The Asian Development Bank has forecast that Asia will require US$26 trillion over the next 15 years to maintain its growth momentum, tackle poverty, and respond to climate change. Although Asian infrastructure aggregate deal value has nearly trebled in recent years, from US$49 billion in 2014, to US$140 in 2016, it still lags far behind a rapidly growing European market.
Completed Asian infrastructure deals amounted to US$26 billion across 66 deals 2017 YTD according to a recent report by Preqin. This compares to an estimated aggregate deal value of US$59 billion in Europe, across 178 deals.
Although the Asian market is growing, the Europe-focused infrastructure market sees much higher aggregate values, with both fundraising and deal making hitting record levels. Aggregate deal value in Asia reached US$140 billion in 2016, which compares favourably to US$96 billion in 2015, and US$49 billion in 2014. However, in 2016 Europe saw an estimated aggregate volume of 309 billion euros (US$345 billion), compared to 307 billion euros in 2015, and 227 billion euros in 2014.
“Due to the number and diversity of countries located in Europe, the range of asset types and investment opportunities is vast. This variety is one of the key reasons why the region has seen such substantial, year-on-year expansion,” says Tom Carr, head of real assets products at Preqin.
The report, Preqin Real Assets Spotlight, notes thirty-four Europe-focused unlisted infrastructure funds closed in 2016, raising a record US$25 billion. This accounts for nearly half (45%) of all the funds closed globally through the year, the highest proportion recorded in the past six years. In 2017, YTD five funds have closed, raising a total of US$6.5 billion.
“With government incentives deriving from the European Commission driving activity, the region has seen record levels of capital secured in the past two years while the number of transactions completed in Europe hit an all-time high in 2016,” says Carr.
The makeup of the infrastructure deals market Europe is changing: for the first time in 2017 YTD secondary stage assets account for the largest proportion of deals completed (38%), higher than greenfield (27%) and brownfield (35%) projects. In Asia, 70% of completed deals were secondary stage, 26% greenfield, and 4% brownfield.
“As the infrastructure industry in Europe continues to grow and mature, especially as the push for renewable energy solutions gathers pace, it is likely that the market will become increasingly attractive to global investors. However, it is key that fund managers are able to overcome the obstacles of high valuations and intense competition in the deals market, so that the pace of capital being distributed to investors is sustained,” says Carr.
