SHIFTING ECONOMIC PATTERNS REDEFINE INFRA INVESTING
Brownfield and M&A activity were relatively stable in the first half of 2018 when compared to the same period over the last several years. Renewable energy recorded the greatest number of financially closed transactions with 45, 19 more than power generation and transmission. The USD 5.6bn investment in independent power producer Calpine Corporation by a consortium of buyers, led by the Canadian Pension Plan Investment Board, represents the highwater mark among valuations. The Calpine acquisition, which closed in March, was the third most expensive among brownfield assets in the last five years.
Offshore wind is the talk of the town these days. American and European developers, such as Orsted, are targeting the coastal waters of the Northeast with the goal of building roughly 22 GW by 2030. While on tour in various state capitals this year, industry lobbyists will attempt to make persuasive cases about the benefits of mandates and incentives, which will ultimately dictate how much traction offshore wind will gain with investors and consumers. Moreover, fears over the repeal of the Clean Power Plan would stunt renewable energy investment and utilization have, in fact, done no such thing. However, coal remains king accounting for 38% of the world’s electric power generation and has shown no signs of abating as US exports doubled last year to power-hungry developing countries in Asia and Africa. To catch up, the renewable energy industry will need to find ways to achieve investor returns above its hefty costs of capital, overcome intermittency challenges, lower the price tag of expensive power plants and make general improvements in engineering-centric economics. Panelists will talk about progress the offshore wind industry has made and if contrarian investors are taking positions in the coal industry.
When veteran infrastructure players get together to talk shop about where they see investment growing, such conversations sound like something one would overhear in Silicon Valley rather than in the more traditional surroundings of investment houses and banks on Wall Street and in Mid Town. But infrastructure investing is going digital. Data centers, fiber optics, 5G tech, and WiFi have become watchwords used when discussing the growing opportunity in the telecom sector. Financial close of various telecom deals,whether it be wireless transmission, fixed line or data centers, have grown in the last several years with YTD 2018 reaching nine deals — quite a jump from the four financial closes in 2017. Landmark Infrastructure Partners' telecom asset portfolio sale to Brookfield in September for USD 65.5m and Oak Hill Advisors' sale of FirstLight Liber to Antin Infrastructure Partners for USD 560m in February stand out as particularly notable deals in 2018.
Staying with fossil-based forms of energy, a panel will focus on how infrastructure investors are now facing a historic opportunity from developers of pipelines, gathering and processing plants and export facilities who are looking to monetize their about-to-be-built assets over the next year or two. The massive rush into the Permian Basin to build infrastructure that services oil production, which as this went to publication measured an increase of about 287 kb/d in Texas and New Mexico in June, will present growth equity and debt opportunities for infrastructure players.
Speakers will also discuss how power plant investors are expected to tap the red-hot term-loan B market over the next year or two to ensure equity distributions continue to flow as older debt, and accompanying stringent covenants, is retired. However, various macroeconomic patterns, which are beginning to zig after zagging for over a decade, will throw into question how liquid will credit markets remain for cov-lite deals? More importantly, how will the power industry structure change as utilities continue to shed generation assets, deregulation moves forward and the effects from tax reform are better understood?
One of the more interesting trends in the infrastructure investment business is developers’ and investors’ ability to unlock real estate value for the sake of refurbishing and developing brownfield assets, especially for airport and port projects. All eyes now turn to the possible St. Louis International Airport privatization and how new owners could leverage real estate revenues for upgrading the airport to first-world status.
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