Global Infrastructure Spending Soars, Competition for Talent Heats Up
Infrastructure spending around the world is soaring as nations scramble to rebuild decaying roads, bridges, ports, airports and utilities. Meanwhile, a number of developing nations are adding new infrastructure. Right now, a growing number of global investors are seeking to capitalize on the trend and the diversification that investing in infrastructure offers.
Looking ahead, interest and investment in this asset class is expected to skyrocket. Amid the growing trend, executive search firm, A.E. Feldman, says infrastructure finance jobs are opening up for candidates with backgrounds in investment banking as well as experience in analyzing and executing structured financings. The most sought after candidates are those with experience in infrastructure transactions and civic engineering. Additionally, legal jobs are opening up for attorneys with expertise in global project development and complex financial transactions.
Global Perspective on Infrastructure Investment:
Canada
Babcock & Brown recently announced that Babcock & Brown Public Partnerships Limited (BBPP)has been awarded the Alberta Schools Project - the largest schools project in the history of Canada. The project consists of a 32-year contract for the provision of 18 new schools in Edmonton and Calgary, Canada.
Alberta Schools is BBPP’s second Canadian Public-Private Partnership (”P3″) project and was commissioned by the Alberta Government through Alberta Infrastructure. The contract is for the design, construction, finance and maintenance of nine schools in Edmonton and nine schools in Calgary. The schools are scheduled to complete construction in July 2010. The concession period is 32 years, including a 22-month construction period.
Alberta will pay a private company $634 million to build and maintain the 18 new elementary and junior high schools, reports the Edmonton Journal. According to the report, although the use of P3s has been controversial, the province said it is so confident in the model that it plans to build another 14 new schools in Edmonton, Sherwood Park, Spruce Grove, Calgary, Langdon and Okotoks using a P3.
“Not only have we saved $118 million for Alberta taxpayers, that represents a 16% saving over conventional construction, but we’re creating space for more than 12,000 students two years earlier than would have been possible through traditional methods,” Infrastructure Minister Jack Hayden said as quoted by the Edmonton Journal.
BBPP is investing 75% of the equity, with Gvest, an affiliate of Graham Construction, providing the remaining 25%, according to Babcock. Graham Construction and Bird Construction are the two contractors to the project. Construction will be undertaken under a typical fixed-price, fixed-time contract. Honeywell will provide the facilities management and maintenance services for the period of the concession. The schools will be owned and operated by the school boards.
Central and Eastern Europe and Russia
Macquarie Group of Australia and Russia’s Renaissance Capital are jointly raising an infrastructure fund aimed at investments in the Commonwealth of Independent States. The fund is targeting commitments of $1.5 billion and has already raised $750 million.
The Macquarie Renaissance Infrastructure Fund is targeting total investor commitments of US$1-1.5 billion, which will include up to US$50 million each from Macquarie Group and Renaissance.
According to Igor Yurgens, Chairman of Macquarie Renaissance, the Macquarie Renaissance Infrastructure Fund will provide investors with diversified exposure to a large and growing infrastructure market. “In Russia alone, it has been estimated that approximately $1 trillion will be spent on infrastructure projects over the next 10 years, and it is anticipated that the private sector will play a key role in this expansion program. We look forward to developing this market together with these well respected institutions,” said Yurgens.
According to Renaissance Capital, infrastructure growth in the CIS is expected to be driven by a number of factors, including strong macroeconomic fundamentals, growing business and consumer demand for improved infrastructure services, relative underinvestment in infrastructure since the early 1990s, an acceptance by government authorities of the key role of the private sector in accelerating infrastructure development as well as the recent introduction of legal frameworks designed to facilitate private investment in the sector.
“We believe the Fund is well positioned to participate in many of the exciting opportunities we are seeing in the CIS infrastructure sector. We are pursuing several attractive investment opportunities in greenfield PPPs as well as assets requiring investment for modernisation and/or expansion,” said Paulo Almeida, Chief Executive Officer of Macquarie Renaissance.
Emerging Markets
In June, Merrill Lynch estimated that the market for infrastructure projects would continue to grow, with investments in emerging markets expected to be about $2.25 trillion over the next three years, according to SeekingAlpha.
China and the Gulf states, each with enormous cash reserves from trade surpluses, will be the two leading infrastructure investors according to Merrill Lynch. The two regions, coupled with Russia, will account for 70% of infrastructure spending the report states.
Meanwhile, the World Bank is targeting Latin America for infrastructure investments. The World Bank’s International Finance Corp. is investing a combination of equity and financing in the Corporacion Interamericana para el Financiamiento de Infraestructura (CIFI), an infrastructure project finance institution focused on small to mid-sized projects in Latin America, reports Dow Jones Financial News.
Poland
Chadbourne & Parke LLP announced it has hired four attorneys to strengthen its practices in infrastructure, public-private partnerships (PPP), M&A and real estate in Poland.
“We are hiring this team of attorneys as part of Chadbourne’s strategic response to client needs in Europe and elsewhere,” said Chadbourne Managing Partner Charles K. O’Neill. “We identified a growing interest among clients in the PPP, roads and other public infrastructure projects, and we moved quickly to bring in the legal talent needed to meet their needs.”
“Poland needs rapid improvement of its public infrastructure, and this exceptional multiprofile team will enable Chadbourne to play a major role in this process,” adds Warsaw office Managing Partner W?odzimierz Radzikowski.
India
The Indian government estimates about $500 billion will be needed to rebuild the nation’s crumbling roads, airports and power plants by 2012, according to SeekingAlpha. Complicating matters, the current lack of infrastructure is a constraint on growth in Asia’s third-largest economy.
India needs a whopping $56 billion for restructuring and expanding its urban infrastructure over the next decade to meet the growing requirements of its boom cities and towns across the country,”
Roughly 30 cities across the country are growing at a rate of up to 8% annually, and about 400 million people are projected to live in urban environments over the next five year, reports SindhToday. Amid the boom, India’s solid waste management and sewerage system projects, public transport and housing are a major concern.
Though the urban renewal mission is equally funded by the central and state governments through local bodies, government officials say looking ahead, future projects would have to be taken up under the public-private partnership (PPP) model to meet the quantum of funds required, says Urban Development Minister S. Jaipal Reddy according to SindhToday. The report quotes Reddy as saying, “As in the case of infrastructure projects, we may have to involve the private sector in a big way through the PPP model for sustaining the urban renewal mission and ensure that various civic projects are not held up for want of resources or budgetary release by states.”
Morgan Stanley is so confident in the Indian market the firm announced its new head of Infrastructure in India, Middle East and sub-saharan Africa, Gautam Bhandari, is moving to India from New York to recruit a team and act on the development opportunities the firm sees in Indian transport, energy and telecom infrastructure.
“Not every market is ready in terms of private infrastructure investments. India is,” Bhandari told Reuters. “There is a fair amount of public-private partnership success here, and looking at the velocity of deals, we felt the need to place a dedicated team here.”
In May of this year, Morgan Stanley announced the closing of the $4 billion Morgan Stanley Infrastructure Partners Fund, which will invest across the Americas, Europe and Asia. The firm says investors in the Fund include major pension funds, insurance companies, high net worth individuals, as well as Morgan Stanley and its employees. The Fund exceeded its initial target of $2.5 billion.
“Despite the current economic slowdown, we see significant opportunity to invest in and work with strong, local infrastructure development companies,” said Mr. Bhandari. “We believe that the infrastructure needs of India, the Middle East and Sub-Saharan Africa are immense. The demand for enhanced infrastructure is driven by long-term, secular trends including young and growing populations as well as a rapidly expanding middle class in each of these markets.”
The United States
While governments around the world, particularly in Europe and Latin America, have shifted the operation and maintenance of public facilities to private entities for decades, such privatization efforts emerged in the U.S. in recent years… and right now they are expanding rapidly. Politicians and investors alike are pushing for new methods in which the federal government can finance infrastructure more effectively, with a combination of public and private capital, or public-private partnerships (PPPs).
Although there are high capital costs with entry, cash flows associated with assets like toll roads and bridges can provide steady income. There can also be diversification benefits from investing in this space, as infrastructure assets tend to have low correlation with listed markets. Right now, the privatization of public infrastructure, such as Chicago’s Skyway Toll Road and the pending Pennsylvania Turnpike lease, is also opening up new opportunities and potential revenue sources for private investors.
A.E. Feldman has a specialized team of recruiters dedicated to Project & Infrastructure Finance. To learn more about these relevant issues or inquire about existing and future opportunities in project & infrastructure finance, contact A.E. Feldman’s President, Mitch Feldman and the firm’s specialized recruiting team here.
