Uncertainty over UK infrastructure investment has continued to build since last week’s referendum result, leading to speculation about the future of projects – particularly those funded by the European Investment Bank (EIB).
But while short-term political turmoil could lead to a pause in transactions, global infrastructure investors are unlikely to turn their backs on the UK market in the longer term.
Georg Inderst, an independent consultant who has written working papers for the EIB, said: “It’s clear generally that investors have been on the sidelines for the last few months and are not going to rush into the UK now as things are now more uncertain.”
But global infrastructure funds have a “lot of dry powder”, he said, and the UK is regarded as “one of the best in the world to invest in”.
He added: “Has all [the dry powder] gone? Probably not.”
Bo Pahari, global head of infrastructure equity at AMP Capital, which manages global infrastructure funds, said: “There is also current speculation that expected sales processes for UK and European assets could be delayed whilst the current market turbulence settles and the appetite of investors and debt providers in both UK and Europe becomes clearer.
“We expect sales activity to pick up again in the medium term given continuing strong demand for quality infrastructure assets.”
Inderst says smaller projects in the UK might less affected as they are “more distant from the political events, at least in the short term”.
Larger projects, such as the expansion of Heathrow Airport and the development of the High Speed 2 (HS2) railway line and Hinckley Point power station, could suffer if subject to further delays.
“Things have already been slow in recent months in UK infrastructure and those big decisions need to be sped up,” he said.
For ongoing projects, any short-term impact of the Brexit decision is unlikely to have a major impact, according to Chris Hallam, partner at Nabarro.
“It is possible that the major ongoing projects in the UK such as Thames Tideway Tunnel and Crossrail will be stable enough to continue through to completion,” he said.
The EIB, which provided €7.7bn in funding for UK projects last year, announced a £700m facility for the £4.2bn Thames Tideway Tunnel – the largest to be granted for a water-related investment – just over one month ago.
The 35-year loan finances the 25km project, on which asset manager Dalmore Capital has partnered with the UK’s Pensions Infrastructure Platform. Mark Corben, Tideway’s chief finance officer, said the EIB’s backing was an important vote of confidence.
The EIB has said the Brexit vote has changed nothing – for the time being. As things stand, the UK’s shareholding remains and the bank is still committed to UK infrastructure.
The bank said in a statement: “It is premature to speculate on the impact of the referendum result on the EIB, including the bank’s future relationship with the UK government and its future engagement to support long-term investment in the UK without clarity on the timing, circumstances and conditions of a withdrawal settlement.”