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Infrastructure MarketsHow Attractive Are They?

How S&P Looks At Credit Risks

Copyright © 2016 by S&P Global.

All rights reserved.

Thomas [email protected]

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Bertrand [email protected]

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Abhishek [email protected]

+65 6216 1121


Definition Of The Infrastructure Asset Class

Private & Confidential 2

25.0

18.0

5.0 4.0 3.0

20.0

13.0

5.0 4.0 3.0

Essential service to society Asset-backedInflation-Linked MonopolisticNo/Limited GDP risk High barriers to entryYield generation No/Limited commodity riskRegulation Others

• Investors associate clear

characteristics to infrastructure

assets

• In particular, they favour natural

monopolies…

• … and the long-term orientation of

such investments.

• The number of boxes they can tick

has a clear bearing on their appetite

The Way Investors See It

Source: Deloitte Infrastructure Investors Survey 2016, Deloitte Analysis

Characteristics Of Infrastructure Assets

Which factors do you see as most critical in defining what constitutes an

infrastructure asset now? (% of respondents)


Market Snapshot

An Overview Of The Big Numbers

3Private & Confidential


Setting The Scene


Key Statistics For 2015

US$858m

Average size of unlisted infrastructure fund closed in 2015

US$349b

Estimated aggregate value of 661 infrastructure deals completed globally in 2015

US$108bEstimated amount of “dry powder” held by infrastructure firms

US$5.3b

Aggregate capital raised in Asia, nearly double the amount of 2014

Source: 2016 Preqin Global Infrastructure Report


Funding Markets Remain Supportive…


-

3.0

6.0

9.0

12.0

15.0

18.0

21.0

24.0

27.0

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16

Bank Loans Development Finance Institution Loans Bonds Equity Equity/Debt ratio (%)

Debt And Equity Are Waiting To Be Put To Work

Source: IJ Global

Global Project Finance Value By Funding

(US$ billion)


… But Not All Goes To Greenfield…


-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16

Primary Financing Refinancing Asset acquisition

As Acquisitions & Refinancing Take Their Share

Source: IJ Global

Global Project Finance Value By Purpose

(US$ billion)


… Constraining Net Growth In Infrastructures


• It seems to be a consensus among market participants that there is an

“infrastructure gap”

• “There is absolutely zero correlation between the scale of need for infrastructure

and addressable opportunities for the private sector” (Jim Barry, head of

Infrastructure at BlackRock)

• So why does demand fail to meet needs?

- Infrastructure users have to change their mindset

- Capital may be available, but not necessarily the right form of money

- Many investors restrict themselves

- Government do not monetise assets

- The infrastructure-finance market lacks transparent information

Why An Investment Shortfall?


An Investor’s Perspective

Overview Of Investors’ Focus and Infrastructure Needs



Global - A Safe Asset Class… Really?


38.0

35.0

5.0

15.0

7.0

Political risk Regulatory risk Refinancing risk

Operational risk Tax risk

• The key risks that concern

infrastructure investors are external

risks…

• … including macroeconomic

circumstances, and…

• … the political and regulatory

environment

• Technological risk does not currently

seem a high concern for

infrastructure investors


Source: Deloitte Infrastructure Investors Survey 2016, Deloitte Analysis

Risks Of Infrastructure Assets

When considering whether to invest, which risks most concern you? (% of

respondents)


Investments In Emerging Countries



Source: GI Hub and EDHEC Infrastructure Institute, G20 survey – 184

• Important factors of investments

(5 is the highest importance rating)

- Stable regulation and contracts (4.2)

- Earnings stability (3.9)

- Counter party risk (3.6)

- Greenfield vs. brownfield (3.1)

- Earnings growth potential (3.0)

- Investment size (2.8)

• Key risks

- Public Policy Reversals

- Enforceability of Contracts

• Key opportunities

- Higher Returns

- Limited opportunities in developed

markets

44.0

3.0 20.0

33.0

No and do not want to Not sure

Yes, already invested No, but would like to

Investment behaviour

Do you already invest in infrastructure assets in emerging countries? (%

of respondents)


Investment Needs In Emerging Asia


Source: ADB

Actual Infrastructure Investments Lower-Deficit Likely To Increase Further


Infrastructure Investment – Why It Matters


-

20.0

40.0

60.0

80.0

100.0

120.0

Quality of overallinfrastructure

Transport infrastructure Electricity and telephonyinfrastructure

Global Competitiveness Index

China India Indonesia Malaysia Philippines Singapore Thailand

Developing Asia - Infrastructure a relative Weakness

Source: WEF (World Economic Forum) 2016-2017 Global Competitiveness Index. The lower the score, the higher the quality of infrastructure

Infrastructure Quality Comparisons Across 7 Asian Nations


Philippines - Past Investments In Infra


-

3.0

6.0

9.0

12.0

15.0

18.0

21.0

-

5.0

10.0

15.0

20.0

25.0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

PPP Investments (US$ billion) [Left axis] Other Investments (US$ billion) [Left axis]

# Other Projects [Right axis] # PPP Projects [Right axis]

A Fluctuating Record

Source: World Bank, PPI Visualisation Dashboard


Philippines: Infrastructure


40.0

50.0

60.0

70.0

80.0

90.0

100.0

110.0

2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Transportation Electricity & Telecommunications Global Competitiveness Index

Infrastructure Quality Has Been Deteriorating

Infrastructure Weakness Hurts Competitiveness

Source: WEF (World Economic Forum) 2016-2017 Global Competitiveness Index. The lower the score, the higher the quality of infrastructure


Putting The Infrastructure Puzzle Pieces Together


• Demand:

• Need to bridge the gap between existing assets and needs for new assets

• Support growth in population and economy

• Funding:

• Governments will support increase in infrastructure spending but have fiscal constraints

• Private sector is keen to participate, but will evaluate projects based on commercial returns

• PPP:

• Public-Private-Partnership success is key to meeting funding needs

• Stable regulations/ policy, economically feasible projects are pre-requisites

PPPs Must Be Successful To Meet The Needs For Infrastructure


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