In the recently-released H1 2013 edition of the Allen & Overy M&A Index, the London-headquartered Magic Circle firm said the global infrastructure and utilities sector looks “increasingly attractive to institutional investors with no shortage of capital ready to deploy”.
Amid mentions of the AENA and AXA-led private equity consortium’s bid for London’s Luton airport and Global Infrastructure Partners’ acquisition of a 35 per cent stake in Terminal Investment Limited, the report said that “arguably the blockbuster deal of the quarter” came from Australia.
The deal referred to is the NSW Ports consortium’s $5.07 billion acquisition of two of the state’s major ports – Sydney’s Port Botany and Wollongong’s Port Kembla – which was led by Industry Funds Management (IFM) and included industry superannuation funds AustralianSuper, Cbus, HESTA and HOSTPLUS as well as the Abu Dhabi-based Tawreed Investments Limited.
At the time of the acquisition’s announcement in April, IFM chief executive Brett Himbury anticipated that the deal would resonate on an international scale.
“Globally, it sets a strong precedent for using private investment to grow essential public infrastructure. Australia continues to be a leader in global infrastructure management and this is a good model for governments,” he said.
More broadly, the paper identifies prospective opportunities for global insto investors on the Australian infrastructure landscape.
“Despite softening in the commodities cycle, several ‘triggers’ appear poised to deliver more deal flow in Australia as 2013 progresses,” the paper stated. “Declines in revenue have forced state governments to look at their balance sheets and momentum is building for further privatisations in New South Wales, Tasmania and potentially Queensland,” it continued.
“The major opportunity remains the privatisation of the regulated networks in New South Wales, with a potential valuation in excess of $35 billion. Momentum is also building on the public-private partnership front, with large deals beginning to emerge from the pipeline in Australia, including the North West Rail Link, Northern Beaches Hospital and Sydney Convention Centre.”
That seemingly local government projects in suburban Sydney are being flagged by one of the world’s most prestigious legal outfits – in a communication to its even more blue-chip institutional clients – signals that it is not only the Australian super funds sitting up and paying attention to infrastructure opportunities on the horizon.
Allen & Overy’s spotlighting of the Aussie infrastructure market follows the unveiling of Infrastructure Australia’s 50-year plan at the Council of Australian Governments earlier this month.
The plan – which spoke favourably of the NSW Ports deal and urged similar outcomes for privatisation projects as well as the establishment of a single national infrastructure fund and a move away from the grant funding of infrastructure to a system that encourages private investment. – was warmly welcomed by the Industry Super Network (ISN).
ISN acting chief executive Matt Linden said the National Infrastructure Plan would help “connect the pool of superannuation assets with Australia’s future infrastructure requirements”.
“With public sector balance sheets constrained, it is vital we embrace new thinking to facilitate super fund investment in quality projects," Mr Linden said.
Industry super funds are expecting to invest $15 billion in infrastructure assets over the next five years, he added.
“Industry super funds' infrastructure assets have proven to be excellent investments for members, with returns averaging more than 12 per cent per annum over the last 18 years, with one third the volatility of shares,” said Mr Linden.
Global institutional investors reading Allen & Overy’s guidance this week may well be thinking the same thing.
