The Canada Pension Plan Investment Board is paying $1.14-billion for stakes in five major Chilean toll roads, as the fund seeks to boost its exposure to both infrastructure and emerging markets.
The relatively stable and long-term returns that toll roads provide have made them sought-after investments for pension funds and other institutional investors, and Chile has become a hot spot for Canadian investors.
Last year, Brookfield Asset Management Inc. invested $291-million for a majority stake in a 33-kilometre toll road and tunnel in Santiago, just months after Alberta Investment Management Corp. spent $850-million for a half-interest in a six-lane highway in the Chilean capital.
The appeal of investing in projects such as toll roads, power plants and transmission grids has increased as fixed-income portfolios have languished.
And while governments of developed countries in Europe and elsewhere are looking to offload infrastructure costs to private investors to help get their fiscal houses in order, the most lucrative opportunities seem to be in emerging markets.
In a recent letter to shareholders, Brookfield Infrastructure Partners pointed out that toll roads generate stable cash flows that tend to increase with population and economic growth.
"Over the last 20 years, Chile's motorization rate increased from 78 vehicles per 1,000 inhabitants to 180, yet it is still less than one-quarter of the motorization rate in the U.S.," the letter noted.
CPPIB held $8.6-billion worth of infrastructure investments at the end of 2011, representing 5.6 per cent of the total fund. In addition to the Chilean deal, CPPIB was part of a consortium that paid $3.18-billion for a gas-transport project in Norway. As a result, the fund has significantly bolstered its holdings in this asset class.
And it is hunting for more, said André Bourbonnais, senior vice-president of private investments for CPPIB.
"We're looking at a number of things – a number of transmission-equipment [projects] whether for gas or electricity; we're looking also at various ports and airports around the world; we're looking for opportunities in Europe that may come given that governments are tight financially," Mr. Bourbonnais said in an interview Thursday.
He said the fund was able to get an exclusive shot at the Chilean deal because of its relationship with investment bankers at Goldman Sachs Group Inc. The deal will see CPPIB pick up a 49.99-per-cent interest in Grupo Costanera, the Chilean toll-road operator, from Italy's Atlantia Group.
"Given our relationship with Goldman and the initial discussion that we had with Atlantia, we entered into one-on-one discussions with them," Mr. Bourbonnais said, adding that CPPIB is eager for more deals with the Italian company. "They are the largest toll operator in Italy, and this transaction could lead to other opportunities with them."
While infrastructure opportunities are attractive, they're not without risk. Reuters reported this week that a Spanish construction company is suing the Bank of Nova Scotia in the New York State Supreme Court for at least $80-million, accusing the bank of giving it bad advice with respect to a bid to operate a Chilean toll-road project.
The construction company, SA de Obras y Servicios, accuses its advisers at Scotiabank of using the wrong date in calculations to determine how much income it might expect from the project. The company alleges that it and its partner had to withdraw their bid after it determined that they had been awarded a project that was "far riskier, shorter, less profitable, and more difficult to finance than it had believed."
A Scotiabank representative said the bank will defend itself vigorously in the case and would not comment further because it is before the courts.
Aimco chief executive Leo de Bever said he's happy with how the fund's Chilean investments have performed.
"Chile realizes it needs infrastructure and has put in place the right conditions to attract the capital required," he said.
Editor's note: The original newspaper version of this article and an earlier online version stated that CPPIB had unilaterally paid for a gas-transport project in Norway. This online version has been corrected.