Published May 3, 2022 | 4 min watch
Key Points
- There’s no one-size-fits-all approach to infrastructure investment, particularly as the asset class grows and expands.
- Larger projects generally require a number of investors, who work in a consortium or as partners in co-investment.
- While infrastructure is generally seen as stable, inflation may be a concern for some investors, but only if they’re not insulated by regulation or inflation-linked revenues.
- Ownership structures have evolved enormously to allow for easier investor exits, strategic investments and holding onto assets in perpetuity.
Financing infrastructure investments depends on a number of detailed questions that go into structuring the debt package, from subsidies to CAPEX facilities. At the same time, the model must support shareholder needs, whether that’s cash yield and dividends or a certain level of returns.
Many larger assets need a number of investors, given that equity checks can be limited. These take the form of consortia, where different funds come together, or co-investments, where investors partner on the same project. RBC is familiar with many different types of structures and approaches to financing different types of businesses, because of the assets that we have worked on over many years. And we can not only help structure investments, but also aid in burdensome diligence.
“When working with certain infrastructure funds, we can help them find their partners to form consortia, given we understand how different funds look at various assets.”
MARK RUSHTON, MD, M&A, EUROPE
Because infrastructure is a long-term asset class, investors are willing to put money in for remarkably low returns, because of the benefits of stable cashflows. But inflation and rising interest rates may be a concern for some existing investors. Businesses that are looking to refinance debt in the short term may feel an increase in the cost of that debt. But often, infrastructure investments are partly insulated because their revenues are inflation-linked, either through regulation or inflationary contracts.
Ownership of infrastructure assets has also evolved. Shareholder agreements (SHAs) today allow for more flexibility in strategic investments or investor exits. Funds also tend to be more open-ended, so that assets can be held for longer or the timing of an exit can be set at the best time for the business.
