Richard Threlfall, UK head of infrastructure, building & construction at KPMG, comments on recent reports of lack of private finance for infrastructure investment:
“It is no surprise that private finance for infrastructure has now virtually evaporated. We first highlighted a year ago the impending collapse in long-term bank finance for infrastructure, and since then no clear solution has emerged. Banks are under much greater commercial and regulatory pressure to recycle their capital. As a result long-term bank finance for infrastructure is now effectively dead.
“In addition capital markets won’t lend into infrastructure unless they are insulated from construction risk. The combination of no bank or capital markets access has created the perfect storm, only masked by the low deal-flow in the UK at the moment.
“There are things the Government could do in the Autumn Statement to solve this impasse. Government could consider taking the refinancing risk on short-term bank lending. This means that banks would lend during the construction period of projects and refinance to the capital markets post construction. There is plenty of bank liquidity for short (5-7) year loans but the Government has so far refused to offer this support on the basis they want to see long-term finance for infrastructure.
“Government could also help re-open the capital markets to infrastructure. UK Guarantees has the capacity to do this, but the impact is being hampered by the Government only offering guarantees in most cases for up to 50% of the senior debt, to avoid projects coming on balance sheet – 100% construction period guarantees is what is required.
“The Pension Infrastructure Platform (PIP) is a red-herring because the pension industry is trying to focus on provision of equity for operational projects. There is no shortage of equity for infrastructure projects, and no shortage of finance for operational projects. A really smart move would be to use UK Guarantees to guarantee construction period investments by the PIP, and for the PIP to offer debt rather than equity into projects.”
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For further information please contact:
Arti Mohan, Corporate Communications
Tel: 020 7694 8735
Mobile: 07768 858 085
Email: arti.mohan@kpmg.co.uk
KPMG Press Office: 020 7694 8773
About KPMG
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 11,000 partners and staff. The UK firm recorded a turnover of £1.7 billion in the year ended September 2011. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 152 countries and have 145,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.
