UK infrastructure financing on track to reach record high
Debt issuance this year highlights interest in assets despite troubles at Thames Water
UK infrastructure financing deals are on track to hit a record this year as investors compete to buy second-hand assets and the government signs off on new projects.
Around $38bn of debt was issued in the first eight months of this year on 90 mergers and acquisitions, refinancing and other deals, according to data from Infralogic. That rate of monthly issuance puts the UK on a path to raise at least $57bn in infrastructure borrowings by the end of the year.
The data provider said the bulk of deals are usually registered in the second half of the year, meaning that this year is set to match or surpass the record of $57bn in 2021.
The strong interest in UK infrastructure assets comes despite investor fears that the financial crisis at Thames Water — which is trying to avert renationalisation through a last-minute rescue deal by its creditors — would dampen buyer demand.
Alexander MacLeod, head of data analysis at Infralogic, said the number of deals showed that the “UK infrastructure market is robust and even the troubles at Thames haven’t shaken the appetite for the essential regulated utilities”.
He added: “The UK government has also shown its commitment to private finance, which will have reassured investors”.
Global financial players are drawn to the UK by stable government-backed income from British households for essential infrastructure such as waste, energy, water and telecoms services as well as generous state support, which can protect investments against large losses or on risks they cannot control.
“We’ve seen a notable uptick in deal activity over the past few months, continuing the trend of vast amounts of private capital looking for deployment opportunities,” said Jessamy Gallagher, co-head of energy and real assets at law firm Freshfields.
She added that the energy transition and digital projects were popular, as well as GDP-linked assets like ports, where deals that were backed up during the pandemic are now starting to move.
The largest deal cleared so far this year was the $5.19bn sale of Electricity North West to Spanish provider Iberdrola, which already owned Scottish Power. The Glasgow-headquartered company has become the second largest distribution network operator in the UK, delivering electricity to around 12mn people across a network spanning more than 170,000km.
Rob Morson, infrastructure partner at law firm Pinsent Masons, said most deals were being driven by existing infrastructure assets reaching maturity or facing refinancing, especially those last bankrolled at ultra-low rates. He expects a “steady momentum” pick-up in deal volume for the rest of the year and into 2026.
Planning reforms aimed at getting the approval for infrastructure projects more quickly have encouraged investors, as has the decision to extend subsidies on contract for difference schemes from 15 to 20 years, which provide certainty for investors on the price they will receive for the energy produced on wind and solar farms.
The government has also given the go-ahead to new projects in carbon capture storage and water, and agreed generous terms for new investors in the Sizewell C nuclear project in Suffolk.
A pledge to press ahead with using private finance on the new Lower Thames Crossing road and tunnel and for around £50bn of water projects has also reassured investors that a pipeline of opportunities may be on its way.
Martin Bradley, head of Emea Infrastructure at Macquarie Asset Management, the UK’s largest owner of infrastructure assets, said the country had taken “positive steps” in the direction of “constructive policy decisions to maintain confidence in growth” but that the changes would need time to solidify.
The government has meanwhile earmarked £22bn for carbon capture storage projects including Italian energy provider Eni’s $4.6bn Liverpool Bay project. For now, the UK’s stance is in stark contrast to the US, where the Trump administration has deep scepticism about the renewable energy market.
Minal Patel, global head of infrastructure at Schroders Capital, said the renewables market had been a “haven for investors” in the infrastructure world.
She added: “Investors are seeing that supportive government policy and the decision to retain a national energy market across the UK provides a stable backdrop for investment.”