets.
  • There is a greater emphasis on emerging markets, such as central and eastern Europe, Russia and the Middle East.
  • Investors will succeed where they have good knowledge of specific assets and good local knowledge.
  • The importance of operational capabilities was emphasised.
  • If the US goes into recession there is likely to be an increase in the privatisation of infrastructure assets as municipal authorities need to raise capital (that is, privatisation will be cheaper than debt).
  • The key to successful infrastructure markets is a transparent and clear regulatory framework and process and clear government policy objectives (compare the UK transport and health sectors).
  • Rating agency valuation methodologies were questioned.
  • The bank market needs the monoline market and vice versa; monolines permit banks and investors to access alternative pools of capital.
  • The listed equity market is slower than the bank and other credit markets to feel the effects of the credit crunch but when it does there could be more fallout.

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