Cutting through the noise:
Infrastructure in Asia-Pacific 2019
From rural farmlands to modern megacities, the complex and diverse Asia-Pacific infrastructure sector continues to attract international investment. Our survey shows investors are very positive about future opportunities and analyses the countries and sectors attracting this optimism.
Asia-Pacific (APAC) is one of the most dynamic regions on the planet and its need for infrastructure investment is acute. The Asian Development Bank (ADB) estimates that the region needs US$1.7 trillion of infrastructure investment by 2030 to keep pace with climate change and economic growth.
With these sentiments in mind, White & Case, in association with Inframation Group, set out to investigate the prospects for infrastructure investment across the APAC region. We interviewed 100 global senior executives from institutional investment firms, private equity houses and investment banks to gauge their views on the current infrastructure investment opportunities.
In Q4 2018, White & Case, in partnership with Inframation Group, surveyed 100 senior-level direct equity investors and financial services firms who had developed, funded or invested in at least one APAC infrastructure project in the past 12 months, with a value in excess of US$100 million.
Respondent firms include investment funds, sponsors and developers, pension funds, sovereign wealth funds, investment banks and financial institutions. Of those surveyed, 50 respondents were based in APAC, 25 were based in EMEA and 25 were based in the Americas.
The survey included a combination of qualitative and quantitative questions, and all interviews were conducted over the telephone by appointment. Results were analysed and collated by Inframation Group, and all responses are anonymised and presented in aggregate.
The research has proven to be illuminating, as a number of the findings have gone against the grain of current popular thought. Among other key findings, several intriguing themes have emerged:
Regional positivity trumps global uncertainty
Despite the infrastructure gap, the threat of trade wars and global political instability, the outlook from respondents is overwhelmingly positive—88 per cent of firms are expanding their teams in the region in 2019. Nobody is predicting any contraction.
Roads lead the way
If 2018 was the year for investment in renewable energy, then 2019 appears to be the one for transportation—in particular, roads. In spite of the clamour around other infrastructure sectors, roads are seen as the key infrastructure sector destination—67 per cent are planning to invest in the sector.
Stable income beats risky returns
Respondents’ choices for top investment destinations cut through recent noise about the rise of some developing APAC countries. According to our survey, investors will be concentrating their activity on larger, more stable countries such as Australia, India and Singapore. APAC countries with perceived higher political/systemic risk such as Sri Lanka, Pakistan and Vietnam appear to have drifted down the priority list as investment destinations for many investors.
Above all, investors see APAC as a land of opportunity. Indeed, when asked about the greatest benefits to investing in the region, opportunity crops up in a number of different guises. Over half see a ’wealth of opportunity‘; more than a third envisage ’development of knock-on/secondary opportunities’, and a third are looking forward to the ’consolidation of related opportunities‘.
The research also addresses barriers to investment such as political risk, issues with public private partnerships (PPP) and the threat of trade wars but, overall, the general feeling among respondents is that the significant benefits on offer outweigh any challenges. As the director of M&A from a sponsor in Japan says: ’There is plenty of room for growth, development and advancement. There is a complete mismatch in the current infrastructure and the actual need based on the growth these markets are having. The opportunities in these markets are significant.’
The overwhelming majority of respondents see a multiplicity of opportunities in a variety of sectors and regions. However, our survey reveals that the ‘noise’ around some investment locations may be just that—noise.
While investors are looking at a variety of sectors in the region, our survey reveals that roads are the top priority, while both conventional and renewable energy are still very much on the radar.
There has been a growth in the number of funds targeting the APAC infrastructure market as investors seek out greater returns. Meanwhile, public-private partnerships are likely to increase if they can overcome several systemic barriers.