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infrastructure
investor
may
2014
pressure to do deals,” says a fundmanager.
The platform sealed its first transac-
tion last July when buying a one-third
stake in Midland Cogeneration Venture
(MCV), a US combined-cycle gas-fired
power plant. Yet few would describe
this maiden transaction, reported to be
worth about $1 billion, as an adventur-
ous move: GSIA acquired its share of the
plant from Borealis, which had bought
the asset inDecember 2012. OMERS kept
the remaining two-thirds on its books.
Observers doubt deals will line up
more rapidly in the near future – partly
because they think Borealis’ deal sourc-
ingmethods are inconsistent withGSIA’s
stated strategy. “They’re promising to
create an environment where there’s
not a lot of competition and yet the first
places they go to are places where there
is a lot of competition,” says a top invest-
ment bank executive.
As an example he cites Borealis’ bid
for UK water business Severn Trent last
year – which he describes as “a hostile
bid for one of three remaining publicly
listed waste water companies, immedi-
ately before the beginning of a regula-
tory process, at 1.3 times the company’s
closing price.” The bid was later rejected
by Severn Trent, and Borealis dropped
plans to buy the asset.
The bank executive points to Borealis’
investment in Fortum’s Finnish grid last
December – and its reported interest in
Australian toll road operator Queens-
land Motorways – as further evidence
that the firm remains largely focused on
auction processes. “We’ve yet to see an
announcement of a deal which they’ve
sourced using their network and where
there’s very low competition.”
ALWAYS A BIGGER FISH
Some others dispute the soundness of
GSIA’s investment thesis. “It would be a
simple world if as soon as you get above
$5 billion there’s only one bidder. You typi-
cally see some formof competition around
everything,” says the investment banker.
Transactions of that size, argue indus-
try insiders, remain “perfectly accessible”
for investors coming together as part of
consortia: German gas transmission busi-
ness OpenGrid Europe, for example, was
acquired by aMacquarie-led consortium
in 2012 for €3.2 billion.
Bidders also have to consider the
growing firepower of general partners
(GPs), which are now capable of writing
substantial cheques from their own fund
or together with co-investors. Participants
in large auctions, while fewer than in pro-
cesses involving smaller assets, tend to be
“much more sophisticated,” says a senior
industry participant.
Others underline the fierce com-
petition foreign bidders face in core
infrastructure markets, where locals are
seen as “very competitive” with “a very
low cost of capital”.
It probably doesn’t help, observers
point out, that only two or three such
assets are put on the market every year.
Indeed, a source familiar with the
platform says it has a typical “five years or
so” investment period. Deploying more
than $12 billion in assets, worth around
$2 billion each, will thus require the vehi-
cle to close at least one or two deals a
year. Simple maths makes it easy to see
why, failing proprietary deals, achieving
this will be no easy feat.
“If only a couple of those assets are
popping up a year you are under a lot
of pressure to deploy into those deals –
which then undermines your leverage
with the vendor because the vendor
knows that too.”
NOT SO NIMBLE
Another potential Achilles heel, says a
fund manager, lies in the looseness of
the platform’s structure.
“If you want to move real time in the
process, you want to be seen to be agile
and able to play where others can’t. It’s
pretty challenging if you don’t really
know whether the capital’s there with
you for sure. That undermines your
credibility with the vendor and makes
you less nimble.”
SPECIAL FEATURE
MCV
: maiden deal
