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Which way now? Australian infrastructure expertise and cross-border investment flows
As the current phase of privatisations approaches its conclusion in Australia, local infrastructure investors are looking to international markets for investment opportunities. At the same time, global capital that was drawn to the Australian market by the deep pipeline continues to actively pursue Australian deals. This has created significant competition in Australia and seen infrastructure investors increasingly focus on a broader class of assets.
Unsurprisingly, the near term focus continues to be on major urban infrastructure projects, particularly in the transportation sector, as State and Federal governments grapple with the infrastructure demands of continued population growth, nation building projects to move people and freight and the need to ease urban congestion and improve productivity.
The underlying story is more nuanced, however. In New South Wales and Victoria, the process of state governments leasing or selling major infrastructure assets to raise funds needed to develop new projects has largely played out. Meanwhile, the state governments of Queensland and Western Australia (WA) have not pursued a programme of asset recycling.
“The infrastructure pipeline is moving away from the privatisation of core assets toward increased greenfield opportunities procured through public-private partnerships,” says Connie Sokaris, NAB’s General Manager, Resources, Infrastructure and Government. “At the same time, there’s a shift occurring in the type of assets that infrastructure investors are chasing with a growing focus on ‘core plus’ or value-add opportunities.”
Sokaris has no doubt that the government driven development pipeline in Australia will create investment opportunities over the long term. In fact, she suggests projects like the new Western Sydney Airport – currently expected to open in 2026 – and the Melbourne-to-Brisbane Inland Rail development to which the federal government has committed A$8.4 billion will “create the next wave of privatisations”.
In this context, it’s no surprise that Australian investors focussed on acquiring operating assets and deploying capital at scale are looking for opportunities offshore.
Australian investors offshore
An active infrastructure and energy market – combined with the ever growing pool of superannuation funds available to be deployed into infrastructure – has helped generate a significant hub of sectoral expertise within Australian investors.
“The domestic capital that has been looking for infrastructure investment opportunities is now doing so in offshore markets,” Sokaris adds. “This has been driven by a range of factors, including competition in the Australian market, search for returns and funds needing to find ways to maintain allocation to infrastructure as an asset class. While some of the larger funds have been doing this for some time, there is now an increasing number of Australian superannuation funds looking at key offshore markets and going direct.”
Expanding investment mandates are also playing a role. Infrastructure investors are acquiring a broader range of assets, like telecoms and fibre, data centres and land registry businesses. While these assets have defensive characteristics, they clearly represent a shift in investor risk appetite.
Offshore markets also allow investors access to a wider range of risk profiles, and also provides for diversity within sectors. For instance, Sokaris says Australian investors that might be full on local ports or regulated utilities sectors are often still able to look at allocations to those sectors in offshore markets.
At the same time, while the shape of the infrastructure pipeline has shifted, there is still plenty of appetite for Australian assets from global investors. These investors have dealt with the disappointment of a shallower privatisation programme following the change in political direction in Queensland and WA.
The changing energy mix in Australia, reduced costs and the potential of renewables to compete in Australia’s high-power-price market has not gone unnoticed by international investors. “There are factors around the Australian renewables market that make it attractive from a global perspective, and a large number of investors have either already invested or are looking to invest,” confirms NAB’s Head of Energy and Utilities, Fiona McIntyre.
As the sectors in focus have changed, so has the scale of projects in global investors’ sights. “Previously the global investors – particularly pension and sovereign wealth funds – tended to focus on multi-billion dollar projects where they can deploy at scale. However, most of the renewables projects are significantly more modest in size,” explains McIntyre.
“The same trend applies across the core-plus and value-add opportunities, as investor search for bilateral or less competitive situations” notes Connie Sokaris.Speak to a specialist