A deep lake cooling pipeline project near Toronto.Handout
Infrastructure deals don't come cheap these days with many pensions funds, sovereign wealth funds and other institutional players all chasing the action. But with the right discipline, Brookfield Infrastructure Partners L.P. says, there are still good opportunities to buy real assets.
Brookfield Infrastructure said Wednesday that it would increase the size of its latest equity offering to about $890-million (U.S.) from the $750-million proposed a day earlier, due to strong demand from investors.
That issuance, intended to fund debt repayment as well as new investments, includes the sale of 12 million units in a bought deal worth close to $540-million, led by RBC Dominion Securities, Credit Suisse, HSBC and TD Securities. At the same time, Brookfield Asset Management will buy up more than 8 million redeemable partnership units of Brookfield Infrastructure L.P., Brookfield Infrastructure's holding limited partnership. And the offering could get even bigger if the over-allotment is exercised, giving the company plenty of capacity to make acquisitions.
"Since the formation of Brookfield Infrastructure, we have not seen this level of market activity," said Sam Pollock, chief executive of Brookfield Infrastructure Partners, in a recent letter to unitholders. While he's expecting stiff competition for assets, Mr. Pollock said Brookfield can still grow, given its global presence and financial strength.
So where might Brookfield turn next? For starters, Mr. Pollock said in his letter that Brookfield Infrastructure is watching the $50-billion in Australian state and federal government privatizations of infrastructure in the coming years. The country is pursuing an "asset recycling" program focused on the sale of government-owned infrastructure, such as ports and power lines, into the private market. The program offers funds to for new infrastructure projects to the state and territories government who sell existing assets. Brookfield already has an investment presence in Australia, which could be a foundation to build on.
This highlights the competitive aspect of investing in real assets right now – many other investors, including Canadian pension funds such as the Ontario Municipal Employees Retirement System, are also actively trying to buy up Australian infrastructure.
Other investment opportunities could include acquiring assets from Brazilian construction companies with financial struggles, Mr. Pollock noted. "Large scale asset purchases of South American infrastructure assets from Brazilian construction companies look increasingly feasible," he said.
Mr. Pollock said mining companies may now be looking to sell infrastructure amid depressed commodity prices, while European utilities continue to change hands.
He also expects existing funds to shed assets in the near future. "The infrastructure asset class continues to mature and consequently a number of investment funds raised between 2005 and 2008 are approaching the expiry of their funds," Mr. Pollock wrote. "We have started to see the first wave of divestitures from this ownership group."
Finally, Mr. Pollock noted that there may be investment opportunities amid lower oil prices. "We have historically been very successful in acquiring large scale businesses during periods when capital has been constrained," he said. "However at the moment, there is still a significant amount of private capital following the sector."