Infrastructure Spending to Surge in 2009, Opening Doors in Infrastructure Finance
This year governments around the world will spend 2.9% of world GDP on infrastructure, up from 2.2% in 20087according to Infrastructure Investor, citing projections for 2009 compiled by consultancy CG/LA. Norman Anderson. The report adds the firm’s CEO, Norman Anderson, also predicts that the U.S. will move toward a more Spanish-style model of infrastructure financing in which large engineering and construction firms originate, build, operate and take equity stakes in national infrastructure projects. Moreover, CG/LA also believes that President-Elect Obama’s proposed Infrastructure Bank will become a reality.
Executive search firm, A.E. Feldman, contends that Obama’s administration promises to create huge job opportunities in project and infrastructure finance. The firm says infrastructure finance jobs are likely to open up for candidates with backgrounds in investment banking as well as experience in analyzing and executing structured financings. The most sought after candidates have been those with experience in infrastructure transactions and civic engineering. A.E. Feldman also reports the jobs opening up include CEOs and CFOs with proven records of running infrastructure companies.
Infrastructure Spending to Jump
Washington D.C. based consulting firm, CG/LA. Norman Anderson, predicts global infrastructure spending will jump 0.7% this year (or increase by an additional $280 billion),according to Infrastructure Investor. The firm says the push for renewed infrastructure will be led by developed countries, although China (which unveiled plans in November 2008 to spend $586 billion on infrastructure investment over the next two years) will be a notable exception to this trend.
Right here at home, CG/LA foresees that the U.S. will carry out roughly $190 billion in infrastructure spending, notes Infrastructure Investor. The firm also believes that President-Elect Obama’s proposed Infrastructure Bank will become a reality.
Senators Chris Dodd and Chuck Hagel, first introduced The National Infrastructure Bank Act, in August 2007. The legislation would establish the National Infrastructure Bank - an independent entity of the government tasked with evaluating and financing capacity-building infrastructure projects. The bill would effectively create a public-private partnership agency tasked with expanding the role of the federal government in creating massive public works projects. The bank would encourage local public agencies to “partner” with private for-profit entities to develop projects worth at least $75 million each. The intent is to leverage the investment through bonds and private sector participation.
While in the Senate Barack Obama co-sponsored the bill, which is now Included in his plans for rebuilding the nation’s infrastructure. CG/LA CEO Norman Anderson, however, believes that the Infrastructure Bank would have to be at least $300 million in size in order to make a meaningful impact on U.S. infrastructure – that’s five times larger than the Dodd and Hagel’s infrastructure bank plan, reports Infrastructure Investor.
CG/LA’s Anderson also predicts that, due to the global financial crisis, the U.S. will begin a transition toward a more Spanish-style infrastructure financing model, adds Infrastructure Investor. The report states that in Spain, engineering and construction firms with big balance sheets originate, build, operate and take equity stakes in national infrastructure projects. According to Anderson, the existing infrastructure financing model in the U.S. in which governments sell bonds to hire infrastructure developers that do not take equity in or operate the projects they help bring to fruition is nearing extinction. He predicts financial players will increasingly join forces with large engineering and construction firms to create a more Spanish-style way of delivering infrastructure.
P3s Gaining Momentum
The current liquidity crisis, however, has caused banks to reassess how they lend to infrastructure projects and P3s, according to P3Americas.com. The group contends that deal structures are changing, but adds there is still plenty of market appetite with most banks expecting to be more active in 2009 than they were in 2008.
P3Americas says Obama’s proposal for a National Infrastructure Bank has raised the prospect of greater public sector involvement in the infrastructure funding market despite conflicting views in the private sector about whether it will be a benefit or a burden for the P3 industry. The group says the bank could provide the necessary backstop to develop private investment much like Freddie Mac and Fannie Mae do in the residential mortgage sector.
Jorge Rodriguez, Managing Director and Head of Infrastructure Finance Americas with Dresdner Kleinwort, says he does anticipate U.S. institutions entering the project finance infrastructure market in earnest as and when liquidity develops and banks are able to recycle capital more reliably, according to P3Americas. The group quotes Rodriguez as saying, “An infrastructure development bank would also demonstrate renewed commitment to infrastructure in the U.S.”
Recession as Catalyst for P3s
P3Americas argues the economic crisis could bring much needed change in political thinking about P3s given the fiscal constraints that states increasingly find themselves under. The group also quotes Conor Kelly of Scotia Capital as saying, “A prolonged recession, although clearly bad, maybe the catalyst for P3s to really gain momentum in the US.”
In a recent study, P3Americas states, “Even when the U.S. economy was robust, states had problems meeting their transportation budgets. A slowing economy, which brings reduced tax revenues, exacerbates the situation and is likely to result in greater emphasis over time on P3s as a means of delivering infrastructure.” The report goes on to say, “There is every chance that state budget deficits will have worsened by June 30, 2009 – analysts are forecasting that California’s deficit could reach a massive US$28bn over the next two years – meaning that 2010 could be the year that states are forced to privatize assets or enter into P3s for new construction.”
Willem Sutherland, Head of Infrastructure Finance for ING Wholesale in the Americas, says that 2010 could be a turning point in public agency thinking towards P3s, according to P3Americas. The group states that Sutherland believes the potential P3 market is so large that even if half the number of anticipated deals is realized, the market will still be substantial. P3Americas also notes Sutherland’s opinion is echoed by a majority of his peers who are expecting to be more active in 2009 than they were this year, according to the group’s research. In short, the group predicts the U.S. infrastructure finance market will develop further next year despite the current credit market environment.
Are you working in Project & Infrastructure Finance? If you want to grow your career or discuss your company’s talent needs, contact A.E. Feldman’s President, Mitch Feldman today.
