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Investment opportunities in the transportation sector

February 22, 2021
On January 21, 2021, the GRI Club held an eMeeting titled "Investors' Appetite for US Infrastructure Assets - Competitive opportunities or scarce success?" The eMeeting discussed investment opportunities in the US Infrastructure and Energy sectors in light of the Covid-19 pandemic, the recent US presidential election and the worldwide drive towards sustainability and decarbonization.

The e-Meeting was moderated by Jose Moran, Partner at Baker & McKenzie LLP, and Jorge Valenzuela, Principal at ARUP, and included the following panelists: Amit Rikhy, President and CEO, Carlyle Airport Group, Helen Newell, Senior Vice President-Infrastructure, GIC, Juan Camargo, Managing Director, OMERS Infrastructure, Olivier Renault, Managing Director, Caisse de dépôt et placement du Québec (CDPQ), and Paul David, Head of Americas, Infrastructure Debt, Allianz Global Investors.
  1. Rail
Biden has pledged a "second great railroad revolution" to make the US rail system the cleanest, safest, and fastest rail system in the world, for both passengers and freight.  
A panelist stated that US politicians have often talked a lot about increased governmental investment in rail, only for such investment to not actually materialize.

Environmental, social and corporate governance (ESG) concerns are a key piece of the puzzle from the freight perspective.  From the commuter rail perspective, the Biden policy will focus on improving air quality and reducing congestion through increased use of light rail.  The transportation sector may also see use of public-private partnerships (P3) for passenger transportation, and may also see private opportunities, the divestment of transportation assets by major industrial companies and governmental funding in situations where the private sector does not get involved.
  1. Aviation
The impact of the Covid-19 pandemic on aviation has been quite severe. A panelist noted that most economic forecasts point to full recovery in the sector not occurring until 2025 or afterwards.  Governmental stimulus in this area is very important.

Covid revealed that airports were more economically fragile than was previously thought.  Airports are now thinking about how to make their assets more resilient and are examining which of their assets are noncore and could be divested or managed by private enterprise.

Airports are seeing rapid changes in technology, with the aim to create seamless and contactless journeys.  Airports are looking at ways to make existing assets smarter and digitized, including the use of biometrics, investments in modernized HVAC, as well as smarter buildings and infrastructure.  There is a huge potential role to play for the private sector and for P3s.

In the US, airports are managed at local level.  Some cities are exploring airport privatization.  Airports are considering ways in which private sector efficiency can be introduced to manage airport assets without effecting a change of ownership of such assets to the private sector.  Airports are looking at ways to develop and operate their existing assets with the private sector.
  1. Lending
The panel considered the role of lenders in restructuring the debt of infrastructure assets.  A panelist divided transportation assets into two principal classes for lenders for this purpose: (i) toll roads (which saw a temporary drop in revenues during the pandemic, but have now recovered) and (ii) airports.  Airports are suffering at the moment due to liquidity issues.  However, long term investors are taking a long term view: these assets are necessary and will remain so.  There is a great opportunity for the Biden administration to provide stimulus for these assets.

A panelist noted that the US reliance on tax-exempt debt to finance infrastructure assets may be an inefficient means to finance these assets, in that the capacity of state and local governments to issue this debt may be limited.  The panelist noted that some airports were looking outside the tax-exempt market for debt investors, and that some investors may be willing to invest in non-tax-exempt debt.
  1. Carbon capture
A panelist expressed the view that carbon capture was not currently investable at scale, and is currently seen as very expensive and uneconomical. May see investments in carbon capture in Europe before this type of investment is seen in the US. 
  1. Digital infrastructure
Digital infrastructure (including data centers, satellites, wireless towers (multiple transponders), smaller scale digital transmission (transponders on existing buildings), cyber networks and fiber to home) are a key priority of many investors.  The 5G network is a significant opportunity for investors.  Some major US telecom companies telecoms are well capitalized and are investing in these areas themselves, making investment opportunities.
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José Moran
Baker McKenzie
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