* Fears ECB support removes incentive to cut prices
* Spanish, Irish, Greek sales have struggled
* Risk-return trade-off puts investors off
By Raji Menon
LONDON, Sept 17 Infrastructure investors hoping
to snap up assets on the cheap from crisis-hit southern European
countries have found themselves scrabbling around for deals as
governments refuse to cut prices.
Many cash-rich funds are now preparing to spend the rest of
2012 on the sidelines after the expected fire sale on everything
from state-controlled airports to electricity grids failed to
Now that the European Central Bank has pledged unlimited
support to struggling states in the sovereign bond market,
investors fear governments will have little incentive to adjust
historic book values for quick disposals, and a long period of
market inactivity beckons.
"The reason why these governments are not selling is that
they think prices will be too low, and they just don't want to
sell at this point in time. It's the last thing they would want
to do," said Tony Rocker, a partner at infrastructure investment
transaction services at consultancy firm KPMG.
"They would not get the value they would have got 3-4 years
ago," he said.
Even solid, blue-chip assets in southern European states
have failed to find buyers at targeted price levels.
Late last year, Spain pulled plans to sell two of its
airports in Madrid and Barcelona, while Ireland
and Greece, which have drawn up long shopping lists of assets
for privatisation, have yet to sell any of their businesses.
Greece was hoping to dispose of about 100 assets this year -
including natural gas company DEPA, gas grid operator DESFA,
Hellenic Petroleum and betting firm OPAP - in the hope of
raising about 3.2 billion euros ($4.02 billion).
Athens has now said it will only be able to complete the
sale of its state lottery firm and a building in
Ireland, meanwhile, has been trying to sell its ports,
airports, electricity and gas distribution businesses for more
than 18 months.
"For some of these countries where there is uncertainty and
increased country risk, this is not the best market in which to
sell off state-owned assets and achieve the best price," said
Marcus Ayre, head of infrastructure transactions for Europe at
fund manager First State Investments.
"So sometimes, it is difficult in some of these economies to
match vendors' expectations when they are looking to sell
things," he added.
PRICING THE RISK
Research firm Preqin said fund managers had carried out 30
infrastructure deals this year in "safe zone" Britain, compared
to 36 in 2011. But in Spain, only eight similar deals had taken
place in the year-to-date against 15 in 2011. Italy had only
wrapped up one deal so far in 2012, compared to 16 in 2011, it
The central problem, said investors, was agreeing on the
right price for assets coming out of high-risk countries hit by
the debt crisis.
"These big ticket assets are difficult for the broader base
of institutional investors to price - especially in the case of
assets that have some level of government support," said Rob
Gregor, managing partner at Balfour Beatty Infrastructure
Daniel Wong, head of infrastructure and utilities for
Macquarie Capital, said most investors would only deal if
returns topped what governments were paying on their bonds.
"Once the government cost of borrowing breaks away and
starts to head to 6-7 percent and you add the premium on top of
that, most transactions cannot trade because there's too much of
a pricing mismatch," he added.