Infrastructure Deals Rise in Value but Fall in Number

The total value of global investment in infrastructural projects saw year-on-year growth of 30% for the first six months of 2013, although the number of closed deals again fell to just 200, according to research by trade publication Infrastructure Journal.

The deal count is down by nearly a third since 2010, when 291 deals were closed in H1. However, two multi-billion dollar transactions representing around 25% of the global project finance market volume pushed the value of deals to US$139bn for the first half of 2013.

The INPEX Corporation-led Ichthys liquefied natural gas (LNG) project’s arrangements for US$20bn in project finance loans with eight export credit agencies and 24 commercial banks was the largest of the two deals that contributed to the sharp increase in the total value of transactions recorded. The venture will see INPEX and French partners Total exploit gas from the Ichthys Field in the Browse Basin off the coast of Western Australia.

Funding of US$17.2bn for Sadara Petrochemical Complex at Jubail Industrial City in Saudi Arabia’s Eastern Province further skewed the figures released by Infrastructure Journal.

The project finance model, which provides long-term, low-cost loans based on projected cash flow from the project concerned, has been increasingly squeezed over the recent years and the drop in the number of deals globally but particularly in Europe could heavily impact UK companies and City of London jobs.

European firms saw the total number of closed project finance deals between them fall to 70 for H113, less than half of the 148 total deals closed in the same period in 2011. The fall represents a US$14bn drop in the total value of agreements in that time.

While the Americas have remained stable during the same two-year period, project finance deals for Asia and the Pacific region grew from 41 for H111, worth a total of US$32bn, to 51 for H113, worth a total of US$57bn.

The total value of transactions in Africa and the Middle East was US$32bn for H113, covering some 28 projects. This is more than double the US$15bn value of the 16 deals closed in Africa and the Middle East in the same period of 2011.

The year-on-year increase in value of oil and gas projects to US$70bn for H113, largely influenced by the INPEX deal, was tempered by concerning drops in the number of closed transport and renewable energy deals. Just 21 transport deals were closed, falling from 30 for H112, while 86 renewables deals were closed, against 102 in H112 and 111 in H111. The number of social infrastructure projects deals closed also fell, dropping from 44 (worth US$13bn) in H111 to just 21 (worth US$4bn) in the same period this year.

“Social infrastructure has been one of the major casualties of the financial crisis, with the total value of deals closed in the first six months of 2013 just a third of what it was during the same time two years ago,” said John Kjorstad, editor of Infrastructure Journal. “Falls in social infrastructure and renewables are dragging the overall volume of deals down.”

“The huge INPEX and Sadara deals make the bottom line look a lot more positive than it might otherwise look, with companies in the UK and Europe facing difficulties at the moment. Market opportunities in Europe have been cut in half in just two years.

“Infrastructural development is being squeezed. Governmental support for new investment is lacking as austerity programmes dominate, while the problem of bank finance is keeping the handbrake on a lot of activity in the private sector. Nowhere is this more apparent than in the UK, with many working in the City facing clearing their desks if the number of project finance deals being closed does not show signs of turning around.

“The value of these deals to associated legal and financial services parties is significant and falling activity may mean the scaling back of operations.”

Debt volume increased to US$117bn for H113, up 36% on the US$86bn recorded for the same period in 2013, according to the figures from Infrastructure Journal.

Japan’s Sumitomo Mitsui Banking Corporation was the leading mandated lead arranger in financing projects, while Royal Bank of Canada (RBC) was top of the bond arrangement table. Royal Bank of Scotland (RBS) led as financial advisors, Allen & Overy as legal advisors and Nexant as technical advisors.

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