Alternative sources of finance are much in demand for planned infrastructure projects, some of which are very substantial.
One of the main reasons is pressure on public budgets. Institutional investors profit from the opportunities arising out of infrastructure investments and simultaneously provide a positive social impact.
Regulatory restrictions on commercial banks are increasing the need for institutional capital, especially when long term funding needs to be provided. Banks nevertheless continue to play an important role in this field as arrangers and by offering credit analysis. Despite the current low interest rate environment, the segment is of interest to institutional investors. Prime Capital has already made this asset class investable by way of bespoke securitisation and fund structures.
The benefits of infrastructure debt investments
- Long-term assets and thus long duration in a portfolio
- Good risk profile: Investments in infrastructure debt often have a level of risk similar to the government bonds issued by the project country, but offer higher margins, partly due to an illiquidity premium
- Favourable capital charges: are possible for Solvency 2 regulated investors
- Good risk diversification: The varied nature of the projects involved makes it possible for investors to achieve good diversification within the asset class, e.g. through investment in different project structures and sectors
- Long-term prospects: The projects to be funded are generally of strategic economic and social importance for a country: e.g. energy supply, hospitals or motorways; meaning a long-term relationship of economy and society on the project
- Security: Historical data suggest that investments in infrastructure offer low default rates
Our services around infrastructure finance
- Portfolio construction and management as well as risk management in the context of AIFMD
- Selection process for a suitable Sourcing Partner
- Development of investment criteria: defining e.g. DSCR and credit quality of the transactions, investment selection and portfolio composition
- Conducting market conformity checks prior to acquiring the loans
- Verification of all payment pre-conditions (incl. due diligence, calculation and verification of the purchase price, and collateral check)
- Loan analysis and monitoring
- Calculation of client-specific stress tests to meet regulatory or internal requirements
- Portfolio optimization and calculation of key risk parameters based on a multi-period credit risk model
- Preparation of client-specific risk and regulatory reports and monitoring of the portfolio’s investment guidelines
- Own model for analysing credit quality, internal rating and evaluation
- Liquidity monitoring and planning