Just as institutional investors do, retail investors will want to understand the context within which the infrastructure opportunity is being transacted. Countries with a stable geopolitical environment and high degree of transparency are more likely to meet retail investor requirements. This probably helps to explain the Nakilat's success in having retail investors hold 50 percent of its shares (see Table 1). This was an opportunity with the full support of the state and of vital importance to the prosperity of the country. Interest in infrastructure initial public offerings in India probably reflects the sector's strong political support and the large number of works already in the pipeline.
Table 1: Examples of infrastructure propositions for retail investment in infrastructure
Example | Background | Success |
Municipal bond market, United States | This market represents a major source of private finance for state and local governments. In 2008, issuance was approximately US$385 billion,1 although this figure covers a whole range of state and local government financing, not just infrastructure. The market is dominated by retail investors, either individuals investing directly or through mutual funds. | factors or issues This is a long-established market. The market is supported by exemptions from both state and federal taxes. |
Nakilat, Qatar | Nakilat (which means "carriers" in Arabic) is a Qatari shipping company that forms an integral link of the liquefied natural gas (LNG) supply chain for the State of Qatar. It was established in 2004 and is a joint stock company owned 50% by its founding shareholders and 50% by the public as a result of an IPO in 2005. Nakilat is building a large fleet of vessels to transport LNG produced from Qatar's North Field, the world's largest non-associated gas field with approximately 15% of the world's proven reserves, to global markets. By 2010, Nakilat will own 54 LNG vessels, making it the largest LNG ship owner in the world.2 | The development of the LNG industry is an important part of the development of Qatar's economy. The other shareholders are all bodies of the Qatari State. |
IPOs, India | There have been a number of IPOs in India in recent years involving both corporate companies directly involved in the provision of infrastructure, such as construction companies, and those investing in a range of infrastructure or concession companies. Most recently, on February 11, 2010, ARSS Infrastructure Projects Limited was listed on the National Stock Exchange of India. ARSS is a construction company. Its share offer went 60% to institutional investors, 10% to corporate, and 30% to retail investors. It was heavily oversubscribed- for example, the allocation to retail investors was 18x oversubscribed.3 | The interest in investing in infrastructure reflects the importance the government has placed on spending in the sector. To some degree the model is unproven, as the IPOs have all been recent. |
EDF, France | In June 2009, EDF, an integrated energy company in Europe, launched a 5-year bond open to private individual investors in France to help fund EDF's French investment program.4 | EDF targets domestic investors to invest in domestic infrastructure. The investment is relatively short term: 5 years. There is a fixed interest rate of 4.5%. |
Railtrack, United Kingdom | Railtrack owned the national UK rail network of track, bridges, stations, and signals. In 1994, it was established as a government-owned company; then in May 1996, it was privatized and listed on the UK stock exchange.5 The shares were launched at UK£ 3.90, but by February 15, 1999, were trading at UK£15.51.6 The initial listing provided that at least 30% of the shares go to the public.7 Yet, following increased infrastructure renewal costs and financial penalties for failure to meet performance targets, in October 2001 it was taken into administration and was ultimately transferred to Network Rail, a company limited by guarantee (from the government).8 | Retail investors had already invested in other privatizations in the United Kingdom, such as gas and water, so they had a familiarity with this type of opportunity. But the collapse of company left all shareholders, both institutional and retail, with a significant loss of value of their shares. |
BrisConnections, Australia | IPO to fund the public-private partnership to develop $A 4.9 billion road projects in Brisbane, Australia was popular with retail investors, yet the issue required further capital contributions that they were unable to fund. See Case Study 11: Brisconnections. | |
1 See Chapter 2.3 on municipal bonds. 2 Nakilat website: http://www.nakilat.com.qa (accessed February 12, 2010). 3 NSE website: http://www.nseindia.com. IPO Current Issues at NSE on February 12, 2010. 4 EDF Group website: http://www.edf.com; see also EDR 2009. 5 NAO 2000. 6 UK Parliament, House of Commons 1999. 7 Railtrack Share Offer Prospectus, May 1, 2006. 8 NAO 2004. | ||