Guionneau, who has been head of the fund manager – which specialises in investment in PPP/PFI projects – since its MBO from HSBC earlier this year, told IJ News that the Government needs to address new methods of funding for infrastructure projects in the UK in order to attract private sector investment. He said:
“PFI needs a new funding model, banks are not set up to do 30 year funding at the current time anywhere close to pre-crisis terms and volumes. Liquidity is not going to come back to the banking markets anytime soon”
Earlier this month the UK Treasury announced that it is to look for a “suitable” replacement for the PFI model.
Guionneau said revising the PFI model would create the opportunity to develop a new model to link long-term institutional investor demand with infrastructure projects.
Guionneau, like many of his peers, said attracting institutional investor money to the sector was the next step to tackling the funding problem for infrastructure projects. He said:
“I think this is the right thing. To refine and improve and move on.”
As for the impact on equity Guionneau does not believe it will have a material one. He said:
“I don’t think this will fundamentally affect the requirement for equity which can absorb losses in seeing projects through their higher risk development and comissioning phases. Institutions are looking to deploy capital to achieve long term, stable and low risk returns and it is typically not within their scope to fund the riskier development phases of infrastructure assets.”
Meanwhile others in the market have expressed concerns over the potential need for more equity in the sector, as senior debt from institutional investors may be more expensive and they may want to see more of a guarantee from equity players.
“We need to find a mechanism to replace banks as the main long-term funders. It is sensible to do it. It doesn’t, in the first instance, affect us as project developers and equity investors or the contractors and other service providers to the sector. This is a natural progression for the market”.
Guionneau also refuted claims that institutional investors’ debt will be more expensive than bank debt. He said:
“As bank debt markets they will become more expensive. And liquidity is draining from the market”, adding, “It is a viable business option for institutional investors to provide long-term debt. There is a long-term asset liability match there and these are projects with government backed cash flows. I hope to see more projects financed by institutional investors”.
While institutional investors appear to be the obvious antidote to contracting bank markets Guionneau said the Government would also have to create comfort and certainty for institutional investors. He said:
“These are risk-adverse institutional investors who can’t afford to jeopardise the quality of their long-term investment portfolios.
“1 solution is for banks to provide short-term construction financing, which institutional investors do not want to take, with the option for institutional investors coming in after the construction stage,” said Guionneau.
This morning the UK Government announced that it would allocate £30bn to infrastructure development in the UK with the majority of capital expected to come from big UK pension funds and Chinese investors.