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This is some nice theory. In practice there are dozens of players bidding on infrastructure assets globally. The assets tend to be easy to model, easy to finan
by danielmarkbruce 4y ago
This is some nice theory.
In practice there are dozens of players bidding on infrastructure assets globally. The assets tend to be easy to model, easy to finance and hence finance types (like all the PEs, pension funds etc) love them.
Here is a starting point:
https://pitchbook.com/news/articles/pe-most-active-investors-infrastructure https://pitchbook.com/news/articles/pe-most-active-investors...
https://www.peievents.com/en/wp-content/uploads/2019/10/30_10_2019_IIGS-Whitepaper.pdf https://www.peievents.com/en/wp-content/uploads/2019/10/30_1...
https://docs.preqin.com/newsletters/ra/Preqin-RASL-August-16-Feature-One-Billion-Club-Infrastructure.pdf https://docs.preqin.com/newsletters/ra/Preqin-RASL-August-16...
No one bidding on these assets is giggling about how much money they are going to make. They are thinking "we are bidding a lot here, these returns don't look so hot, how can we justify this??" and then praying their projections aren't off on the downside. At least, in the first world. There does appear to have been some shady dealings in Russia, Mexico etc in the 90's.
- Retric 4y agoI would add China and several countries to that list of shady dealings and far more recently than the 90’s. Beyond that you can find plenty of exceptions in first world countries of underbidding paying off, though mostly at the local scale. For a specific example look at US high speed internet a little closer and you can find taxpayers getting screwed.
- danielmarkbruce 4y agoYep, those 90's examples were just what came to mind. What is a specific local example of that? Ie in what city/town/metro/etc?
- Retric 4y agoA specific example of a massive underbid would be the 99 year lease on Chicago’s skyway. Which was $1.8 billion for a 99 year lease which was not just profitable every year, but after 10 years they sold the remaining 89 year lease for 2.8 billion.
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- danielmarkbruce 4y agoi bet if you ask the folks who "won" the bid if they underbid, they'd tell you otherwise. They got a pretty bad return on it.
- Retric 4y agoDid you actually work out what there return was before saying that? It’s well past the 4.5% a jump from 1.8B to 2.8B in 10 years suggests. For an ultra low risk investment in a period of cheap money it was extremely hard to beat.
- danielmarkbruce 4y agoThe debt was all priced above 5%. So the leverage didn't help. And the thing lost money almost every year, mostly because the 08/09 recession crushed traffic. The Chicago Skyway wasn't a big money maker for the winners. I doubt the people of Chicago are upset the owner made a low single digit return. FWIW, most of these things look different once you start bidding or even considering bidding on them. The competition is fierce. It's hard to make money buying obviously good, simple to understand assets.
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- Retric 4y agoWe could dive into the risk and finances such refinancing in a year to pull out 370m etc, but I will point out: > The competition is fierce “Burke, chairman of the city council's finance committee, described the 99-year lease of the Chicago Skyway, a 7.8-mile toll road, to a private operator for the stunning sum of $1.8 billion - almost $1 billion more than the next-highest bid.” That’s hardly stiff competition that’s twice the second highest bid and it was still profitable in the short term even with a recession. https://money.cnn.com/2007/09/17/news/international/macquarie_infrastructure_funds.fortune/index.htm https://money.cnn.com/2007/09/17/news/international/macquari...