The Changing Environment for Capital Investment

The Changing Environment for The Changing Environment for Capital InvestmentCapital Investment

Facilities Engineering Seminar & ExpoCharleston, SC – November 17th, 2009

Presented by Manju ChandrasekharVice President – Halcrow, Inc.

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OutlineOutlineOutline

• Recent Transactions• Public-Private Partnerships• Infrastructure as an Asset Class• Opportunities and Challenges

Recent TransactionsRecent TransactionsRecent Transactions

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Port of OaklandPort of OaklandPort of Oakland

• Long-term (50-year) concession• Ports America / Highstar• Phase 1

– $150 million investment– 160 acres– 4,400 feet of quay

• Total investment of $500 million

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Port of BaltimorePort of BaltimorePort of Baltimore

• Long-term (minimum 30-year) concession• Two bidders

– Ports America / Highstar– Ceres Terminals

• Program– Existing terminal operations– 200 gross acres– 3,127 feet of quay (45-foot draft)– 700-foot barge berth (32-foot draft)– Construction of Berth IV

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Virginia Port AuthorityVirginia Port AuthorityVirginia Port Authority

• Long-term (minimum 30-year) concession• Three unsolicited bids

– Centerpoint Properties– SSA / Goldman Sachs– The Carlyle Group

• Program– All of VIT, plus rights to Craney Island

• “Apple, pear and orange”• Further steps in process are unknown at present

Public-Private PartnershipsPublicPublic--Private PartnershipsPrivate Partnerships

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Benefits of PPP’sBenefits of PPP’sBenefits of PPP’s

• Project delivery schedule compression• Cost reduction / inflation hedge• Best practices = revenues and costs• Risk allocation to parties best-suited to manage• Increased competition = efficiency

– Finance– Development / construction– Operations and maintenance

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Benefits of PPP’sBenefits of PPP’sBenefits of PPP’s

• Integrated approach to development and operations

• Innovation– Finance– Technology

• Defined performance metrics = Accountability• Enhancement of relationships between public

sponsor and private provider

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“Bankability”““Bankability”Bankability”

• Financiers require:– Appropriate allocation of risks– Clearly defined and well-drafted contractual terms– Well-defined procurement process– Ability to enter into dialogue with bidders– Transparency

The better the understanding of these considerations the likelier that the result will

be a more competitive bid price.

Infrastructure as an Asset ClassInfrastructure as an Asset ClassInfrastructure as an Asset Class

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Infrastructure as an Asset ClassInfrastructure as an Asset ClassInfrastructure as an Asset Class

• Infrastructure is attractive due to the following:– “Long-dated” assets– Increases in global trade– High operating leverage– Strong cash generation ability / potential– Stability of cash flows / earnings– Scarcity of capacity– “Embedded” value of land

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Infrastructure as an Asset ClassInfrastructure as an Asset ClassInfrastructure as an Asset Class

• Infrastructure is considered an asset with an ability to generate stable and growing cash flows due to the following:– Typically “naturally” hedged against inflation– Strong entry barriers (scale/cost and regulation)– Off-takers can generally be considered to be

somewhat inelastic to price, within limits– “Demonstrable” and “pressing” need (essential)– Predictable capex (maintenance and growth)

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Infrastructure as an Asset ClassInfrastructure as an Asset ClassInfrastructure as an Asset ClassNYSE Listed Infrastructure Fund

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Infrastructure as an Asset ClassInfrastructure as an Asset ClassInfrastructure as an Asset Class

• High leverage ratios• Aggressive revenue assumptions• “Trophy” assets• Soaring EV / EBITDA multiples that are

unrealistic• “Flipping” versus long-term hold• Long-term trends have shifted, perhaps

permanently• A different approach is needed

Opportunities and ChallengesOpportunities and ChallengesOpportunities and Challenges

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Opportunities and ChallengesOpportunities and ChallengesOpportunities and Challenges

• Public sector imperatives– Clear definition of objectives (yours)– Clear understanding of objectives (theirs)

• Understanding of risks– Magnitude– Impact– Corrective measures

• Internal capacity

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Opportunities and ChallengesOpportunities and ChallengesOpportunities and Challenges

• The “levered” model has been proven to not work effectively

• Gearing ratios • Debt spreads • Biggest upfront “cash” payment may not represent the

best solution, in terms of long-term value to the public• Incentives and penalties

Risks = OpportunitiesStructure = Clarity

Credit is still very tight!

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THANK YOU!THANK YOU!THANK YOU!

Mr. Manju ChandrasekharVice PresidentHalcrow, Inc.22 Cortlandt StreetNew York – NY 10007

Tel: (646) 253-8553Mobile: (917) 605-9900

chandrasekharm@halcrow.compppinfo@halcrow.com