The crisis in Europe could be a boon to infrastructure investors.
As the availability of debt plummets and its costs rise in Europe, governments and companies are looking to sell infrastructure assets, moves that could introduce billions of dollars worth of fresh investments to the market.
“The outsourcing (government and corporate asset sales) is stronger that it has ever been,” said Mathias Burghardt, head of infrastructure at AXA Private Equity, Paris.
The European infrastructure deal pipeline was e303.9 billion ($406.9 billion) across both public and private sectors as of June 30, according to Dealogic, a London-based market researcher.
“It gives you a feel for the potential size of the European infrastructure market, should all of these opportunities come about,” said Amarik Ubhi, London-based associate in Mercer's alternatives manager research boutique and lead infrastructure researcher. “We expect that trend will continue, and the deal pipeline may even grow if economic conditions don't improve.”
However, investors are cautious: the crisis is squeezing debt, making deals harder and more expensive to complete. And the crisis also has heightened political risks.
“What's going on in Europe at the moment is creating all kinds of concerns. There is a general wariness overhanging the markets,” said John McCarthy, managing director and global head ofRREEF Infrastructure, London. The uncertainty is also causing investors to delay commitments. “Some stability needs to be put in place before any significant flows come back to the marketplace,” he said. RREEF manages $15.8 billion in infrastructure.
“While difficulties in Europe are creating opportunities for investing in infrastructure, there are also heightened risks around politics and regulation,” Mercer's Mr. Ubhi said. The crisis has already toppled top officials in Greece, Ireland, Spain and Italy, and the arrival of new administrations brings uncertainty over policy change affecting infrastructure subsidies and privatizations.