Co-Authored by: Jason Clatworthy, Wayne Jephson and Andrew Johnson of A&M Taxand; Lawrence Slade & Jon Phillips of GIIA
Key Findings from Q3 2020 Report
The Quarterly Infrastructure Pulse, compiled by Alvarez & Marsal in collaboration with the GIIA is a survey designed to provide a regular temperature check of sentiment in the sector and emerging trends. Against a backdrop of COVID-19, a number of interesting themes are noted in the Q3 2020 survey:
- Whilst investor sentiment remains mixed, most respondents raising capital expressed a more positive view of the fund raising environment in Q3 compared to Q2. For those investing new capital, 80% of respondents indicated positive infra debt markets with a significant improvement noted relative to Q2.
- Respondents indicated that the most positive regional outlook continued to be for the Nordics where positive sentiment increased compared to Q2, as local district heating opportunities attract fund attention. The UK and Ireland highlighted an improving outlook following a period of limited activity, with a number of big ticket deals expected in the near term including WPD and Wheelabrator. France and Benelux outlook also improved as the Veolia/Suez situation grabs headlines and brings potential “noncore” utility corporate disposals into the spotlight.
- In terms of sector outlook, respondents were increasingly bullish about transactions in communications infrastructure (reflecting increased appetite for, and number of, opportunities in fibre, telco towers and datacentres) as connectivity remains critical as people work from home. Sentiment remained strong in the renewable generation, biomass and EfW sectors as evidenced by recent Nordic district heating activity, offshore wind processes and pending UK EfW/biomass deals. Predictably the most negative, and indeed increasingly negative, outlook was reserved for airport transactions. Outlook for utility transactions remained negative (water) / modest (gas/electricity) which may be indicative of pressure on allowed returns in recent / pending settlements, particularly in the UK, albeit the survey was concluded prior to the CMA’s draft determination which will improve outlook if replicated in its final determination.
- Respondents were unequivocal that the most significant adverse impact on their portfolios of COVID-19 was in the transport space, particularly airports, with sentiment having deteriorated markedly in Q3, from an already low base in Q2, as the doomsday air travel scenarios of 6 months ago have become todays reality. Respondents indicated an expected three to five year recovery period for airports, consistent with major airline recovery plans, and more than two years for other transport assets. Sentiment for nontransport sectors remained broadly consistent. The only sector with short-term yields noted as being positively impacted by COVID-19, with a more favourable impact noted compared to Q2, was the communications space.
- ESG showed a positive development compared to Q2 demonstrating its increasing importance for investors, and their LP’s, and substantiating our view in our Q2 survey that COVID-19 will only accelerate the E and S agenda with a flow through to investment criteria. We are seeing an increasing number of funds requesting ESG due diligence as an option in transaction processes…