By Robert Wright in London
Published: May 19 2008 17:47 | Last updated: May 19 2008 17:47
A senior executive at Australia’s Macquarie has said that the bank’s business model for infrastructure investment is “alive and kicking”, in spite of some analysts’ fears about its vulnerability to constrained credit markets.
Stephen Allen, an executive director of Macquarie Capital Advisers, said infrastructure investment had been less affected by the credit crunch than any other financial sector. Funds continued to be needed to fill gaps in the public sector’s infrastructure investment budgets.
Mr Allen queried whether business strategies for Macquarie’s 35 funds’ were sufficiently similar – or different from other companies’ strategies – to amount to a single business model.
But he went on: “The so-called model is alive and kicking. We’re raising billions of dollars at the moment in different funds. It’s the fundamental point that there’s a huge need for infrastructure in lots of states and that there’s not enough public funding. There’s no doubt about that.”
Critics have questioned the sustainability of aspects of Macquarie’s business model. RiskMetrics, a US-based corporate governance group, has been critical of the model behind the group’s listed infrastructure funds, pointing to their heavy indebtedness, relatively high prices paid for assets and excessive draining of cash from assets to pay dividends at the funds.
RiskMetrics’ research has come on top of already steep falls in the share prices of many of the listed funds managed by Sydney-based Macquarie, one of the pioneers of the trend for private investors to put money into infrastructure assets.
Mr Allen accepted it was more expensive to raise finance for infrastructure projects than it was a year ago – but said markets had been at their peak then. “The infrastructure sector is probably the least affected by the banking problems and the banks still see it as a core business for them,” he said. “It’s a kind of medium-risk, medium-return business.”
Mr Allen said credit conditions would hit some Macquarie units, but he played down the likely impact. Investors might have to put slightly more equity and less debt into deals to buy assets such as toll roads.
“Some of our funds took advantage of the [previous] credit climate to borrow at cheap rates – it means they don’t need to roll it over [for the moment],” he said. “What you’re going to see more of is people who … need to roll over debt and a year ago would have been confident that money would have been available. Today it might be a slightly lesser quantum or the terms might be a little bit different.”
Meanwhile, aspects of the current tough economic and financial conditions could actually help infrastructure investors, Mr Allen suggested. The poor state of many rich countries’ infrastructure was not beginning to affect citizens’ daily lives, but it would not prove possible, he forecast, for the public sector to finance their repair. That would leave private investors as the only realistic option.
“People are not going to be willing to pay the taxes involved,” Mr Allen said.