GLOBAL - Continuing pension fund appetite will help infrastructure escape the current credit squeeze, despite pressure on the credit quality of infrastructure assets, according to Standard & Poor's.
The ratings agency has forecast continued investor appetite for the sector into 2008, with access to finance remaining "relatively open". The infrastructure market last year saw not only record deal volumes - a 24% increase over the previous year to $322bn (€217bn) by the end of October - but also a 90% increase in the average deal size.
The firm's annual sector roundup found a significant shift in activity away from utilities-based infrastructure markets, such as that seen in the UK, towards power-dominated markets such as Russia, which saw an increase from $3.9bn in 2006 to $56bn in the year to date. Oil and gas account for around 23% of all infrastructure finance, despite "political risk in every European power market", suggested S&P.
Analyst Mike Wilkins told IPE Real Estate intense pension fund involvement in a sector characterised by long-term, stable revenues had created a "feeding frenzy" for assets.
Investor appetite for infrastructure would continue "as long as the underlying characteristics of infrastructure remain the same", with the focus on mature infrastructure assets rather than "quasi-infrastructure" such as motorway service stations. "There will be no reduction of interest in the traditional asset class," said Wilkins.
He warned, however, of increased pressure from lenders for stronger creditor protections.
"We would expect to see a risk premium on Russian investments especially," he said.
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