49
may
2014
infrastructure
investor
“Infrastructure at the federal and pro-
vincial level is increasingly getting more
attention. The municipalities in Canada
are lobbying pretty hard at both the fed-
eral level and provincial level to get sup-
port for their infrastructure projects.”
“In the renewable space, for exam-
ple, there are transactions throughout
Canada particularly in the waste energy
space where relationships are being
formed between the developer and the
municipality and then an opportunity
[for investors] has come out of that,” says
David Vickerman, co-head of infrastruc-
ture with Greystone.
In terms of sectoral trends, P3 Cana-
da’s McBride says he is seeing more pro-
jects in the water and wastewater sectors
– particularly as P3s. “There are significant
needs for water andwastewater across the
country – some of that driven by growth
and some of that drivenby new regulatory
requirements for quality,” he says. Aging
infrastructure alsoplays into this sector. He
cites the City of Regina, which contracted
out its new wastewater treatment facility
and used the P3 model to do so.
Fengate’s Theodoropoulos says
renewable power generation is also on
the horizon for smaller Canadian infra-
structure investors, especially in wind and
solar energy.
WHEN SIZE MATTERS
“Canada has a lot of capital available but
very few projects of any size,” says Leo
de Bever, AIMCo chief executive officer.
“When I talk to provinces or munici-
palities they seem to believe [P3] has
improved fiscal discipline in terms of how
these things get executed but for us a lot
of these projects are small, they are too
debt-laden and it’s often difficult to see a
legitimate role for private capital beyond
the construction phase. What I am look-
ing for are projects I can legitimately add
value to,” adds de Bever.
He says that too many projects are
still geared towards construction com-
panies and rely on one-of-a-kind agree-
ments. De Bever says tomake P3 projects
a littlemore attractive he would like to see
greater standardisation with agreed-upon
terms that are universal.
Kevin Kerr is a partner with fund
manager Bastion Infrastructure Group.
He argues that there might be more
projects available in renewables because
there are government incentives to par-
ticipate in them, but overall there are
few infrastructure projects available for
(larger) investors.
“We don’t see a ton of volume of the
type of infrastructure that we would like
to buy in Canada,” he notes. And froman
investor’s standpoint, Kerr says, focusing
only on the Canadian market would not
result in an optimal risk-return profile.
The amount of product available is low
or inconsistent at best.
“If that’s the profile you are after, there
are certainly some opportunities in the
P3 space but on the pure infrastructure
side it is much more difficult – and the
opportunities are much more limited,”
he adds. Another issue, notes Kerr, is that
the market is fragmented. Many munici-
palities have requirements but have not
yet made decisions on how best to finance
or build out the needed infrastructure.
THE NEXT FRONTIER
Greystone’s Mouland notes that the fed-
eral government (in its latest budget) has
estimated the development of $650 bil-
lion worth of natural resource projects
over the next 10 years. Many of these
projects are in rural and remote areas
claimed by various First Nations/Abo-
riginal groups.
“The financing and investments avail-
able in this space will likely increase as
land agreements and resource revenue-
sharing with First Nations become more
abundant,” he adds.
“Increasingly, more partnerships are
occurring between the First Nations,
various levels of government and project
proponents. Some of the projects thus
far have varied from transmission lines,
generating stations, to renewable power
(hydro, wind and solar projects).”
While renewed commitments to
infrastructure in Canada have been
taking shape, the size and scope of those
projects are at issue. For large investors
looking to deploy capital and acquire
equity in privatised entities, Canada will
disappoint.
Smaller investors, however, which
also have long-term investment horizons
but have less capital, can find opportuni-
ties among the growing P3 model being
used more at each level of government
and within various infrastructure plat-
forms.
n
Joel Kranc
is Director of KRANC COMMUNICA-
TIONS in Toronto, focusing on business communi-
cations, content delivery and marketing strategies.
COUNTRY REPORT
Canada: Barriers to entry
Issues that prevent optimal
investment in infrastructure:
• Shortage of opportunities (few
privatisations)
• Small “ticket size” with leverage
of most projects at 90%
• Political and regulatory risks
• Preference for brownfield
projects
• Increasing global competition
for assets
• Limited internal resources
• High fees and lack of control
over assets in infrastructure
funds
• Infrastructure transactions are
lengthy and assets are too large
to acquire and complicated to
operate
Source
: OECD
