A.13 An overwhelming majority of respondents to the call for evidence supported greater involvement of institutional investors in providing debt finance to support the delivery of public infrastructure, although, it was highlighted that certain changes to the existing model would be required in order to attract this investment. Most of the proposals centred on credit enhancements to achieve the higher credit ratings typically required by institutional investors. These credit enhancements included lower leverage (i.e. more risk capital), construction risk mitigation through enhanced support packages or guarantees, changes to risk allocation and tiered capital structures.
A.14 A small number of respondents suggested that no changes were required to the current model and pointed toward certain investors already active in public infrastructure investment and financial institutions currently marketing products to facilitate institutional investment through credit enhancement.
A.15 Many respondents expressed the view that institutional investors would not be willing to provide debt finance where it would be exposed to construction risk. It was suggested that a bank funded (or guaranteed) construction period followed by a refinancing with institutional debt was a potential solution. Those respondents highlighted that any change to debt pricing (or risk of no debt being available) at the time of the refinancing should be absorbed by Government. It was also suggested that bundling projects into a portfolio post construction could make investment more attractive as it provides for a larger investment, which could potentially be listed on an indices and diversifies risk through a portfolio of assets.
A.16 A number of respondents suggested Government could facilitate institutional investment through improvements to the current model. These included streamlining the procurement process, introducing a centralised and appropriately skilled procurement body, simplifying the payment mechanism, taking certain risks back to the public sector, providing for an inflation linkage, removing flexibility and providing investment through public sector equity, subordinated debt or guarantees.
A.17 Some respondents highlighted barriers to institutional investment, which included having the necessary resourcing with the skills to assess opportunities and perform project due diligence. It was suggested that in order to 'resource up', a clear project pipeline would be needed.