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

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Overview

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 ...

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Overview

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 risk?

The book discussed 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.

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Product Details

  • ISBN-13: 9780470685709
  • Publisher: Wiley
  • Publication date: 3/29/2010
  • Series: Wiley Finance Series , #477
  • Edition number: 1
  • Pages: 284
  • Product dimensions: 6.70 (w) x 9.70 (h) x 1.00 (d)

Meet the Author

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.

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Table of Contents

Figures ix

Tables xi

Preface xiii

Acknowledgements xv

Introduction xvii

Background and Objectives xvii

Structure xix

1 Infrastructure - An Overview 1

1.1 Demand for Infrastructure 1

1.2 Definition and Characteristics of Infrastructure 7

1.2.1 Infrastructure sectors 11

1.2.2 Types of infrastructure companies 12

1.2.3 Role of the private sector and PPPs 13

1.2.4 Value added and value chains 14

1.2.5 Greenfield versus brownfield investments 16

1.2.6 Sources of revenue and financing 18

1.2.7 Competition and regulation 19

2 Infrastructure Investments 21

2.1 Infrastructure as an Asset Class 22

2.1.1 Investors in infrastructure 22

2.1.2 Risk-return profile of infrastructure investments 26

2.1.3 Portfolio diversification through infrastructure 36

2.2 Infrastructure Investment Opportunities 40

2.2.1 Listed infrastructure investments 40

2.2.2 Unlisted infrastructure investments 42

2.2.3 Direct investments/co-investments 54

3 Organisational Models of Infrastructure Implementation 55

3.1 Privatisation Models 55

3.1.1 Formal privatisation 57

3.1.2 Functional privatisation 59

3.1.3 Material privatisation 59

3.2 Partnership Models 62

3.2.1 Public Private Partnerships (PPPs) as vertical or vertical/horizontal partnerships 64

3.2.2 Partial material privatisation as a horizontal partnership 68

3.3 Business Models 69

3.3.1 Budget-financed remuneration 69

3.3.2 User-financed remuneration 70

3.4 (PPP) Contractual Models 70

3.4.1 PPP contract models in social infrastructure 72

3.4.2 PPP contract models for roads and highways 76

3.4.3 Interim summary: various 'privatisation paths' 78

3.5 Financing Models 80

4 Characteristics of Selected Infrastructure Sectors and Sub-Sectors 81

4.1 Transport 82

4.1.1 Cross-sector characteristics 82

4.1.2 Road transport 87

4.1.3 Rail transport 95

4.1.4 Air transport 102

4.1.5 Water transport 111

4.2 Water Supply and Sewage Disposal 119

4.2.1 Characteristics and organisation 119

4.2.2 Sources of revenue and value added 125

4.2.3 Competition and regulation 127

4.2.4 Privatisation, private sector involvement and PPP 128

4.3 Waste Disposal 130

4.3.1 Characteristics and organisation 130

4.3.2 Sources of revenue and value added 135

4.3.3 Competition and regulation 138

4.3.4 Privatisation, private sector involvement and PPP 139

5 Project Finance 141

5.1 Project Finance - History and Basics 141

5.2 PPP and Project Finance 143

5.3 Basic Structure of Project Finance 145

5.3.1 Characteristics 146

5.3.2 Project participants and other stakeholders 148

5.3.3 Objectives and contributions of project participants 154

5.3.4 Typical contractual framework for project finance 156

5.4 Structuring Project Finance - Traditional and in PPPs 158

5.4.1 Phase I - Advisory 161

5.4.2 Phase II - Project analysis 162

5.4.3 Phase III - Risk analysis and allocation 165

5.4.4 Phase IV - Financing 184

5.4.5 Phase V - Implementation and monitoring 194

6 Financing Instruments 197

6.1 Equity 197

6.2 Mezzanine Capital 202

6.3 Debt 202

6.3.1 Bank loans 203

6.3.2 Bonds 206

6.3.3 Short-term finance 207

6.4 Government Support Schemes 207

6.4.1 National development banks 208

6.4.2 European Investment Bank 211

6.4.3 European PPP Expertise Centre (EPEC) 213

6.4.4 European Commission 214

6.4.5 Governmental export credit and direct investment insurance - ECAs 214

6.5 Asset-Backed Securities 215

6.6 Sale and Leaseback 217

6.7 Derivatives 217

6.7.1 Futures 218

6.7.2 Options 219

7 Cash Flow Calculations and Sensitivity Analyses 221

7.1 Items Requiring Inclusion in Cash Flow Analysis 221

7.1.1 Cash flow modelling 224

7.2 Present Value and Discount Rates 225

7.3 Analysis of Financial Covenants 226

7.4 Sensitivity Analysis 229

References 233

Further Reading 241

Index 243

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