the changing environment for capital investment · the changing environment for capital investment...
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The Changing Environment for Capital Investment
The Changing Environment for The Changing Environment for Capital InvestmentCapital Investment
Facilities Engineering Seminar & ExpoCharleston, SC – November 17th, 2009
Presented by Manju ChandrasekharVice President – Halcrow, Inc.
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OutlineOutlineOutline
• Recent Transactions• Public-Private Partnerships• Infrastructure as an Asset Class• Opportunities and Challenges
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Port of OaklandPort of OaklandPort of Oakland
• Long-term (50-year) concession• Ports America / Highstar• Phase 1
– $150 million investment– 160 acres– 4,400 feet of quay
• Total investment of $500 million
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Port of BaltimorePort of BaltimorePort of Baltimore
• Long-term (minimum 30-year) concession• Two bidders
– Ports America / Highstar– Ceres Terminals
• Program– Existing terminal operations– 200 gross acres– 3,127 feet of quay (45-foot draft)– 700-foot barge berth (32-foot draft)– Construction of Berth IV
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Virginia Port AuthorityVirginia Port AuthorityVirginia Port Authority
• Long-term (minimum 30-year) concession• Three unsolicited bids
– Centerpoint Properties– SSA / Goldman Sachs– The Carlyle Group
• Program– All of VIT, plus rights to Craney Island
• “Apple, pear and orange”• Further steps in process are unknown at present
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Benefits of PPP’sBenefits of PPP’sBenefits of PPP’s
• Project delivery schedule compression• Cost reduction / inflation hedge• Best practices = revenues and costs• Risk allocation to parties best-suited to manage• Increased competition = efficiency
– Finance– Development / construction– Operations and maintenance
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Benefits of PPP’sBenefits of PPP’sBenefits of PPP’s
• Integrated approach to development and operations
• Innovation– Finance– Technology
• Defined performance metrics = Accountability• Enhancement of relationships between public
sponsor and private provider
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“Bankability”““Bankability”Bankability”
• Financiers require:– Appropriate allocation of risks– Clearly defined and well-drafted contractual terms– Well-defined procurement process– Ability to enter into dialogue with bidders– Transparency
The better the understanding of these considerations the likelier that the result will
be a more competitive bid price.
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Infrastructure as an Asset ClassInfrastructure as an Asset ClassInfrastructure as an Asset Class
• Infrastructure is attractive due to the following:– “Long-dated” assets– Increases in global trade– High operating leverage– Strong cash generation ability / potential– Stability of cash flows / earnings– Scarcity of capacity– “Embedded” value of land
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Infrastructure as an Asset ClassInfrastructure as an Asset ClassInfrastructure as an Asset Class
• Infrastructure is considered an asset with an ability to generate stable and growing cash flows due to the following:– Typically “naturally” hedged against inflation– Strong entry barriers (scale/cost and regulation)– Off-takers can generally be considered to be
somewhat inelastic to price, within limits– “Demonstrable” and “pressing” need (essential)– Predictable capex (maintenance and growth)
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Infrastructure as an Asset ClassInfrastructure as an Asset ClassInfrastructure as an Asset ClassNYSE Listed Infrastructure Fund
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Infrastructure as an Asset ClassInfrastructure as an Asset ClassInfrastructure as an Asset Class
• High leverage ratios• Aggressive revenue assumptions• “Trophy” assets• Soaring EV / EBITDA multiples that are
unrealistic• “Flipping” versus long-term hold• Long-term trends have shifted, perhaps
permanently• A different approach is needed
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Opportunities and ChallengesOpportunities and ChallengesOpportunities and Challenges
• Public sector imperatives– Clear definition of objectives (yours)– Clear understanding of objectives (theirs)
• Understanding of risks– Magnitude– Impact– Corrective measures
• Internal capacity
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Opportunities and ChallengesOpportunities and ChallengesOpportunities and Challenges
• The “levered” model has been proven to not work effectively
• Gearing ratios • Debt spreads • Biggest upfront “cash” payment may not represent the
best solution, in terms of long-term value to the public• Incentives and penalties
Risks = OpportunitiesStructure = Clarity
Credit is still very tight!
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THANK YOU!THANK YOU!THANK YOU!
Mr. Manju ChandrasekharVice PresidentHalcrow, Inc.22 Cortlandt StreetNew York – NY 10007
Tel: (646) 253-8553Mobile: (917) 605-9900
[email protected]@halcrow.com