A recently released report from Infrastructure Partnerships Australia and Perpetual Corporate Trust confirms Australia’s ongoing position as a globally attractive, stable destination for infrastructure investment, and a world leader on a number of measures.
Infrastructure Partnerships Australia (IPA) and Perpetual Corporate Trust jointly undertook a study of the Australian market for infrastructure projects, and published these results in the Australian Infrastructure Investment Report.
IPA and Perpetual produce this report annually to help the industry increase its understanding of the drivers and inhibitors for infrastructure investors – and to benchmark how Australia is viewed as an investment destination, compared to other parts of the world.
In preparing the report, the views of sophisticated global and domestic investors, including sovereign wealth funds, pension funds, fund managers, banks and other industry participants were gathered. Participants in the report collectively own or manage approximately $110 billion in infrastructure investments across the globe.
The research that informed the report indicates that Australian infrastructure investments remain extremely attractive, with 94 per cent of participants indicating that they are “highly likely” to invest in Australian opportunities in the next two to three years, which is an increase on last year’s results.
The research also shows that many investors are willing to invest large amounts of money in Australian infrastructure, with two thirds of participants ready to invest over $1 billion in Australian infrastructure and 61 per cent ready to invest over $2 billion.
Regarding future investment intentions, roads remain the single most attractive asset type, followed closely by water infrastructure, social infrastructure, renewable energy generation and energy transmission and distribution. There has been a notable jump in interest around renewable energy generation projects since last year, reflecting the certainty provided to the sector by the reinstatement of the Renewable Energy Target (RET).
Investors identify Australia’s strong track record in infrastructure and our stable economic, fiscal and regulatory environment as key features driving the attractiveness of the Australian market; with the depth of market knowledge and ease of doing business adding further appeal.
Importantly, this research project also identifies the areas where Australia can improve current practices, in order to ensure sustained interest from global investors, beyond the current high level of interest.
The major challenge facing the Australian market at the moment is the dual and interlinked challenge of increased competition and a lack of opportunities.
Competition for assets emerged as the major challenge this year, with 50 per cent of participants indicating competition was a challenge.
This was followed by concern around the limited visibility of the pipeline and a sense that there are not enough opportunities available.
Concern around political risk in the quantitative surveys more than halved on last year’s results, with only 35 per cent of participants citing political risk as a major challenge (down from 68 per cent last year).
However, the decision last year to block the two foreign bids for a 50.4 per cent stake in Ausgrid on advice from the Foreign Investment Review Board (FIRB) occurred in the time between the quantitative survey and qualitative interviews. This meant that political risk and policy consistency were once again a common theme during the qualitative interviews.
The report indicates that there is plenty of money available for investment and a strong appetite to invest in Australian infrastructure, but a lack of opportunities means that investors have to look elsewhere (outside Australia or in new sectors) for the scale of investment opportunities required.
Renewable energy generation emerged as a strong sector that is growing globally, offering new opportunities for investment and growth.
The report paints a positive outlook for investment into the Australian infrastructure market. Demand is high and willingness to invest in Australian infrastructure is strong.
However, there are some challenges. The survey highlights the critical importance of certainty in making decisions about where and when to invest. While Australia has many strengths as a destination for infrastructure investment, the market for infrastructure investment is global.
Our economic stability, experienced industry participants and supportive governments are all positives, yet uncertainty of pipeline and a significant increase in competition for assets means we cannot assume investment capital will always be at our disposal.
Essentially investors are calling for greater transparency, a level playing field when bidding and a pragmatic attitude to regulation and compliance. Local and overseas investors make a substantial contribution to the Australian economy. They are ready and willing to invest, and welcome initiatives that give them more confidence that substantial opportunities will continue to present themselves in the Australian infrastructure sector.
The appetite for Australian infrastructure assets has become stronger
94 per cent of investors report they are highly likely to invest in Australian infrastructure; up from 79 per cent in 2015. Just six per cent of investors say they are highly unlikely to invest.
The appetite for very large individual investments appears to have fallen
The appetite for single investments above $2 billion has fallen to 20 per cent; down from 36 per cent in 2015. The appetite for single investments between $1 billion and $2 billion has halved, to 25 per cent.
Roads are the stand-out asset for nearly three-quarters of investors, then utilities
Roads remain the most attractive infrastructure asset class for 70 per cent of participants. Renewable energy generation has recorded an increase in investor appetite; rising from 36 per cent last year to 50 per cent in 2016.
More investors means more competition
45 per cent of participants identify the competition for assets as a challenge – up from just five per cent last year – making it the number one challenge identified by participants.
Australia’s mature and stable market is a major point of attraction
Australia is an attractive destination for infrastructure investment because of it’s economic stability (75 per cent of respondents); strong knowledge of market participants and partners (65 per cent of respondents); and the ease of doing business (60 per cent of respondents).