UK - The UK government should not make changes to Private Finance Initiatives (PFIs) as it seeks to entice pension funds to invest in infrastructure, EISER Infrastructure has said.
Speaking to IP Real Estate following chancellor George Osborne's announcement that the Treasury would review the structure of PFIs, Hans Meissner warned that the government "shouldn't tinker with the system", but rather have sufficient debt funding in place to incentivise any projects.
Meissner added that the issue facing the industry in general was a lack of debt funding, as commercial banks pulled back from long-term loans.
"The market faces the issue that, on the debt funding side - projects in general, not just PFIs - are mostly funded by commercial banks," he said. "Commercial banks are no longer willing to provide finance loans for 20 or 25 years.
"You could envisage a scenario where the banks offer you five-year financing with a subsequent take out in the public debt or private placement market. With five-year financing in place, instead of maybe 90% debt, you settle on 80% debt and 20% equity, achieving an investment-grade rating, which facilitates the take out financing. But that will drive the cost up."
Addressing the announced review of the UK's PFI system - which the Treasury hopes will increase investment from pension funds - he predicted that any a change would not work in the government's interest.
"If you want to kick-start the economy with infrastructure investments and accelerate money going into it, you really shouldn't tinker with the system too much or come up with a new system - instead, make it more efficient and make sure you have the debt money in place," he said.
Meissner added that there was plenty of interest in equity fund managers in the City of London and that there would continue to be "as long as there is a clear framework, which everybody agrees on".
Addressing recent speculation that the government would seek to grow the infrastructure market through the launch of a debt fund institutional clients could invest in, he seemed dubious.
"The government could say they are launching this huge fund, but who is going to invest in it?" he asked. "In a free market, you can't force pension funds. Most of the smaller funds in the UK have been very reluctant to invest in illiquid assets for obvious reasons."
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