ADP (Aeroports de Paris) privatization has been put off to better times. Brookfield AM has just shelved its plan to sell a port terminal in Australia. All around the world, infra asset sales are delayed due to travel ban preventing prospective buyers to view the asset on site, and to public markets free fall. At a time when people are explicitly requested to stay at home, most transport infrastructure operators, including in urban transport, are severely impacted.
It is traditionally considered that infrastructure offers investors a strong diversification dimension, and a downside protection against economic downturns in uncertain times. The assumption is that infrastructure assets (Project-financed type as opposed to listed utilities) can be statistically expected to exhibit a certain risk/return profile over time: long-term stable returns, thanks to low elasticity of demand (infra assets provide key public services) and quasi-monopoly linked to high entry barriers, and low correlation with other asset classes, offering portfolio diversification. This view of infrastructure as essentially a boring”, recurrent and stable business was already being challenged by a number of recent disruptions, ranging from climate-change to new technologies and user behavioural and demographic changes. But these are unprecedented times, when a global pandemic is severely affecting a globalized economy already weakening after 10 years if uninterrupted expansion. What could be the impact on Infrastructure investors?
Sure, as we haven’t yet reached peak stage, it’s still very early to assess the final damage and lasting consequences in terms of sectoral trends and users’ behaviour, and infra like big ocean liners are slow to adjust their course . Let us still make a few assumptions:
Though the coronavirus crisis is impacting negatively current infra spending – by impacting supply lines, slowing the availability of equipment and devices necessary to build the next generation of infrastructure – over the next few months & years it may be an altogether different story. In previous crises , extra public infra spending had been consistently resorted to to stimulate the economy: that was the case during the GFC in 2008-09 in the US with a heavily Infra-tilted Recovery Act and in France with the economic stimulus plan decided by the Sarkozy administration, prioritizing big infra projects such as high speed rail lines, through a government-pay PPP program. In China, with the coronavirus shutting down large parts of the country, plans for big infrastructure spending to stimulate the economy (whether or not this is still an appropriate medicine) are already being prepared on a striking scale. Combined with an ever-lower interest rates environment due to more accommodating monetary policies, this should push institutional investors to look seriously to increase their real assets allocation to infrastructure
On a more qualitative approach, one can expect :
-further expansion of contactless Infra tech, combined with facial recognition, to limit physical or close proximity human interaction, whether in ticketing, payment, gatekeeping or passport control…
-Same will apply to 5G-enabled, digital infra-based remote or tele-work (collaborative tools, electronic technology solutions, video conferencing ,…) as it not only limits such human interaction risks, but presents the added benefit of alleviating the pressure on physical transport infra and corresponding CO2 emissions. Tele-work, at least in services, might follow on the tracks of online selling in gradually relegating “brick and mortar” offices to second-best option…
-And of course, social infrastructure like health facilities dimensioning and operating mode (including tele-consulting) will have to be thoroughly reassessed in light of this public health emergency
-on a more sobering side, trees do not grow up to the sky: neither will airports or ports. Mobility infrastructure may be the first victim of a highly contagious disease. Airport concessionaires are directly impacted by difficulties of airlines (100b$ losses already forecast for 2020, jeopardizing many operators, big and small) as are maritime sea lines operators by the disruption and re- localization of global of supply chains.
Overall this unprecedented crisis may also be a good opportunity to take a wider interpretation of the Environment dimension (the E in ESG benchmarks applied to Infrastructure) : it’s not just about the Climate, or bio-diversity , just like Governance is not limited to corruption or gender-diversity: sustainable infrastructure also has to take into account the pandemic or health-scare risks, when being designed, assessed, financially structured and priced…