World Business

Before you start construction infrastructure investments on the hardness of Obama’s stimulus program, study examine these potential obstacles to a building boom

By David Bogoslaw

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The incoming Obama Administration has made clear that investing in infrastructure will be a cornerstone of its program to spur a U.S. economic recovery. But before investors push on into all kinds of infrastructure plays—from single stocks like power-gear cyclops Emerson Electric (EMR) to mutual funds that specialize in toll roads, bridges, and airports—they need to be aware of some things that could derail, or at least significantly delay, somewhat bonanza from public works projects.

Here, BusinessWeek looks at six factors that could keep these projects in a holding pattern—an unpleasant prospect for those who wish to see the rebuilding dash forward make a beginning immediately.

President-elect Barack Obama has said he wants to invest in renewable energy sources to subdue this country’s dependence on outward oil imports and vulnerableness to the kinds of price spikes in gasoline seen last summer. But many projects receive been funded through project finance, a market that has shrunk dramatically as a result of the financial crisis as banks that were major players in this area like as the Royal Bank of Scotland (RBS) have been taken over by government or have otherwise suffered, says George Bilicic, chairman of Power, Utilities & Infrastructure at Lazard (LAZ), the investment bank.

Infrastructure is viewed as a relatively defensive asset class—safer, with more stable cash flows, even if returns aren’t as high as leveraged buyout vehicles—and tends to benefit more from a flight to quality during greater degree of challenged mart environments, says John Veech, prudent director of private righteousness at Neuberger Berman. Veech says he expects to see project finance for infrastructure rebound this year but thinks banks faculty of volition be less prone to be the assailant. They may subsist willing to put up 60% to 70% of the high-grade obligation needed to cover the require to be paid of such projects rather than the 80% to 90% they provided in the past. That will transfer into lower prices and bigger uprightness checks from investors in infrastructure, as origin as a rise in collaborative partnering deals.

"I confident you’re going to see project and infrastructure-type debt [deals] go significantly quicker than you’ll see high-yield or LBO-type debt come back," which is consistent with prior economic cycles, he adds.

But the sum total of not to be disclosed cardinal that’s either been raised to date or contemplated is totally small relative to the overall investment in North American infrastructure that is needed and, in terms of fundamental impact on the economy, wouldn’t make a difference without further state stimulus, says Lazard’s Bilicic. Private capital is certainly a tool that provocation programs at the state and local levels should tap into in order to make some projects more viable, however. For archetype, a city mayor could get a part of mileage for filling his budget gap by selling off assets like parking garages, which could then provide resources that the incorporated town necessarily for more basic social services, he says.

The sway has a prosperity chance of getting a unclouded price for such assets and securing personal capital at a tolerable price to build an infrastructure asset from scratch, which currently isn’t true of other industry sectors transversely the world, he says. There is, however, some political resistance to topical governments going after sequestered capital for infrastructure projects, Lazard deep-read from the results of a survey it sponsored in mid-2008. Even with equal reason, Chicago lately sold its Midway Airport and its street-metering system to private interests, he adds.

Original text: http://www.businessweek.com/investor/content/jan2009/pi2009016_415630.htm?campaign_id=rss_null