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Asian market drives record investment in unlisted infrastructure assets

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Global infrastructure projects attracted an all-time high of USD413 billion of investment in 2016, propelled by aggregate transaction value of USD131 billion in Asia, according to data released by Preqin.

The company’s end-of-year update on the unlisted infrastructure deal market finds that while the number of financings in 2016 remained consistent with recent years, the aggregate deal value surpassed all previous years.
 
In total, 1,772 deals were completed for infrastructure assets equalling USD413 billion, although Preqin expects these figures to rise by up to 5 per cent as more information becomes available.
 
This marks an increase of 14 per cent from the USD362 billion in total deal value seen in 2015, and a sizeable increase from the aggregate deal value of USD327 billion recorded in 2014. The number of transactions remained similar to the levels seen in 2015 and 2014, which saw 1,743 and 1,787 deals completed respectively, as average asset valuations within the market continue to rise.
 
Asia has seen a significant push for infrastructure investment over the past few years, and saw the highest level of financings of any region in 2016; 552 deals were completed for a record USD131 billion as fund managers noted the potential for development within the region. Europe is also a prominent market for infrastructure deal activity, and the region saw the highest number of deals (555) for a total of USD97 billion, while the mature infrastructure market in North America also attracted significant levels of capital (USD96 billion). Given the demand for infrastructure in less developed countries, it is perhaps unsurprising that the rest of the world saw 237 financings for USD89 billion, and accounts for five of the top 10 largest deals of 2016.
 
As the global push towards alternative energy sources continues, renewable energy has become increasingly prominent; in 2016, renewables accounted for 42 per cent of all deals, up from 39 per cent in 2015 and 37 per cent in 2013. Transport represented 25 per cent of deals in 2016, a decline from 30 per cent in 2015.
 
Through 2016, greenfield and secondary sites accounted for the highest proportion of infrastructure deals, with 42 per cent and 38 per cent of global financings respectively. However, a fifth of all transactions completed were for assets in the brownfield stage of development.
 
As valuations and the average deal size have risen, large-cap deals have accounted for a higher proportion of the market. Financings larger than USD1 billion represented 13 per cent of infrastructure deals in 2016, up from 10 per cent the previous year, although assets smaller than USD100 million still represented the majority (51 per cent) of transactions in 2016.
 
Natural resources pipelines account for four of the top 10 largest infrastructure deals in 2016, including the two largest in the UK and Indonesia. Three of the largest 10 financings were for assets in Australia, while two were for refinery plants in Indonesia.
 
“Infrastructure projects remain central to the development of countries across the world, and as a result the asset class has become home to a diverse range of firms and institutional investors,” says Tom Carr (pictured), head of real assets products at Preqin. “The constant need for, and evolution of, modern transport systems, alternative power sources and technological structures make the industry an attractive proposition. Moreover, Donald Trump’s infrastructure programme could spur a wave of private investment in the US as participants look to capitalise on the potential for subsidised ownership.
 
“However, as demand for infrastructure has increased over the last decade, greater competition for assets – particularly secondary stage assets in developed economies – has pushed valuations upwards. Low interest rates have also contributed to higher pricing demands, as leverage becomes cheaper, which will be a concern for firms. As such, it will be interesting to see if the pace of the market can be sustained moving into 2017 or if managers struggle to deploy their available capital in attractive projects.” 

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