Strong foundations for growth: How UK investors view the infrastructure landscape
Infrastructure investment from the UK is booming as opportunities emerge in sectors such as power and transport, according to the new report by Centrus and Inframation. We’ve surveyed 100 senior-level UK-based direct equity investors in infrastructure, including asset managers, private equity funds, specialist infrastructure funds and pension funds.
This survey is intended to provide further insight into the plans and aspirations of infrastructure sponsors, operating across the sector. As a leading corporate finance advisor to the infrastructure sector, Centrus is playing a key role in shaping the future, and we hope will become a recurrent event, providing a barometer for sentiment and trends.
Here are just five of the key findings from the survey:
Brownfield is leaping ahead.
Investment in brownfield assets by UK-based equity investors in the first half of 2017 exceeded the total value of brownfield deals made throughout the whole of the previous year. Among the factors behind brownfield’s rapid growth are a shortage of investible greenfield targets and declining bond yields.
Greenfield is sliding back.
2016 saw UK-based equity investors participate in a total of 94 greenfield deals worth £17.2bn. However, performance in the first half of 2017 has been lacklustre by comparison, with just 26 deals and a total value of £3.9bn. The major factor behind the low level of greenfield investment is the limited project pipeline.
Investors are seizing opportunities in the power sub-sector.
Power assets are already held by most respondents (85%), more than any other asset sub-sector. Looking ahead, nearly two-thirds of investors say that they intend to increase their activity in the power sub-sector over the next one to two years. “Many people see the opportunity in taking part in the next phase of the modernisation of existing power networks and, at the same time, participating in new forms of energy,” says George Karalis, Managing Director, Centrus.
Risk appetite is growing.
The survey shows that 43% of respondents plan to increase value-added investments and 37% intend to increase opportunistic investments over the next one to two years. “Investors are taking on more risk and there’s greater diversification into newer markets,” says Geoff Knight, Managing Director, Centrus.
More than half the investors interviewed see these as a major challenge to their funds. On the regulatory front, respondents cite concerns about tougher environmental rules. Meanwhile, on the political front, investors worry about factors such as Brexit and the effect of policy shifts on their PPP-based investments.
Seeing an increase in leverage.
A result of this is due to the existing interest rate trend and credit spread environment as well as elevated acquisition prices. Investors are considering increasing leverage both with medium and long-term funding structures.