Fundamentals of Private Equity and Venture Capital - PEI Media

Exhibit A2.3: Private equity restructures – breakdown of global infrastructure deal volumes
by acquirer, 1998–2006 YTD
150
125
Private equity
Non-private equity
$ (billions)
100
75
50
25
0
1998 1999 2000 2001 2002 2003 2004 2005
Year
Source: Thomson Financial.
2006
YTD
Or, as Chuck Leitner, the global head of
RREEF, the real estate and infrastructure arm
of Deutsche Bank, puts it: “Just about everybody
that talks about infrastructure has
Australian accents.”
Contrasted with the mature infrastructure
market in Australia, the developing countries
of Asia, particularly China and India, are also
witnessing a boom in infrastructure as their
surging economies necessitate vast new networks
of roads, tunnels, ports et cetera.
According to a report last year in the Wall
Street Journal, China is planning to spend up to
$400 billion on infrastructure through 2010,
while consulting firm McKinsey has estimated
that India needs over $250 billion in infrastructure
investment.
“The single most important bottleneck is infrastructure,”
Aashish Kalra, managing director of
Trikona Capital, which is partnering with
IL&FS for a $100 million infrastructure joint
venture, told PEI’s sister publication Private
Equity Real Estate in 2006.
US: A new market
Despite the size of the infrastructure market in
the US – the Bureau of Economic Analysis has
estimated it at $5.6 trillion – the sector is relatively
immature in terms of private investment.
This is primarily due to the municipal
bond markets, which have provided governments
with robust financing for public infrastructure
projects. In recent years, however, as
the country’s infrastructure has aged and the
ability to raise capital via taxes has diminished,
more and more public entities are looking
to the private sector.
“Estimates suggest that the US needs
$1.6 trillion over the next five years just to
repair and build highways, bridges, dams, airports,
railroads and other infrastructure,”
Dale Anne Reiss, the head of Ernst & Young’s
global real estate practice, said in an
early 2007 statement. “The annual tab to
maintain the nation’s 50-year old highway
system is $176 billion alone. With real estate
capital flows at their highest levels ever,
I would not be surprised to see more pension
funds and other long term investors move
into private funding of key infrastructure
developments.”
In recent years, the most prominent examples
of US infrastructure investments have been
toll roads. From the greenfield development of
the San Joaquin Toll Road in California in the
1990s to the recent privatisation of the
Chicago Skyway, widely regarded as a landmark
transaction in the sector, local governments
across the country have followed suit.
And given the current state of the nation’s
infrastructure, as highlighted by Reiss, many
experts predict that privatisation of existing
toll roads will accelerate.
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