Infrastructure Deals Fuelled by Record Leverage in 2013

Infrastructure buyers borrowed $256 billion to finance deals last year, although total value of deals remained flat year-on-year.

(May 23, 2014) — Debt-fuelled infrastructure deals rose dramatically in 2013 as specialist “non-traditional” infrastructure debt funds raised a record $8.1 billion during the period, research from Preqin has shown.

The data provider said that, on average, infrastructure deals that completed during 2013 were financed by 77% debt. This figure compares to 65% in 2012. In total Preqin estimated that buyers borrowed $256 billion to fund deals, a record figure and up from $220 billion in 2012.

“Investors are also becoming more aware of the benefits of investing in infrastructure debt, resulting in a record amount of capital invested in debt-focused funds last year,” said Andrew Moylan, Preqin’s head of real assets products.

“Although the majority of debt financing is likely to continue originating from banks, lending from alternative sources is also likely to increase as institutional investors and fund managers look to the lower-risk, more predictable long-term yields provided by infrastructure debt.”

Preqin cited data showing the amount of money raised through “non-traditional sources” had increased dramatically during 2013, with $8.1 billion raised by unlisted and mezzanine infrastructure funds.

However, the total amount and value of infrastructure deals completed remained flat in 2013 compared with 2012 data. Last year, 763 infrastructure deals were completed, with an estimated total value of $333 billion, while in the previous 12 months there were 778 transactions with a total value of roughly $338 billion.

Some of the largest pension funds in Europe are moving towards direct investment in infrastructure projects, rather than investing in large portfolios of assets managed by a third party. As detailed in April’s issue of aiCIO, funds such as the telent pension have bought into projects such as toll roads, while Dutch pension manager PGGM has blazed a trail in direct infrastructure investing in recent years.

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