Module 79.2: Infrastructure Flashcards
(20 cards)
What are infrastructure investments?
Transportation (roads, airports, ports, railways),
utilities (gas, electricity, waste),
ICT (telecom towers, cables),
social infrastructure (prisons, schools, hospitals).
Name three ways to invest in infrastructure.
- Construct and sell/lease to government or operate directly.
- Buy existing assets from government.
- Public-Private Partnership (PPP).
What are three types of cash flows from infrastructure investments?
Availability payments - for making infrasturcture available
Usage-based payments (e.g., tolls)
Take-or-pay arrangements - requiring the buyer to pay minimum purchase price for an agreed upon volume
What is a greenfield investment?
Investment in constructing a new infrastructure asset, often following a Build-Operate-Transfer (BOT) lifecycle.
What is the BOT lifecycle?
A project delivery model where a private sector entity builds an infrastructure asset, operates it for a set period, then transfers ownership to the public sector. Involves initial cash outflow (Build), followed by inflow (Operate), culminating in transfer of ownership.
What is a brownfield investment? Give an example.
Investment in expanding or privatising an existing asset. Example: Sale-leaseback arrangement.
What is a secondary-stage investment?
Investment in a fully operational facility requiring no further development.
What is a characteristic of direct infrastructure investment?
Low liquidity due to long life, high cost, and large scale.
Name four more liquid ways to invest in infrastructure.
ETFs, mutual funds, private equity funds, master limited partnerships (MLPs).
What is a key characteristic of publicly traded infrastructure investments?
They represent a small portion of the overall market and are concentrated in specific asset categories.
How can infrastructure projects be financed?
Through privately placed or publicly traded debt.
Brownfield Investment Characteristics
Stable cash flows, relatively high current yields, low growth potential. Secondary-stage brownfields (existing assets) are least risky, lowest return.
Greenfield Investment Characteristics
Higher uncertainty, potentially lower near-term yields, higher growth potential.
Riskiest Infrastructure Projects
Those reliant on uncertain future demand.
Equity Investment in Infrastructure: Key Features
Stable cash flows, low correlation with public equities (due to long-term contracts and barriers to entry).
Infrastructure Debt: Key Features
Tends to be safer and less affected by economic cycles.
Greenfield Investments in Developing Economies
Risky, but potentially high long-term returns due to increasing per-capita income and wealth.
Diversification Benefits of Infrastructure Investments
Can offer diversification, but investors should be aware of regulatory risk, financial leverage risk, and potential for lower-than-expected cash flows.
Risks Associated with Infrastructure Projects
Regulatory risk,
financial leverage risk,
cash flow shortfall risk,
construction risk (for greenfield projects), operational risk (when privately operated).
Most Suitable Investors for Infrastructure Investments
Long-term institutional investors (pension plans, life insurance companies, sovereign wealth funds).
