Testing times for infra
The impact of the current global instability has quickly moved beyond the Gulf as energy prices have jumped leading to new concerns about inflation and growth. The Covid pandemic upset the infrastructure applecart with interest rate hikes and inflation and there are fears once again rates will jump, even if the situation is resolved quickly. The problems at NCP have provided a little light relief, although not obviously for those involved.
The outstanding, in the not positive sense of the word, headline last week concerned the fact that 17% of Qatar's LNG production is down for three to five years. "I never in my wildest dreams would have thought that Qatar would be – Qatar and the region – in such an attack, especially from a brotherly Muslim country in the month of Ramadan, attacking us in this way," said QatarEnergy's CEO Saad al-Kaabi who is also Qatar's minister of state for energy affairs.
The shocks to the energy system will not just impact oil and gas prices but will raise prices for a whole host of products starting with food prices. Those countries that have decided to stop drilling for oil and gas are now exposed – as an example compare Norway, a large scale green investor and expanding oil and gas producer, to the UK.
Zeroing down to the infrastructure market, uncertainty over the possibility of rising interest rates could once again hit exit valuations just as the market was recovering. Antin CEO Alain Rauscher said last week when reporting the fund manager's annual results: "We have seen the devastating effects after 2022 of inflation coming back and the time it took to fix inflation . . . I think that it has taken about two to three years to achieve that."
Rauscher said in 2022, 2023 and 2024: "This has had a major impact on what we call the DPI index, which measures how much money we return compared to how much money we have invested and this index deteriorates, it means for our LPs that they are investors and that they don't get enough money back to reinvest capital in new vintages of funds . . . We have seen a softening of the conditions in 2025. And frankly we continue to see such softening of conditions since the beginning of the year."
But he said: "Now we are in a situation where a new conflict actually has erupted. It is extremely difficult to predict whether it will lead to inflationary pressures." Antin is currently working on four exits.
The mega funds backed by the global fund managers have been investing big bucks across the cycle in sectors such as LNG and data centres where big tickets are the name of the game. But this year mid-market funds were said to be coming back with new funds and new deals.
Appetite for core plus infrastructure deals has been increasing from private equity and infra fund investors. On the sell side corporates have been keen to lease assets to take them off their balance sheets with, on the buy side, infra investors keen so as long as the deals have "infra-style characteristics such as stable cashflows, high barriers to entry and so on".
And so on to NCP. Once upon a time no doubt the UK's National Car Parks was perceived to have "infra-style characteristics such as stable cashflows, high barriers to entry and so on". But unfortunately its various owners had decided to treat it like the Debenhams retail chain and sell off all the underlying properties for big profits. Debenhams is no longer on the high street and NCP is now in administration.
Notwithstanding the financial engineering, economies move on and this can hit business. Retail trends have changed and there are fewer people now using town centre carparks or indeed Debenhams before it shut down on the high street.
Infra trends come and go. The definition of "infra-style characteristics such as stable cashflows, high barriers to entry and so on" is clearly not set in stone. Fibre was a sought-after sector a few years back but there have been some notable hits taken by funds and their lending banks on assets in markets such as Germany and the UK. Data centres now rule the roost in the TMT sector.
Renewables clearly was a major source of deals but prospects have dimmed with falling power prices and grid connection issues. Developers have struggled to onsell assets at prices they used to achieve leading to some pain. Battery storage and grids are the new things.
Losses have been a feature of the infrastructure sector from the year dot – from the Suez Canal Company, Argentinian railways ask Barings, onto Eurotunnel and now Thames Water, see the latest loan write-off plan.
The prospects for most investments remain good, given the sector's underlying worth but there will be losers. At the annual infra investor jamboree in Berlin this week, to which I have obviously never been invited boo hoo, the very last speech is entitled "Cognitive infrastructure: Why the world's largest industry operates without memory and how AI can restore judgement under uncertainty."
AI can provide some muscle memory. Good luck with that. And hopefully the losses from data centre projects themselves will not turn out to be too great . . .
