Infrastructure as an Asset Class Investment Strategies, Project Finance and PPP

by Weber, Barbara; Alfen, Hans Wilhelm

• ISBN13: 9780470685709
• ISBN10: 0470685700
• Edition: 1st
• Format: Hardcover
• Copyright: 2010-03-08
• Publisher: Wiley

Summary

The market for infrastructure is vast and, contrary to popular belief, the range of potential infrastructure investments is extremely broad. An investor who does not have a sufficient overview and insight into the infrastructure market or an awareness of the suitable investment opportunities and the risks they entail, will find it difficult to select the right investments.This book is a comprehensive guide to the subject, bringing together the topics of infrastructure investments, project finance and public private partnerships (PPPs), equipping investors with the necessary theoretical knowledge and background information as well as practical examples in order to further their understanding of the key aspects of infrastructure investments.It answers questions such as: How is infrastructure defined? Which sectors are classified as infrastructure, how are they categorised, and what are the differences between them? Is infrastructure an asset class in its own right? If so, what are its characteristics? What are the fundamental options for investing in infrastructure? What is a good starting point for institutional investors? How should infrastructure funds be evaluated? What risks do they entail and how can these risks be identified and assessed? How should they be structured in order to best allocate these risks?The book discusses the differing objectives and expectations of the parties involved and the conditions required by public principals and investors in order to enable these groups to overcome the "language problems" they largely encounter. In addition to background knowledge and information on the latest developments in the individual subject areas, the book also explains the methodology of project finance in detail, both for traditional project finance and in the PPP context, establishing the key differences to other forms of financing, guiding readers through the various phases of project analysis on a step-by-step basis using practical examples.Well structured infrastructure investments can serve to improve the risk-return profile of an investor's overall portfolio on account of their long term and their low level of correlation with traditional asset classes. This book will assist investors in their understanding of infrastructure investments, leading to a better informed portfolio.Table of ContentsFigures Tables Preface Acknowledgements Introduction Background and Objectives Structure 1 Infrastructure - An Overview 1.1 Demand for Infrastructure 1.2 Definition and Characteristics of Infrastructure 2 Infrastructure Investments 2.1 Infrastructure as An Asset Class 2.2 Infrastructure Investment Opportunities 3 Organisational Models of Project Infrastructure Implementation 3.1 Privatisation Models 3.2 Partnership Models 3.3 Business Models 3.4 (PPP) Contractual Models 3.5 Financing Models 4 Characteristics of Selected Infrastructure Sectors and Sub-Sectors 4.1 Transport 4.2 Water Supply and Sewage Disposal 4.3 Waste Disposal 5 Project Finance 5.1 Project Finance - History and Basic Information 5.2 Project Finance as a Financing Instrument for PPPS 5.3 Basic Structure of Project Finance 5.4 Project Finance - Traditional and in Projects 6 Financing Instruments 6.1 Equity 6.2 Mezzanine 6.3 Debt 6.4 Government Support Schemes 6.5 Asset-backed Securities 6.6 Sale and Leaseback 6.7 Derivatives 7 Cash Flow Calculations and Sensitivity Analyses 7.1 Items Requiring Inclusion in Cash Flow Analyses 7.2 Present Value and Discount Rates 7.3 Analysis of Financial Covenants 7.4 Sensitivity Analysis References Further Reading Index

Author Biography

Dr. rer. pol. Barbara Weber, Lic. oec., MSc is the founding partner of BIBS CAPITAL AG, an investment advisory firm focused on institutional private equity, portfolios, specialised in infrastructure and clean energy, and offering a broad range of strategic and asset allocation services to institutional clients. She has over 12 years of direct and fund investment experience in these areas gained during several years with Dresdner Kleinwort Benson, PolyTechnos and, since 2003, with BIBS CAPITAL AG. She previously worked for the private sector development group of the World Bank in Washington DC on Russia. Barbara lectures at the European Business School and regularly writes for various academic and non-academic journals. Barbara wrote her Ph.D in Economics at Harvard University and University of St. Gallen. She holds an MSc in Business & Operations Research from Warwick University and a post graduate degree in International Relations from Mannheim University.

Prof. Dr.-Ing., Dpil.-Wirtsch.-Ing. Hans Wilhelm Alfen is head of the chair of Construction Economics at the Bauhaus-Universität Weimer in Germany, General Manager and founder of Alfen Consult GmbH, Weimar, and Partner of BIBS CAPITAL AG, Zürich. He has more than 20 years of practical experience in developing and investing in infrastructure as well as researching and teaching in more than 25 countries in Africa, Asia, Europe and Latin-America. Before joining the Bauhaus-Universität Weimer he worked in leading positions in the construction as well as in the consulting industry. Professor Alfen is significantly involved in the German PPP standardisation process as researcher and advisor. He can refer to a long list of national and international publications.

Table of Contents

Figures	p. ix
Tables	p. xi
Preface	p. xiii
Acknowledgements	p. xv
Introduction	p. xvii
Background and Objectives	p. xvii
Structure	p. xix
Infrastructure - An Overview	p. 1
Demand for Infrastructure	p. 1
Definition and Characteristics of Infrastructure	p. 7
Infrastructure sectors	p. 11
Types of infrastructure companies	p. 12
Role of the private sector and PPPs	p. 13
Value added and value chains	p. 14
Greenfield versus brownfield investments	p. 16
Sources of revenue and financing	p. 18
Competition and regulation	p. 19
Infrastructure Investments	p. 21
Infrastructure as an Asset Class	p. 22
Investors in infrastructure	p. 22
Risk-return profile of infrastructure investments	p. 26
Portfolio diversification through infrastructure	p. 36
Infrastructure Investment Opportunities	p. 40
Listed infrastructure investments	p. 40
Unlisted infrastructure investments	p. 42
Direct investments/co-investments	p. 54
Organisational Models of Infrastructure Implementation	p. 55
Privatisation Models	p. 55
Formal privatisation	p. 57
Functional privatisation	p. 59
Material privatisation	p. 59
Partnership Models	p. 62
Public Private Partnerships (PPPs) as vertical or vertical/horizontal partnerships	p. 64
Partial material privatisation as a horizontal partnership	p. 68
Business Models	p. 69
Budget-financed remuneration	p. 69
User-financed remuneration	p. 70
(PPP) Contractual Models	p. 70
PPP contract models in social infrastructure	p. 72
PPP contract models for roads and highways	p. 76
Interim summary: various 'privatisation paths'	p. 78
Financing Models	p. 80
Characteristics of Selected Infrastructure Sectors and Sub-Sectors	p. 81
Transport	p. 82
Cross-sector characteristics	p. 82
Road transport	p. 87
Rail transport	p. 95
Air transport	p. 102
Water transport	p. 111
Water Supply and Sewage Disposal	p. 119
Characteristics and organisation	p. 119
Sources of revenue and value added	p. 125
Competition and regulation	p. 127
Privatisation, private sector involvement and PPP	p. 128
Waste Disposal	p. 130
Characteristics and organisation	p. 130
Sources of revenue and value added	p. 135
Competition and regulation	p. 138
Privatisation, private sector involvement and PPP	p. 139
Project Finance	p. 141
Project Finance - History and Basics	p. 141
PPP and Project Finance	p. 143
Basic Structure of Project Finance	p. 145
Characteristics	p. 146
Project participants and other stakeholders	p. 148
Objectives and contributions of project participants	p. 154
Typical contractual framework for project finance	p. 156
Structuring Project Finance - Traditional and in PPPs	p. 158
Phase I - Advisory	p. 161
Phase II - Project analysis	p. 162
Phase III - Risk analysis and allocation	p. 165
Phase IV - Financing	p. 184
Phase V - Implementation and monitoring	p. 194
Financing Instruments	p. 197
Equity	p. 197
Mezzanine Capital	p. 202
Debt	p. 202
Bank loans	p. 203
Bonds	p. 206
Short-term finance	p. 207
Government Support Schemes	p. 207
National development banks	p. 208
European Investment Bank	p. 211
European PPP Expertise Centre (EPEC)	p. 213
European Commission	p. 214
Governmental export credit and direct investment insurance - ECAs	p. 214
Asset-Backed Securities	p. 215
Sale and Leaseback	p. 217
Derivatives	p. 217
Futures	p. 218
Options	p. 219
Cash Flow Calculations and Sensitivity Analyses	p. 221
Items Requiring Inclusion in Cash Flow Analysis	p. 221
Cash flow modelling	p. 224
Present Value and Discount Rates	p. 225
Analysis of Financial Covenants	p. 226
Sensitivity Analysis	p. 229
References	p. 233
Further Reading	p. 241
Index	p. 243
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