International lenders are flocking to Australian infrastructure projects built with the government as they offer returns amid a "flight to quality," according to Royal Bank of Scotland Group.
About 30 banks, including ones from Singapore, Japan and Europe are willing to lend to public private partnership projects in Australia, Steve Hughes, RBS's head of corporate debt capital markets and syndicate, said at a briefing in Sydney yesterday. There were "limited players" before global credit markets started to seize up in 2007, he said.
They "need to apply their capital globally and Australia's a great place to do that," said Geoff Daley, head of infrastructure advisory at RBS. "That's partly a flight to quality because of the uncertainty in Europe and the US."
Australia's economy skirted recession, though policy makers expect growth to almost double in the next two years as China's resources demand spurs mining investment. The nation has an infrastructure backlog of more than $770 billion, industry body Infrastructure Partnerships Australia wrote in a May 11 statement.
The AquaSure group building Australia's biggest water desalination plant signed loans worth $3.92 billion in September, according to data compiled by Bloomberg. The main term loan of $3.67 billion, which pays a spread of 350 basis points more than the bank bill swap rate, was funded by 35 lenders including pension funds AustralianSuper. and Industry Funds Management, the data show.
Pension Interest
Pension funds are buying bank debt of such projects due to the lack of bond investments available, Hughes said.
Public private partnerships, or PPPs, now "offer the majority of banks a good return," and are in a "sweet spot" for lenders of about five years, he said.
PPPs are agreements between government and one or more private companies to jointly fund or operate a new service or business venture, such as a toll road or a hospital. Such projects in Australia include construction of the Royal Children's Hospital in Melbourne, and the manufacture of new trains for Sydney's rail network, according to Moody's Investors Service.
New sales in bond and loan markets worldwide have stalled on concern the European debt crisis will hurt global growth. Firms globally sold the least amount of bonds in a decade last month. Companies in Australia and New Zealand have signed loans worth $US10.8 billion this year, down from $US13.4 billion in the same period of 2009, according to data compiled by Bloomberg.
The AquaSure loan was the biggest in Australasia last year, the data show. An $765 million seven-year loan for the project building the Peninsula Link road in Victoria state is the fourth-largest in 2010, according to the data.