PF Archive

New infrastructure lending initiatives hit and miss

16 12 2009

The dust has – mostly – settled. Bankers have resumed attending syndication meetings. The backlog of financings that dates back to September 2008, and Lehman Brothers' implosion, has cleared. Bidding has resumed at pre-crisis levels for social infrastructure assets in markets such as the UK and Canada. This recovery mirrors a more general recovery in corporate debt and equity markets, and like that recovery, is still vulnerable to shocks. The Nakheel debt standstill, and a threatened rash of downgrades to government-related issuers, indicates that banks' assets are far from solid. Debt against assets with exposure to traffic, trade and tourism will take time to recover. But the recovery in credit markets has taken hold to a sufficient extent that it is possible to assess the responses of governments and multilaterals to the crisis. At the macroeconomic level, governments and central banks' responses to the crisis were broadly similar, and involved funnelling liquidity to banks both healthy and unhealthy. All projects with floating rate exposures, even those that closed with eye-watering margins in late 2008, are benefiting from the cheap money binge. But governments' infrastructure-specific responses have been more diverse. Responses reflect a combination of ideological preferences, fiscal conditions and the availability of existing mechanisms to support infrastructure lending. Several governments, most notably that of the United States, have adapted existing programmes to the new lending environment, or seen demand for them increase. Direct competition Of all the programmes that involve direct lending to infrastructure projects, none are as tolerated by commercial banks, or beloved of...