Infrastructure financing: A long and winding road

AS INVESTMENT opportunities go, lending money to a consortium building three prisons in rural France does not have the cachet of backing the latest Silicon Valley IPO. A new subway line in Seoul or energy pipelines in Texas will not set many pulses racing, either. Unglamorous as they may be, such investments are vital for economic growth. Yet financing infrastructure is falling out of favour with banks. Can other investors plug the gap?European lenders, which used to dominate infrastructure financing, are now busy repairing their dented balance-sheets. Meanwhile the new “Basel 3” rules are steering banks away from the long-term loans (often stretching beyond 20 years) required by backers of infrastructure projects. The one exception is Japanese banks, which have stronger balance-sheets and are keen to put money to work.Banks are not only wary of making long-term loans, they are also reluctant to take as much risk as before. Whereas they used to be happy to lend 90% of the construction cost of a large project, such as a toll road in America, that figure is down to something like 70% now. This forces the backers to come up with more of their own cash. In the same…

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