Project Seven Co-Due Diligence Exercise: Evalution of a Gas- to- Power Project
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INTRODUCTION
This course is about setting out the key parameters that relate to infrastructure as an asset class. Institutional investors are constantly searching for stable opportunities that can match their long-term liabilities. In that context, infrastructure assets can be particularly attractive due to their time horizons, synthetic inflation hedge, relatively high expected yields and returns that are uncorrelated with business cycles, thereby providing opportunities for portfolio diversification. Investors in developed markets continue to increase their exposure to infrastructure, yet asset owners in Africa are still struggling to effectively invest in this asset class.
Methodology
Context and Rationale
This training programme looks at the history of infrastructure as an asset class. A new, dedicated infrastructure asset class was invented in the 1990s in Australia, spreading to Canada and Europe in the early 2000s, followed by the US and other regions. In a low interest-rate environment, its stylised investment characteristics, such as long-term, stable cash flows, downside resilience, low correlation to business cycles, partial inflation-hedge, look very attractive to investment boards. Now, players of all sorts have joined the race for real assets, pushing valuations up.
It must be noted however that investing in infrastructure is not new. International railways, ports and city development were core ingredients of investor portfolios in the 19th century, as are stocks and bonds of utilities and transport companies since the privatisations of the 1980s.
However, and to put things further into perspective, the actual activity in ‘new wave’ unlisted/private infrastructure is lagging the hype by some measure. The OECD finds an average allocation of roughly 1% among large pension funds worldwide, although there have been recent announcement by financial regulators increasing such allocations, for example in Switzerland from 0.5% to 6%. Further, there is an enormous disparity between investors and their approach to the asset class. Some investors have shifted asset allocations targets to over 10%, a majority of smaller ones are either yet to invest or have significantly low allocations.
This training course looks at providing clear and concise understanding of what does it take to invest in infrastructure. However, despite the hype investors must understand that conditions continually change, markets shift and new considerations arise. This course on Infrastructure as an Asset Class provides a clear reference based assessment of the current global infrastructure markets, with in-depth analysis and expert guidance toward effective infrastructure investment. We start with an overview of history of infrastructure as an asset class, looking at trends and what current challenges exist in a post-pandemic situation.
Objectives
Understanding of infrastructure as an asset class?
What are the critical risk associated with infrastructure and how to manage these?
Does the type of contract that build the infrastructure matter?
How do we deal with revenue
certainty’ and what are the different modalities of demand and thus revenue risk?
Characteristics of Selected Infrastructure Sectors and Sub sectors
Risk-Reward of Private Infrastructure in Pensions Portfolio
The design of the course combines theory with relevant case studies as well as interactive participatory discussions. The course strikes a balance between qualitative and qualitative metrics, using case studies to illustrate core concepts. Role playing will also be used to showcase risk perceptions and how these matter when deciding to invest in infrastructure as an asset class.
Importantly, through interactive discussions and case studies, we will illustrate the different characteristics of infrastructure and its sectors and how these issues matter in the appreciation, design and impact such projects will have on asset holder’s investment portfolios. Each day will conclude with a wrap up of core principles of each one of the sessions, drawing out each of the learning outcome for each session.
The current situation with the pandemic, has brought about a number of fundamental challenges to the infrastructure sector business. Institutional investors must be aware of the implications of such events. For example, transportation assets that have exposure to demand risk such as airports or toll roads, had been significantly impacted by lower demands due to lockdown periods. Does this mean that these assets are not good assets? How should institutional investors actively manage such events if at all? Are there any mechanisms by which investors can protect themselves? If indeed there are any protection mechanisms these are likely to be temporary forcing institutional investors to have a practical position about how they will deal with these assets? The flipside of this argument is that governments are likely, as a means of economic stimulus, embark on significant infrastructure projects. It will be important that institutional investors are not only aware of this fact, but that they can shape the structure and risk profile of such transactions in such a way that these assets can become meaningful long term holds for them.
During this session short examples will be presented in different sectors, to demonstrate how the current economic conditions brought about by COVID-19 have affected contracts and their performance. Notably, participants will understand what are the impacts for long term institutional investors like themselves, and we will discuss potential solutions to deal with such situations.
Sessions
01
Upstream Policy Implications and their effect of
This session aims to provide a ‘primer’ of relevant issues related to project finance. This first day’s morning will be spent reviewing basic principles of non-recourse finance, to include inter alia:
• What are the key drivers of such financing arrangements
• Why do you typically require long periods of contracts
• Revenue streams and their implications on the financing schemes
• How do affordability constraints affect projects
• What is a breakeven point and why is it important
• Net present value and its implications in project financing
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