Thursday, June 20, 2024

The Pipeline: Thames Water seeks leniency, roadblocks to renewables deals, DigitalBridge hunts for co-investment

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First look

What does Thames Water want?

To have its cake and eat it too it seems, as the UK water utility lobbies the regulator Ofwat to greenlight a 40 percent increase on customer bills by 2030, lower fines and penalties for poor performance and allow the utility to pay dividends to its parent company Kemble Water.

Talk of a possible collapse has been swirling around the company since last June when its then CEO Sarah Bentley abruptly resigned as the company struggled to service its multi-billion pound debt. Since then, the debt pile has increased by another £4 billion ($5.1 billion; €4.7 billion) to reach £18.3 billion, the utility has received a £515 million loan that was initially presented as an equity injection and a £37.5 million dividend Thames paid to Kemble last October could result in a fine, depending on what Ofwat decides in the coming weeks.

But the regulator is being held to ransom it seems. According to a Financial Times report, the utility “insists that equity holders are willing to inject another £3.25 billion, but only if they get the regulatory outcome they want from Ofwat”.

If that’s not having your cake and eating it, we don’t know what is.

Physical climate risk to infra portfolio poorly understood

The impact of climate risk on investment portfolios remains uncertain, says an EDHEC Infra poll of 70 investment industry professionals, including managers with over $2 trillion under management.

Some 97 percent of investors polled believe that physical climate risk is significant and no fewer than 76 percent of respondents anticipate a medium or high impact of climate risk on their infrastructure investments.

However, 76 percent of respondents find existing climate scenarios inadequate for assessing physical climate risk in infrastructure investments and two-thirds of respondents had not conducted any evaluation of physical climate risk themselves.

Presenting the survey, EDHEC said that despite the importance attributed to physical climate risk, investors and managers are not in a position to estimate its impact on their own portfolio.

“Despite the high stakes, there is a clear gap between the perceived significance of climate risk and the ability to evaluate and mitigate its impact effectively,” said Frédéric Blanc-Brude, director of the EDHEC Infrastructure & Private Assets Research Institute, in a statement.

The poll was conducted among attendees to the presentation of EDHEC Infra’s recent research paper, It’s Getting Physical.

Still, the situation doesn’t seem so hands-on.

Roadblocks in renewable project finance

Appetite for US renewable energy deals is high, but deals aren’t being put on a plate to supplement it, according to Banyan Infrastructure, a project finance software platform.

Banyan released its renewable energy project finance industry survey for 2024, finding 42 percent of lenders are looking to invest in new renewable technologies in 2024, while 70 percent of all surveyed seek to grow their renewables portfolio over the course of the year. However, dealflow is stuck. Half of lenders and 40 percent of borrowers stated that scarcity of capital was a top reason for deal slowdown.

A majority of respondents were borrowers and lenders for renewable energy projects, at 69 percent of the total surveyed. Others included infrastructure funds, developers and lawyers.

Lenders mainly attributed this scarcity of capital to the risk profile of the projects (58 percent of those surveyed agreed) while borrowers cited interconnection queues (67 percent), offtake agreements (40 percent) and securing incentives (40 percent) as main reasons.

Risky business indeed, it seems.

They said it

“How can you be the leading country in the world while ranked number 13 in terms of infrastructure? It’s not good”

President Joe Biden on Late Night with Seth Meyers laments the state of US infrastructure

Who’s hiring

DigitalBridge hunts for co-investment

DigitalBridge is no stranger to raising co-investment money. According to its latest earnings released last month, the group raised $3.5 billion in 2023, on top of $3.1 billion raised in 2022. Co-investment capital accounted for 45 percent of the total capital it raised in 2023, even while it was in market for three different comingled strategies.

However, it is now dedicating extra resource to the strategy, appointing Patsy  Sandys to the newly-created role of head of co-invest. The London-based Sandys is already a DigitalBridge employee, having been a principal with InfraBridge, the renamed unit that was AMP Capital’s global infrastructure equity division. Prior to DigitalBridge’s acquisition of the unit last year, Sandys was AMP Capital’s global head of direct investments, having initially joined AMP Capital as a senior associate in 2016.

This year, DigitalBridge is aiming for co-investment capital to account for closer to 25 percent of its total fundraising. Time will tell on the Sandys effect, though.

Like Mike? Dexus does

Dexus has named Michael Faulkner head of asset management within its infrastructure team, four months after he joined the firm.

Faulkner joined Dexus in November 2023 as managing director of transport, focusing on assets including Melbourne Airport, Port Hedland Airport and Sydney train fleet Reliance Rail.

In his new role, Faulkner retains responsibility for transport while broadening his responsibilities to include oversight of infrastructure asset management.

His hire came after Dexus – an ASX-listed real estate investment firm – moved into the infrastructure space with the acquisition of AMP Capital’s domestic infrastructure equity business in March 2023.

Faulkner joined two other Michaels, co-heads of infrastructure Michael Cummings and Michael Bessell, both of who joined from AMP Capital.

A Dexus spokesperson told The Pipeline that Cummings and Bessell will continue to manage the infrastructure business unit under the new titles of executive general manager, infrastructure.

“Dexus has updated its workforce architecture as part of the integration of the acquisition of AMP Capital,” the spokesperson said.

Other changes are afoot at Dexus, with CEO Darren Steinberg set to step down this month and current chief investment officer Ross Du Vernet taking his place.

LP watch

New Mexico’s double dip

After 2023 emerged as infrastructure’s worst fundraising year since 2015, the pervading feeling has been that most LPs were struggling to commit once to a fund.

The New Mexico State Investment Council last week though went down the unconventional route of committing twice to the same closed-end fund. In January 2023, the group committed $220 million to EQT Infrastructure VI, comprising $160 million fund commitment and $60 million for co-investment. In June last year, it committed $150 million to LS Power Equity Partners V.

Fast forward to February 2024 and it wants more of the same. Another $165 million has been committed to the EQT fund, to be split in a similar fashion between fund and co-investment, while an additional $100 million has been sent the way of LS Power, whose final close was said at the meeting to be “coming up quickly”. The top-ups were attributed to the growth of the NMSIC plan.

“If we had the foresight in January 2023 of what our growth would have been, we would have committed more at that time and that’s why we’re back here today,” Keith Sabel, NMSIC’s director of real estate and real assets, told the meeting.

Even with the foresight, other LPs haven’t been so lucky.


Solar panels on farmland

Sandbrook reaches home shores

Sandbrook Capital plans to invest up to $460 million in rPlus Energies, a renewable energy developer in the western US. The investment will be used to bring 1GW of generation and storage online in the near term, as the firm currently has a pipeline of 15GW of solar, wind, battery and pumped storage hydropower projects.

The investment will stand alongside an existing investment from the Gardner Group, a commercial real estate company that was the founding investor of rPlus.

It’s a sizeable investment for the new manager, which closed its inaugural fund, Sandbrook Climate Infrastructure Fund I, on $2.1 billion inclusive of its co-investment scheme at the beginning of this year. Previous investments include offshore wind turbine installation, wind repowering companies and standalone battery storage in Europe. This is the Connecticut-based fund’s first deal in the US.

No place like home, then.

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