Privatization drive slowed by roadblocks

By Joseph A. Giannone - Analysis

NEW YORK (Reuters) - What Wall Street had thought would be a flood of infrastructure deals has turned out to be a trickle.

Last year bankers predicted cash-strapped state and city governments would sell or lease airports, toll roads and other public assets to investors with billions of dollars clamoring for stable, long-term returns.

Instead, public resistance against such sales has caused government officials in many states to hesitate, slowing deal traffic to a crawl.

"There's no problem on the demand side," said Dana Levenson, head of Royal Bank of Scotland's North American infrastructure finance and advisory business. "'Robust' would be a vast understatement. It's just not being matched by supply."

The $1.8 billion lease of the Chicago Skyway toll bridge in 2005, last year's $3.8 billion Indiana Toll Road lease and a growing pipeline of proposed deals indicated the United States at last had joined the worldwide privatization wave.

The global volume of deals involving public and private infrastructure assets -- from power utilities and seaports to airports and toll bridges -- last year tripled to $150 billion from the year before.

By some estimates, specialist funds have earmarked more than $75 billion for infrastructure investments, which with additional borrowing represents up to $400 billion in dry powder. Some bankers say buying power exceeds $750 billion.

All across Wall Street, firms have assembled teams and raised new specialized funds to handle the expected surge of public asset deals.