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Wednesday, 18 July 2018

Infrastructure Roundtable 2010

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Welcome to the Project Finance International Infrastructure Roundtable, sponsored by Lloyds Banking Group and held in London early this month. I hope you find it as enjoyable to read as it was to take part.

The subject matter could not be more timely. The infrastructure market is coming off a boom time. The private finance initiative (PFI), which then seemed to merge into public-private partnerships (PPPs), has had a strong run in the past decade. Even after the events post 9/15, the sector was being boosted - by governments keen to stimulate economies through infrastructure investment. Now, however, there are dark clouds on the horizon as governments seek to cut back spending in a new age of austerity.

Lloyds’ Gershon Cohen drew attention to the new mantra - projects that can prove an economic benefit will continue, “so there will be a pipeline. I am optimistic about that, but I think that is going to work through,” he said.

Barclays Capital’s Chris Elliot saw the possibility of a new model emerging - more associated with active management of services, saying: “I think the important thing is to look at it across the life of the asset rather than a snapshot of financial close.”

Mike Gerrard from Partnerships UK pointed out that the UK standard PFI contract, SoPC4, was a fundamentally BBB credit rated contract. Even given the stormy times, he said, “my assessment is that that analysis is still valid”.

PwC’s Richard Abadie pointed out one of the consequences of the more credit stressed times, saying: “You have to look at the credit quality of everybody in the structure, all the stakeholders; and that’s becoming core.”

James Butters from Skanska pointed to the key relationships a contractor has with its relationship banks. “Banking financing fits the bill and makes actual operational running of the projects easier,” he said.

Marc Bajer from Hadrian’s Wall argued for the bond role to return to the market, suggesting banks would suffer from the upcoming Basel III regulations and bonds could step back in. “That is a need that we can fill,” he said.

Martin Lennon from Prudential M&G suggested that for all capital asset classes “the focus seems to be now on quality of the projects and the sponsors more than it has ever been”.

Allen & Overy’s David Lee said that PPP was still the only viable game in town “to deliver greenfield infrastructure on a large scale, and that doesn’t necessarily mean following the single SPV approach in every single country.”

Innisfree’s Graham Beazley-Long, however, said it was too late for a corporate finance model, but added: “To do it going forward, you need the government to take a cost of capital risk.”

Gershon Cohen suggested that the picture across Europe was bright for the sector and ended with thoughts about power and energy. Could the concession/PPP model move into this sector?

 

Click here to see the Participants.

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