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

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  • Edition: 1st
  • Format: Hardcover
  • Copyright: 2010-03-08
  • Publisher: Wiley

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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

Figuresp. ix
Tablesp. xi
Prefacep. xiii
Acknowledgementsp. xv
Introductionp. xvii
Background and Objectivesp. xvii
Structurep. xix
Infrastructure - An Overviewp. 1
Demand for Infrastructurep. 1
Definition and Characteristics of Infrastructurep. 7
Infrastructure sectorsp. 11
Types of infrastructure companiesp. 12
Role of the private sector and PPPsp. 13
Value added and value chainsp. 14
Greenfield versus brownfield investmentsp. 16
Sources of revenue and financingp. 18
Competition and regulationp. 19
Infrastructure Investmentsp. 21
Infrastructure as an Asset Classp. 22
Investors in infrastructurep. 22
Risk-return profile of infrastructure investmentsp. 26
Portfolio diversification through infrastructurep. 36
Infrastructure Investment Opportunitiesp. 40
Listed infrastructure investmentsp. 40
Unlisted infrastructure investmentsp. 42
Direct investments/co-investmentsp. 54
Organisational Models of Infrastructure Implementationp. 55
Privatisation Modelsp. 55
Formal privatisationp. 57
Functional privatisationp. 59
Material privatisationp. 59
Partnership Modelsp. 62
Public Private Partnerships (PPPs) as vertical or vertical/horizontal partnershipsp. 64
Partial material privatisation as a horizontal partnershipp. 68
Business Modelsp. 69
Budget-financed remunerationp. 69
User-financed remunerationp. 70
(PPP) Contractual Modelsp. 70
PPP contract models in social infrastructurep. 72
PPP contract models for roads and highwaysp. 76
Interim summary: various 'privatisation paths'p. 78
Financing Modelsp. 80
Characteristics of Selected Infrastructure Sectors and Sub-Sectorsp. 81
Transportp. 82
Cross-sector characteristicsp. 82
Road transportp. 87
Rail transportp. 95
Air transportp. 102
Water transportp. 111
Water Supply and Sewage Disposalp. 119
Characteristics and organisationp. 119
Sources of revenue and value addedp. 125
Competition and regulationp. 127
Privatisation, private sector involvement and PPPp. 128
Waste Disposalp. 130
Characteristics and organisationp. 130
Sources of revenue and value addedp. 135
Competition and regulationp. 138
Privatisation, private sector involvement and PPPp. 139
Project Financep. 141
Project Finance - History and Basicsp. 141
PPP and Project Financep. 143
Basic Structure of Project Financep. 145
Characteristicsp. 146
Project participants and other stakeholdersp. 148
Objectives and contributions of project participantsp. 154
Typical contractual framework for project financep. 156
Structuring Project Finance - Traditional and in PPPsp. 158
Phase I - Advisoryp. 161
Phase II - Project analysisp. 162
Phase III - Risk analysis and allocationp. 165
Phase IV - Financingp. 184
Phase V - Implementation and monitoringp. 194
Financing Instrumentsp. 197
Equityp. 197
Mezzanine Capitalp. 202
Debtp. 202
Bank loansp. 203
Bondsp. 206
Short-term financep. 207
Government Support Schemesp. 207
National development banksp. 208
European Investment Bankp. 211
European PPP Expertise Centre (EPEC)p. 213
European Commissionp. 214
Governmental export credit and direct investment insurance - ECAsp. 214
Asset-Backed Securitiesp. 215
Sale and Leasebackp. 217
Derivativesp. 217
Futuresp. 218
Optionsp. 219
Cash Flow Calculations and Sensitivity Analysesp. 221
Items Requiring Inclusion in Cash Flow Analysisp. 221
Cash flow modellingp. 224
Present Value and Discount Ratesp. 225
Analysis of Financial Covenantsp. 226
Sensitivity Analysisp. 229
Referencesp. 233
Further Readingp. 241
Indexp. 243
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