Home' Future Building Australian Infrastructure Review : Volume 3 Number 2 Contents 40 futurebuilding Volume 3 Number 2
don't yet have even the theoretical debate that takes
place in the United Kingdom about a public services
One of my old advisors, Gary Sturgess, was
involved with the Serco Institute, and others in the
United Kingdom, in terms of developing a market for
public sector services. If you can't get real change
in how we deliver the service, then simply building
more stuff and delivering it and using it the same way
is not really going to be a very good outcome.
MB: Looking at the availability of capital for
projects, Nicholas, what are your observations, in
terms of both debt and equity?
NM: I think the equity story is probably
consistent with where it's been over the last few
years. The appetite is there, and it continues to grow.
If you're an investor looking at what you can invest
in around the world, you may start with the bond
market, where there are negative real returns in most
markets. Cash is not very attractive. If you look at
equities, people are relatively nervous, and you can
see the lack of activity in the equity market, re ecting
the nervousness of investors out there.
Infrastructure has always been sort of slotted in as
somewhere that you get a GDP-plus style of return,
but without the necessary volatility you'll see from
the equity market, and certainly higher than the bond
markets are paying today.
That attractiveness of equity in infrastructure
continues, and it's certainly our experience when we
deal with investors globally.
Very few infrastructure investors seem to be
saying, 'We've got enough, come back later.' There
still seems to be an unmet demand.
The debt story is more complex. Certainly since
the nancial crisis, and since the new Basel III
regulations, the ability of project nance banks to
lend long-term has come in substantially. A lot of
project nance banks are now out of the market. As a
consequence, the term of the project nance debt -- if
it is available -- has come in, and obviously these are
very long-dated projects.
What's been encouraging is the bond market
for these projects. As I mentioned before, bond
yields are very low. The actual bond market in
the United States has probably never been more
active, so the attractiveness of these projects for
bond financing continues.
And institutions are looking not just to equity
investment, but also at debt investment, either directly
or through debt funds out there. They have the long-
term liability that's certainly indexed to in ation, and
sometimes to more than in ation, because it's linked
to actual underlying real earnings in the economy,
which are much more GDP-related.
Accordingly, we nd pension funds,
superannuation funds -- people with long-term
liabilities -- saying that the infrastructure equity and
the infrastructure debt are actually interesting.
Now, that hasn't made up for what's happened
with the banking market, which has largely pulled
out of the space, but it is an increasing area of interest
Broadly speaking, there is as much money out
there in absolute terms today as there has ever been.
Good projects continue to get not just mild interest
out there, but enthusiastic interest, in terms of people
wanting to participate in the sector overall.
MB: And that's something the leaders of
government -- especially state governments -- want
to hear as they progress to these large projects in
NM: They should be very con dent, provided
it's a sensible project -- and the market will rapidly
tell them that. We talk about debt and equity as two
different things, but if you've got a long-dated liability
in terms of people's pension entitlements, which box
you put it in is legal semantics at the end of the day.
What you want to see is an income stream that
will re ect the underlying economy, going forward.
So debt and equity, theoretically, should have the
same level of interest for these institutions, and we're
increasingly hearing that.
MB: One of the new ows of funds into Australia
has been Canadian pension funds. Mark, I'm
interested in your observations of the ongoing interest
and the degree of specialisation they are bringing to
bear to their infrastructure investments.
MR: There is no shortage of capital. It's more
about good projects. If there's a good project, there's
lots of capital around. We're fortunate, as we have
a couple of very big projects coming on in Canada.
Canadian pension plans continue to scour the
world for opportunity, much to the chagrin of some
in Canada. It's more a function, quite frankly, of the
size of projects in Canada. When the projects get big
enough, there'll be interest on their part; when they
can generate the kinds of returns that they're able to
generate overseas, they'll invest more at home.
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