27 minute read
Kerrie Mather | Chief Executive Officer and Managing Director Sydney Airport
Below: Kerrie Mather
Kerrie Mather
Chief Executive Officer and Managing Director, Sydney Airport
Key points:
• The privatisation of Australia’s airports has been a case study in good reforms to infrastructure markets. • Since privatisation, Sydney Airport has invested circa $2.7 billion in airport infrastructure. • There are practical benefits to the operational integration across the Kingsford Smith and proposed Western Sydney airports. • Landside transport and other infrastructure connections are critical to the Western Sydney Airport, and will need support across the tiers of government and the community.
Sydney Airport is adapting to changes in aviation, and is working to ensure that Australia remains internationally competitive. We are also working to ensure that the Western Sydney Airport is set up for success.
As it’s a publicly listed company with an enterprise value of around $20 billion, anyone can own a piece of Sydney Airport. Our investors are superannuation funds that represent millions of Australians.
Sydney Airport plays a critical role in the national aviation network, forming the core hub of aviation and air travel in Australia. It’s one of the largest and most important transport infrastructure facilities in Australia, and has the scale of a small city.
It contributes $30.8 billion to the New South Wales economy – almost 6.4 per cent of gross state product (GSP) – and this is forecast to grow to $54 billion by 2034. With New South Wales contributing around one-third of Australia’s gross domestic product (GDP), Sydney Airport’s contribution to Australia is significant.
The airport supports thousands of businesses and generates 307,000 jobs, including 29,000 jobs on the site itself for 800 businesses. It is also the home base for our domestic carriers, including Qantas and Virgin.
It is the national gateway, welcoming 40 per cent of all international arrivals to Australia and competing globally with the likes of Paris, London, New York and Vancouver airports to attract airlines and aircraft. Sydney Airport also works with government, and with industry bodies such as Tourism Australia, to take a targeted and collaborative approach to growing tourism and aviation for the benefit of Australia’s community and economy.
This year, Sydney Airport has attracted five new airlines that will bring significant inbound benefits for tourism, including AirAsia from Indonesia, which starts operations in October. As a result, Sydney Airport will be the number one airport in the world for long-haul, low-cost carriers.
Sydney Airport also sponsors major tourismdriving events, such as the Sydney Festival, and Chinese New Year, which is the largest event of its kind outside of mainland China.
We work with partners to provide a positive impression of Sydney and Australia for international visitors, and the 150,000 people that visit the airport every day.
Sydney Airport is not only an exciting and dynamic place to work and visit; it also plays a key role in Australia’s competitiveness and productivity.
Structural changes in aviation are bringing challenges and opportunities for airports globally, including Sydney’s.
The economics of aviation are changing for the better, with the introduction of next-generation aircraft leading to new airline business models. They’re opening up new routes not previously viable for airlines, and driving more people to travel more affordably, and more often. More than half of the world’s population now lives within range of an Airbus A340 or a Boeing 777 from Sydney.
The importance of the Asia-Pacifi c region
With 4.3 billion people living within the Asia-Pacifi c region, about 60 per cent of the world’s population is now in our backyard. The region is growing rapidly. By 2015, 11 of the world’s 25 most powerful economies will be in the Asia-Pacifi c region, and we’re well positioned to benefi t from that growth. Economic development, increasing urbanisation and a rapidly growing middle class are all driving growth in air travel.
China and other Asian countries now represent a significant and fast-growing share of Sydney’s inbound passengers. China, in particular, has phenomenal growth potential, and it is increasingly important to Australian trade, tourism and the economy.
More than 100 million Chinese people travel abroad every year, and that is forecast to increase to 200 million by 2020. In Australia, we’re seeing less than one million arrivals, so there is signifi cant potential to increase our market share. Sydney Airport is now equal second airport in the world for Chinese long-haul carriers, alongside Paris and Vancouver.
Infrastructure facilities and technology
Sydney Airport is one of the most experienced infrastructure developers in Australia, with a very strong track record of signifi cant investment in, and delivery of, infrastructure. We have managed complex airport development projects and invested around $2.7 billion in infrastructure throughout the last decade in order to improve services, meet forecast capacity requirements and improve passenger experience.
Delivering that infrastructure in a live operating environment is complex. For example, a tightening of international aviation standards saw Sydney Airport invest in runways and safety areas across the three runways at a cost of more than $100 million. Construction at the end of the east–west runway posed a signifi cant engineering challenge, because it had to be built over a sewerage line, the M5 East motorway tunnel, major electricity cables and a gas pipeline. World-leading construction methodology was used to overcome those issues and limit the impact on erosion.
It was important to keep stakeholders in the community informed throughout the works, and an extensive engagement strategy provided information to every resident in our community.
More recently, Sydney Airport undertook the largest community consultation in our history in developing the Master Plan 2033, to ensure that the airport’s change in strategic direction and development over the next 20 years considered community feedback.
Other major complex projects undertaken include a 30 per cent expansion of Terminal 2, and significant expansion works on Terminal 1. These works are leading the charge globally for next-generation aircraft, because our upgraded infrastructure and facilities accommodate new technology with benefits for airlines, passengers and the community. These new, larger aircraft are delivering improved economic, noise and community outcomes. Nextgeneration aircraft have reduced noise by 40 per cent in recent decades as aviation technology continues to improve.
With three runways and three terminals, Sydney Airport has plenty of capacity, but we continue to invest significantly to enhance our capacity, use our infrastructure more efficiently and productively, and provide an even better passenger experience.
Over the next few years, another $1.2 billion will be invested into significant airport improvements across areas such as road or ground transport access, airfield construction, terminal expansion and redevelopment, state-of-the-art baggage systems, check-in counters, and other initiatives.
Technology is an important enabler, providing the opportunity to improve infrastructure capacity and operational efficiency. We recently delivered upgraded airfield lighting to improve operations during poor weather, significantly reducing delays and diversions for airlines. Sydney Airport now has the lowest number of airborne delays in Australia.
State-of-the-art, satellite-based navigational equipment was also recently commissioned with the support of the airlines and, as a result, Sydney Airport now supports the most satellite-assisted performancedriven landings in the world.
Technology is also a key enabler of the customer experience, and we are working with airlines to deliver automatic bag drops and self-service check-in. At the same time, we are partnering with the Federal Government to deliver Australia’s first outbound smart gates to speed up immigration processing. All of this is geared towards significantly improving processing times and the passenger experience.
Our aim is to deliver a world-class airport experience for our customers: both airlines and passengers. We share data with airport partners to improve their planning, and equip our Airport Ambassadors with iPads with language translation applications, so they can assist passengers and provide a better service.
In May, we launched a road improvement programme with New South Wales Minister for Roads, Maritime and Freight, Duncan Gay. We jointly committed half a billion dollars to make it easier for people to travel to, from and around Sydney Airport.
In September, we took control of Terminal 3, Qantas’s high-quality terminal, which is one of the requirements of our long-term master plan.
It is not easy retrofitting a 100-year-old airport, but we are continuing to invest significantly to improve the passenger experience.
Despite the improvements and initiatives, outdated, 20-year-old operating restrictions are limiting the true operational potential that Sydney Airport can achieve.
Underutilised infrastructure negatively impacts on the customer experience. For example, simply calculating the hourly movement cap for Sydney Airport based on scheduled slots, rather than runway movements, would improve noise outcomes for the community while minimising delays for travellers across not just Sydney, but also Australia.
It is important that policy settings recognise airport investments and improvements, and reflect modern aviation technology. There is no question that maximising existing aviation infrastructure would ensure that Australia captures its productivity potential.
Western Sydney Airport
First and foremost, Sydney Airport supports and commends the Federal Government’s vision to develop an airport that will deliver significant longterm economic, productivity and social benefits to Western Sydney and Australia.
As Deputy Prime Minister Warren Truss has said, Western Sydney is the key to Australia’s economic future as a catalyst for growth. The new airport will accelerate and enhance the contribution that Western Sydney is expected to make to the nation’s future prosperity, and will harness the opportunity being created in this fast-growing region.
We agree that Badgerys Creek is the logical location, as the site and the associated transport corridors have been preserved for decades in anticipation of the planned airport. The new airport serves a significant population catchment at the epicentre of Sydney’s population growth. Western Sydney is Australia’s third-largest economy and fourth-largest city. It is bigger than Perth and
Adelaide, and as large as Brisbane, and it continues to grow.
The Western Sydney site is a unique and exciting opportunity for a greenfield airport development. It is an opportunity to develop an airport according to world’s best practice – one that is scalable, flexible, sustainable and able to respond to the changing needs of passengers and airlines, and that creates a seamless passenger experience.
The Deputy Secretary of the Department of Infrastructure and Transport, Andrew Wilson, aptly described the Western Sydney Airport as neither a shed in a paddock nor a grand monument, but more like Adelaide Airport. We’re aligned with the Government’s thinking in that respect. When we acquired Sydney Airport in 2002, we also acquired a right of first refusal for the development and operation of a second airport within 100 kilometres of the CBD. We are currently engaged in a consultation process with the Federal Government, which has been very constructive on both sides.
A nine-month consultation process, which included more than 70 formal meetings in addition to a plethora of technical meetings, recently concluded. We have been examining all aspects of the new airport in detail to ensure that the planning and design process delivers what will be the best airport in Australia in 2025.
In terms of the timetable for the Western Sydney Airport, formal evaluation is continuing. The Federal Government has indicated that it expects to issue a notice of intention, setting out the material terms for the development and operation of the airport by the end of the year. It is important that the airport meets our established investment criteria and requirements, and we will continue to analyse the potential opportunity. We are working actively to understand all stakeholder and passenger expectations, and we are taking a disciplined, principled approach to its consideration.
In a parallel process, the Government has also been developing a draft Environmental Impact Statement, which is said to be released for public consultation towards the end of this year. At the conclusion of this process, once approvals have been granted, the Government may undertake site preparatory works to clear and level the land so that it is ready for airport structures, such as the runway, airfield, terminal and the ground transport interchange, to be built. The current timetable, subject to approval, sees the Western Sydney Airport opening in 2025.
Most major city airports around the world operate as part of a system, and it has been envisaged for 20 years that the two airports in Sydney will operate together. With all the tourism and economic benefits that the new airport has the potential to bring, it is in the national interest to operate Sydney’s two airports as a system. This is so they can compete globally; accelerate traffic growth; drive productivity improvements, jobs and economic growth; and provide investment certainty. With Sydney and Western Sydney operating as a system, the Government has estimated that up to five million of the forecast 56 million passengers served in the Sydney Basin will use Western Sydney Airport in its first year of operation.
For Western Sydney Airport to be successful, it must be able to attract airlines by offering the right facilities and competitive charges. If that balance is right, airlines will be motivated to establish high-quality domestic and international routes. By operating as a system with the right charges framework, it is likely that more than 75 per cent of the Western Sydney passengers in the early years will be attracted to the new airport from the existing airport at Kingsford Smith. The two airports working together means that the Western Sydney Airport will be viable in its critical early years.
Investors need to be confident that the asset will be able to deliver a reasonable rate of return on their investment over time. The Government and Sydney Airport are working together to set Western Sydney Airport up for success, which requires the right policy settings, the right level of investment, and enabling work across roads and services.
The right operating framework is also important. Government and the vast majority of stakeholders have called for Western Sydney Airport to be curfewfree. The Government has always planned for the airport to operate on a 24-hour basis to ensure its viability, to support growth, to provide flexibility, and to enable it to compete against curfew-free airports like Melbourne and Brisbane.
When the Western Sydney Airport opens in 2025, today’s generation of quieter aircraft will already have been replaced by even newer, quieter, more environmentally efficient aircraft, which will be accommodated by the new airport. There is no question that aviation technology is evolving quickly. The aircraft that will be operating in a decade’s time have not yet been seen, and that is one of the things that makes this industry so exciting.
A fundamental plank of a successful airport is an accessible and affordable transport network, with links offering a broad range of modal choice for its users. We know from firsthand experience that effective ground transport links are critical for airports, as well as the many businesses that operate in and around the airport precinct.
The Australian and New South Wales Governments have committed to delivering vital new road infrastructure for Western Sydney. Recently, there has been a lot of discussion about a rail service to the new airport. While this is a matter for government, we strongly support a range of transport options for the new airport. Only one in 10 people parks at Sydney Airport, which means the remaining 90 per cent use trains, buses, taxis, drop-offs and active transport. Trains are an increasingly popular choice. There are about 20,000 people using rail to travel to Sydney Airport every day, even with the station access fee levied by the private operator and the Government.
Finally, at Sydney Airport, the importance of engaging with, and supporting, the local community is well recognised. We sponsor tourism-generating events, consult on airport developments and support local organisations. Last year, we invested around $1.5 million in the community across charities, schools, hospitals, sporting organisations and a range of community initiatives. This week, we announced two academic scholarships for students studying a Bachelor of Tourism Management in Sydney to develop the next generation of tourism leaders. We are also committed to deepening our engagement in Western Sydney, with the community, business, tourism organisations and political representatives working together to make the airport a success.
Our team has been in Western Sydney meeting with local state and federal Members of Parliament; the councils; Western Sydney Community Forum; local chambers of commerce; and Rotary clubs and tourism organisations to get to know the local community, and to understand and address people’s concerns. I am also a member of the Committee for Liverpool, the Western Sydney Leadership Dialogue and the Western Sydney Business Chamber, all of which have been very constructive forums in which to discuss the future of Western Sydney Airport, including the thousands of jobs that this new airport is going to create.
We see a real opportunity here to work with the people of Western Sydney to develop an airport for this region – an airport with a distinct sense of place that employs local people, embraces local art and culture, and develops a sense of pride and ownership within the local community. Our plan is to continue to work together to ensure continued growth of aviation for Sydney, New South Wales and Australia, with all the tourism, economic and community benefits that are generated.
Kerrie Mather Chief Executive Officer and Managing Director, Sydney Airport
Kerrie Mather was appointed Managing Director and Chief Executive Officer of Sydney Airport in June 2011, bringing with her more than 18 years of international aviation sector experience. She is focused on growing aviation in Sydney, New South Wales and Australia through strong and positive relationships with airlines, governments, tourism, business, industry and the broader Sydney community.
Airports are significant drivers of economic activity, and Ms Mather is deeply committed to promoting Sydney as a key destination for international visitors. This supports growth in the business, visiting friends and relatives (VFR) and tourism traveller segments, and helps to attract major events, conventions and conferences to Sydney.
Sydney Airport is Australia’s gateway airport, and a key piece of transport infrastructure, welcoming 38.5 million passengers in 2014, with a network of around 90 destinations served by 36 international, six domestic and five regional airlines, and 10 dedicated freight carriers.
Ms Mather draws on her broad international and national experience, having worked in a number of international jurisdictions, delivering major airport initiatives while serving previously on the boards of Brussels, Copenhagen, Rome, Bristol and Birmingham Airports.
INFRASTRUCTURE – THE TIME IS NOW
As was highlighted in its December 2013 submission to the Productivity Commission Inquiry into Public Infrastructure, Westpac Institutional Bank remains firmly focused on promoting constructive dialogue that supports a national response to the continued challenge of funding and financing infrastructure in Australia.
Two years on, and the fundamentals remain unchanged. Australia continues to have a significant infrastructure challenge, with major investment required to meet the demands of a growing population, as well as supporting future economic growth and prosperity.
Speaking at a recent forum, Pippa Crawford, Managing Director and Head of Energy and Resources, Westpac Institutional Bank, indicated that one of the biggest challenges that government and industry are facing at the moment is how to build for a more productive Australia against a backdrop of structural and cyclical change.
‘As a nation, we have a unique window of opportunity to ensure that we have a strong pipeline of infrastructure projects at a time when financing is readily accessible, and is still relatively inexpensive.
‘The challenge for both the government and the private sector is in ensuring that effective long-term planning disciplines are in place to support sensible projects, regardless of the short-term impacts on policy or the economy.’
The low interest rate environment globally, and Australia’s relative economic strength, creates an unusual and unique opportunity for our sovereign nation to capture this infrastructure opportunity, and support greater productivity and growth for future generations of Australians.
Indeed, there has never been a more important time for governments and the private sector to work closely together to develop efficient infrastructure markets that enable Australia to really maximise this opportunity.
The role of government
The degree of government involvement in delivering and funding infrastructure remains a hot topic among those involved in the industry. There is no doubt that the role of government remains paramount, but can – and should – they be playing a greater role than they currently are?
Previously, infrastructure projects were almost universally delivered and paid for by the government. Over recent decades, the private sector has played an increasing role in the delivery and financing of new infrastructure. It is now widely accepted that for Australia to be successful, there needs to be a stronger partnership between public and private sectors in the delivery of the infrastructure of tomorrow.
A strongly endorsed method of funding new infrastructure, by both government and industry, is through ‘user pays’ or ‘value capture’. That is, those that benefit from the infrastructure pay for the infrastructure. While this may pass the fairness test, it remains a challenge to implement efficiently and effectively.
As Didier Van Not, Head of Project and Acquisition Finance, Westpac Institutional Bank, notes, ‘With respect to user-pays funding, the only projects over the last couple of decades that have been able to effectively fund themselves have been the toll roads; however, given the numerous greenfield toll road failures over the last decade, such projects are clearly very challenging for the private sector to finance’.
‘Value capture’ refers to the ability of the governments to recover some or all of the value that public infrastructure
Pippa Crawford Didier Van Not
generates for private landowners, potentially through additional land value taxes or other charges. Again, while this represents a noble objective, it is challenging for governments to implement.
While the search to find more innovative ways of funding infrastructure continues, the current challenges inevitably lead back to governments being required to fund a large portion of the new infrastructure spend. There are many who think this is exactly what governments should be doing.
Addressing this point directly, Van Not says, ‘The most efficient approach now is for state and federal governments to increase debt to fund infrastructure, because debt levels are still relatively benign and interest rates are clearly at all-time lows’.
While the need for greater infrastructure funding is apparent, it is also clear that governments have funding limitations as measured against maintaining certain minimum credit ratings. This is particularly the case for state governments, and, indeed, this has led to a number of these governments looking at privatisation of existing assets as a means of funding new infrastructure projects. This approach has been most strongly endorsed in New South Wales, for which the process has been termed ‘asset recycling’. While again, it is not easy to implement, in itself it represents an innovation in funding new infrastructure.
Beyond the infrastructure funding challenge, it remains apparent that project selection is still a roadblock for the industry, and one that governments have a stronger role to play in addressing.
Over the last five to 10 years, various bodies have been established to incorporate greater independence and expertise into the process of project selection and prioritisation, with the objective of minimising the politics of these selection decisions. Such bodies include Infrastructure Australia, Infrastructure NSW, Projects Queensland and, most recently, Major Projects Victoria.
Based on the experiences of the last few years, arguably the ideal independent project selection is one that is removed from the influence of politics, but this remains a work in progress. As Van Not says, ‘Whether this can ever be fully achieved remains the question; however, Westpac strongly endorses the continued support and funding of these various independent bodies with the aim of achieving this objective’.
Is superannuation the answer?
The Australian superannuation sector has a key role to play in building Australia’s future. The superannuation industry has already invested in the domestic and international infrastructure sector, and has also expressed a desire to undertake further investment.
Local superannuation funds under management are currently forecast to reach A$3.3 trillion by 2020 and A$4.6 trillion by 2025, and with currently only four per cent (or $54.8 billion1) invested in infrastructure, there still remains a considerable untapped opportunity for more to be allocated over time to infrastructure projects. It is this projected growth in the sector that Westpac believes will be a key diversification driver.
Government has long been considering ways to harness this growing pool of funds, and concedes that this needs to happen independently, and over time, as the industry evolves.
‘As a nation, we shouldn’t direct the superannuation sector to invest in infrastructure; that needs to be their own decision, and in the best interests of their members,’ Van Not emphasises.
What is clear, though, is that the superannuation sector has a bigger role to play because, as it continues to grow, infrastructure as an alternative asset class will offer a viable option to diversify its investment solutions.
Westpac believes that this clearly represents a considerable untapped opportunity that could be maximised if allocation levels can be increased, and provided that there are ways for superannuation funds to invest at appropriate levels of risk.
Peter O’Connell, Director, Superannuation and Fund Relationships at Westpac Institutional Bank, also notes that further interest will be generated as the ‘Stronger Super’ reforms drive further consolidation within the industry, making funds larger in size, with a much greater propensity to diversify portfolios.
1 APRA Statistics Quarterly Superannuation Performance 30 June 2015.
This, in turn, will pave the way for the establishment of specialist infrastructure teams, which will be a critical need for the industry and a prerequisite for assessing the risk profile of any proposed infrastructure investment, be it within equity or debt.
‘Over the last few years, superannuation funds have been adding specialist skills into their businesses and, if you look at the bigger funds, they increasingly have the skills in-house to do these transactions,’ says O’Connell.
‘What’s really encouraging is that we are now also witnessing smaller funds developing this capability by expanding their internal investment management teams with a view to supporting direct investment in infrastructure and other alternative asset classes,’ O’Connell continues.
Furthermore, as Westpac observed in its submission, with more baby boomers moving into the retirement phase in the coming decade, additional impetus will be provided for the superannuation industry to focus more on the infrastructure sector as an investment class.
This should subsequently create greater demand for annuity-style returns in superannuation, with the infrastructure sector being ideally placed to deliver in this regard, given how well the long-dated nature of these assets aligns with the similarly long-dated nature of super funds’ liabilities.
Commenting on this, Van Not says, ‘The superannuation sector needs to come up with new products to give that sense of cash flow to superannuants.
‘Imagine that you are a 65-year-old superannuant wanting a monthly income, but you can’t invest in the stock market because it’s too volatile, and you can’t really be long on bonds and cash because the income will be unattractive in a low-interestrate environment.
‘Infrastructure as an alternative investment vehicle potentially offers something in the middle, where you can get a bit more than cash, without as much risk as you have in equities.’
This ties in directly with Westpac’s previously expressed view that the infrastructure asset class is a good investment hedge to support payments to its members, since it is capable of producing predictable, long-term cash flows with strong consumer price index linkages.
‘Over the next decade, we will see superannuation solutions to investors that provide a stable return, and infrastructure has a key role to play in being able to do this,’ Van Not says. According to Treasury estimates2, superannuation drawdowns will start to exceed contributions in mid-2030, and the industry will have to offer more annuity-style investment solutions well before then.
‘With 11 funds now having in excess of 25,000 pension members3, and approximately 26 per cent of members aged 50 or above4, the opportunities are significant,’ says O’Connell.
According to Van Not, ‘These are positive developments that will forge stronger links between superannuation and infrastructure; however, more needs to be done to make infrastructure investment more attractive to the superannuation industry, and the public and private sectors need to work together to identify and remove any barriers that may slow down stronger linkages’.
Bank market liquidity
As a leader in the industry, Westpac Institutional Bank continues to hold the view that commercial banks and other investors do not lack the appetite to increase support and financing of long-term infrastructure projects as a result of tighter prudential regulation.
Indeed, over the last few years there has been appetite from both the equity and debt markets to finance the deployment of productive public infrastructure at a reasonable rate of return, reflecting the risk in the project.
Remarking on this trend, Norm Heavener, Head of Project Finance, Westpac Institutional Bank, says, ‘There’s no shortage of liquidity in the bank market, as we are now seeing the return of European banks that left during the European sovereign crisis, along with the increasing presence of the North American and Japanese institutions’. This greater bank liquidity reflects not only improved market conditions, but also the
2 Rice Warner – Ageing and Capital Flows, Financial Systems Inquiry 3 APRA 2014 Fund Level Data 4 APRA 2014 Fund Level reporting and KPMG Supertrends increased presence of foreign contractors and equity, and the following of these relationships.
‘This is great for competition and for achieving cheap financing. In fact, it could be argued that we’ve never had more liquidity in the market than we currently do for infrastructure,’ Heavener concludes.
Growth of the local bond market
An ongoing discussion point for many infrastructure market participants is the immaturity of the local bond market, or more particularly, the inability to finance long-term infrastructure projects with long-term debt (that is, tenors of 15 years or more).
There are numerous reasons for this – the most fundamental of which, as earlier discussed, is the structure of the Australian superannuation system, and the low penetration of long-term annuity products.
Beyond these superannuation fundamentals, it is also clear that one of the consequences of increased government financing of new infrastructure, either pre- or post-construction, is a reduced opportunity for the local bond market. This, in addition to the significant levels of short tenor bank financing currently available, is arguably also stifling the potential development of a longertenor local bond market.
Heavener agrees, pointing out that, ‘bank financing is abundant and very competitive in shorter tenors, between three and seven years, such that equity investors and also governments find this option hard to resist’.
While headwinds continue, a fundamental desire remains for longertenor infrastructure financing, combined with an ageing population and, in time, an increased demand for annuity product. Westpac believes that the wheels of change will continue to slowly turn, with increased market depth and financing tenor available in the local bond market.
This development has been evident this year, with one corporate infrastructure issuer raising financing at 10 years in the local bond market; however, this is still a long way from 20–30-year financing of greenfield infrastructure, with Westpac wanting to see the domestic bond market develop further to support infrastructure project development.
An area of development over the last few years has been the greater interest from nonbank debt investors in the loan product. This interest is from offshore investors as well as local investors, and there is a blurring of lines evident between infrastructure financing in bond form or loan form.
Heavener says, ‘While there are only relatively small numbers of investors interested in longer-term infrastructure financing, access to the opportunities is likely to see this interest firstly materialise in the loan market and through private placements. If, and when, this interest reaches sufficient scale, that is when we could expect to see more of a non-bank ‘market’ develop and opportunities flow into a local bond market.’
Continued private sector dialogue critical
If Australia is to realise its infrastructure potential, and capture the benefits that ultimately flow to the broader economy, the government and the private sector need to work more closely than ever to formulate stronger partnerships, and develop new investment models, to accelerate project development and offer a greater number of institutional investors access to a larger pipeline of investment opportunities.
‘The current discussion and activity is really encouraging, especially among politicians, both in the federal government and some of the states – notably in New South Wales, where infrastructure activity has stepped up significantly in the last five years,’ says Crawford.
‘A constructive and planned approach with ongoing dialogue will serve to build investor confidence, which is a vital requirement when looking to attract capital investment,’ Crawford concludes.
