• Strong Foundations Masthead

     

    The outlook for the UK’s infrastructure sector has improved in the last 12 months following the launch of the National Infrastructure Plan and the Government’s pledge to guarantee up to £40bn worth of projects. Iain MacDonald, Head of Infrastructure Concessions, Infrastructure and Energy Finance, Capital Markets, Lloyds Bank, discusses.

    More than 500 potential developments valued at £250bn are included in the plan, with 40 of these identified as priorities.

     

    The proposals have helped to create a significant pool of high quality infrastructure projects, including the Northern Hub, Roads in Scotland and CrossRail, which will act as catalysts for economic growth and job creation throughout the UK.

     

    Through its pledge the Government has recognised the need to stimulate investment in this sector – a welcome and important development. 

     

    The infrastructure space has been affected by a diminishing pool of liquidity as banks have retrenched and re-focused on shorter term investment projects. Insurance companies and pension funds are gradually entering the sector which will assist in developing liquidity and I expect this trend to continue. They are, after all, the natural home for long-term assets particularly post the construction phase of a project. 

     

    Road improvements, education, health and transport are likely to remain the most active project types due to existing Government pledges, such as the commitment to spend £2.5bn on building new schools during the next five years.

     

    To help stimulate liquidity and cater for the requirements of new sponsors that have entered the market, finance providers have become more creative in structuring debt packages. On balance Banks are more comfortable with the construction phases of projects whilst the wider insurance market understands the operational stages. It is evident to finance providers that the alignment to the respective parties involved in transactions is likely to produce the optimal financing structure to accommodate the forthcoming infrastructure requirement

     

    The infrastructure sector benefits from being a strong asset class and, as such through the cycle there has been less volatility than other investment markets. Despite the recession, asset performance has been stable and payment streams have held up well, evidencing the strong viability of the sector.

     

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7/18/2019 1:38:44 AM