This morning’s New York Times has a story about the “$250 billion war chest” amassed to finance a “tidal wave of infrastructure projects in the United States and overseas.” Big banks and funds want to buy your roads, bridges and airports, America—and since Congress won’t put on its big-boy pants and pay for infrastructure improvements, states are really excited to take that money. (I have a vague recollection of having read something along those lines before.)
Anyway, I found the timing of this article a tad odd, considering that over in Australia, where the idea of investor-owned infrastructure first took off, things aren’t going so well right now. Here’s an overview, from a recent article in the FT:
The pioneer of the specialist fund model was Macquarie Group, although several local rivals including Babcock & Brown and Allco Finance joined in with gusto. The model involved buying infrastructure assets in sectors such as energy, ports, utilities and property, and bundling them into listed satellites and taking fees.
It worked a treat in the days of cheap credit, as buyers could borrow heavily and pay top dollar for assets that were themselves always rising in value.
The global credit crunch has changed the game for the infrastructure funds, with funds scrambling to reduce their average weighted cost of capital.
Some have divested to slash net debt or are pre-emptively selling assets well ahead of renewal of debt contracts. Several others have decided to change policy and only pay distributions from operating cash flows, thereby cutting debt but also dividend yields to investors.
Here in the U.S., Macquarie recently had to go out of its way to say it’s still interested in doing a consortium deal to lease Chicago’s Midway Airport, even though its airports-only unit is no longer interested in going it alone.
When those people from the Port of Long Beach were here last week, I asked if they ever got calls from investor types looking to lease assets. Sure, they said. They used to. These days, not so much.
Which is not to say a little private-public partnering isn’t a good idea. Just that it’s maybe not the one-stop solution we once hoped for.