Against a backdrop of depleting resources and energy transition, Europe’s need for more efficient and eco-friendly infrastructures is a key issue. The European Commission estimates the cost of major governmental projects among member countries by 2020 at EUR 2,000 billion.
Institutional investor engagement in an essential segment of the real economy
Until recently, the vast majority of infrastructure projects were financed by the banks. Why has the landscape changed? The combined effects of the 2008 crisis and new regulations, under the Basel III agreement, have obliged banks to reduce their long-term lending capacity. The banking disintermediation phenomenon, in conjunction with the lack of governmental funds, opened the door to private financing and new actors playing an increasingly important role in alternative financing solutions.
Today, infrastructure debt creates opportunities for the long term investor seeking yield and diversification.
Infrastructure debt benefits from fundamentals which are considered robust, in terms of asset creditworthiness, low volatility and stable cashflow on long-dated maturities. It also offers clear visibility in terms of yield. Most infrastructure assets enjoy a near-monopolistic position and supply essential services to the markets they serve. Infrastructure assets also benefit from political support and regulatory incentives.
"Today, infrastructure debt creates opportunities for the long term investor seeking yield and diversification."
In the low interest rate environment, Jean-Francis Dusch explains that, thanks to his team’s project origination and selection capacity, infrastructure debt offers a further illiquidity premium to investors:
“In infrastructure debt assets, it is possible, without forfeiting security, or the recurrence and stability of revenues, to justify higher yields as the assets are present in sectors and opportunities which are targeted less by traditional lenders and also represent a credible alternative offer. This is typically how we operate with innovative structures in the renewable energies sectors and in private-public partnerships in the field of healthcare and airports. We sometimes provide liquidity which is otherwise unavailable as we are able to set up structures which are better suited to the type of underlying infrastructure”.
Present where others are not
Over the past ten years, the Group has developed an infrastructure asset finance consulting business and a position as a renowned leader thanks to the successful completion of funding for a number of flagship transactions, particularly in Europe and Africa.
The team managed by Jean-Francis Dusch in London covers all sectors and a broad range of financing situations (project financing, new assets or asset re-financing) in Europe, through a thorough, but measured, approach:
“We have identified the sectors in each country harbouring the most attractive opportunities for our investors. For example, telecoms in Germany currently make sense, as in France and the UK”.
Investing in infrastructures of course requires keen financial engineering skills, while the diversity of the potential investment opportunities also requires a perfect understanding of the legal framework of the countries involved (France, UK, Benelux, Germany, Austria, Scandinavia, etc.) as well as in-depth knowledge of the latest technological advances in the field of infrastructures. Access to a global network of infrastructure players is another key factor.
For this reason, Jean-Francis Dusch has built up a team of seniors, each with 15 - 20 years of experience, who are used to originating complex structures and had already worked together in previous transactions. Pooled knowhow is the key to a successful operation, according to Jean-Francis Dusch:
“We adopt an entrepreneurial approach, seeking efficient funding conditions. We are in permanent contact with our investors who are decision-makers. The whole team is accountable to our investors and this can be sensed in the way we work together”.
The team effectively ensures that the clients are involved upstream in the projects, by maintaining constant dialogue. A strong co-investment relationship is developed with investors.
Co-building durable and responsible projects
The team becomes involved in projects as early as possible, which enables it to intervene in upstream structuring, in order to negotiate the most advantageous terms for investor and fully understand or even influence potential projects:
“As the entire team has experience in the traditional banking industry, we know how financial institutions operate. We seek out investors and structure major projects, which then enables us to be selective. For example, we can refuse an initial deal if the terms do not appear optimal. Our experience enables us to propose an alternative project, which is ultimately undertaken”.
The debt infrastructure team covers all sectors, under preconditions however, as illustrated by Jean-Francis Dusch:
“The projects have to make sense, including in terms of sustainable development”.
Sustainable development issues are taken into account under environmental, economic & social development Group engagements:
“For example, we were offered the opportunity to work on redeveloping an electricity power station in the South of France, but the site is polluted. We therefore decided not to get involved. Within the projects that we support, we work with the promoters’ experts, and we can say which points are important to us and which issues are important for our investors, who must respect their ESG criteria (environmental, social and governance best practices). In the case of building a motorway for example, we may insist on the presence of sound-proofing walls”.
The Rothschild family, infrastructure pioneers
Supporting major projects with a view to building a sustainable world is one of the hallmarks of the history of the Rothschild family, which has contributed to major schemes, such as the Suez Canal in 1875 and the European rail networks. This tradition has been repeatedly perpetuated with conviction during the 21st century:
Ariane de Rothschild explained in 2014 “Infrastructure financing has been a major investment theme for our family since the beginning of the industrial era. My husband Benjamin and I are very proud of this pioneering role and we intend to continue with our engagement”.