# Global Infrastructure Bubble



## hkskyline (Sep 13, 2002)

*S&P warns of global infrastructure bubble *

LONDON, Nov 30 (Reuters) - The boom in infrastructure deals worldwide is creating a dotcom-style bubble, raising the spectre of overvaluation and excessive leverage, rating agency Standard & Poor's warned in a report released on Thursday. 

Transactions this year in the sector, which includes transport and utilities, have so far reached $145 billion -- a 180 percent jump from 2000, it said. In addition, up to $150 billion of funds are waiting to be placed. 

"It is clear that, as a result of rampant demand, the infrastructure sector is in danger of suffering from the dual curse of overvaluation and excessive leverage -- the classic symptoms of an asset bubble similar to the dotcom era," Michael Wilkins, managing director of S&P's European infrastructure finance group, said in the report. 

Wilkins blamed cheap financing and private-equity interest as well as a relatively slim range of potential targets for the rise in asset prices and leverage. 

S&P also noted that the arrival of private-equity funds, which accounted for 50 percent of the deals done in 2006, had raised a number of concerns. 

These included a decline in credit quality as growing levels of debt are used to finance purchases, and a possible conflict with governments or regulators that are trying to protect the interests of the consumer. 

"As infrastructure funds enter ferocious bidding wars, the valuation and debt multiples are rapidly increasing, while equity shares are becoming ever slimmer," it said. 

S&P said the acquisition of London City Airport by a consortium of American International Group Inc, General Electric Capital Corp and Credit Suisse was priced at a debt-to-EBITDA (earnings before interest, taxes, depreciation and amortisation) ratio of more than 20 times. 

Although prices have been bid up, deals remain attractively prices in places such as continental Europe where there has been less bidding activity, Alessandro Bronda, head of European research at Aberdeen Property Investors, told Reuters. 

"Pricing has moved up ... but there are all sorts of different infrastructure assets and it is not easy to classify such as assets as the same." 

AGGRESSION 

Another growing issue was the adoption of increasingly aggressive balance sheets by potential target infrastructure assets in an attempt to stave off predatory private-equity investors. 

"Talk to anyone in the industry and they all agree that we are getting to a stage where the whole market is overheated." 

S&P said 10 new private infrastructure funds have been raised so far this year alone, with another 17 yet to be closed. 

But it said the performance of some infrastructure funds had dipped recently, while investors seeking stable returns normally associated with infrastructure funds could ultimately be disappointed. 

"Investors, however, could end up being exposed to overpriced and overleveraged assets, with valuations and debt driven upward by the fierce competition among infrastructure funds. 

"As advisory fees climb -- hitting a total of $830 million in 2006 -- it is feared that this might push fund managers toward inappropriate private equity strategies in order to justify these fees," the agency said.


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