An Open Road: Institutional Fund Managers Set Sights on Chile

By Mick Bowen

International institutional fund managers are likely to continue buying stakes in Chilean infrastructure assets, including toll roads, as long as investing in the country combines steady returns with limited risks, sources told InfraAmericas.

“In general, we’re going to see more and more. We’ve already seen direct investments in infrastructure by pension funds and sovereign wealth funds, and this trend will continue over the next five to 10 years,” predicted Jonathan Turnbull, managing director in the power, energy and infrastructure investment banking group at Lazard.

Late last year, the Alberta Investment Management Corp (AIMCo) agreed to buy half of the Autopista Central PPP highway concession from Sweden’s Skanska and became the latest foreign institutional fund manager to invest directly in an infrastructure asset in Chile.

However, AIMCo was not the first Canadian fund manager to go to Chile – the Ontario Teachers’ Pension Plan (OTPP) acquired controlling stakes in three water utilities in 2007 – and it will probably not be the last.

“These deals have given Chile a good marketing presence in Canada,” said Pedro Batalla, a former partner at Santander Infrastructure Capital. “Chile’s regulatory system is transparent so investing is not as difficult as it would be in Mexico or Brazil. Chile is very attractive.”

In addition, Chile became the first South American country to join the OECD in January 2010, which reassured fund managers reluctant to gamble with their members’ pensions, Batalla said. “There are a number of Canadian pension funds looking at Chile right now. There is significant demand for investment, especially in the energy sector, and the Canadians could play a role,” he said.

According to Turnbull, the Chilean government has wisely recruited private capital to support its infrastructure initiatives, including in the highway sector, where several foreign companies are already involved. “The AIMCo deal will be one of many,” he said.

AIMCo declined to comment on the Autopista Central transaction, but Skanska said in February that it would likely complete the sale by the end of the third quarter this year.

Recycling Capital
According to Turnbull, Skanska was smart to invest early in the Autopista Central PPP highway concession, breaking ground in 2001 and starting operations in 2004, and then secure a good return on its investment.

Skanska spent approximately USD350m on the construction and operation of the highway, according to its website, and made a gain of around USD790m after tax from the sale.

“Objectively, I’d say it was a great deal,” said Turnbull, who advised Skanska on the sale. “Skanska was awarded an attractive valuation of its asset, and AIMCo bought a great asset in a mature market with very real traffic growth forecasts.”

However, Skanska has not abandoned Chile. It secured a 20-year concession in early 2010 to build and operate a toll road in Antofagasta, including 120km of new highway and improvements to 200km of existing highway. The company began construction in November 2010 and it expects to open the road to traffic by the end of 2012, with estimated costs of around USD300m.

“If you look at the concessionaires in Chile, a lot of them are construction companies,” said Batalla. “They know how to put a project together, build it and then recycle their capital to get a premium.”

Other European infrastructure firms that could sell their highway concessions in Chile include ACS, Atlantia and OHL, sources said.

“The remaining players will follow the same model,” said Batalla, referring to the sale of Skanska’s 50% shareholding in Autopista Central to AIMCo. “Eventually, they will sell because they want to get a return.”

“The success of the Skanska transaction should make others look at raising capital with the assets they have,” Turnbull said. “I expect to see more transactions but I don’t know what shape they’ll take.”

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