S&P Global Ratings – New Capital Rules For EU Infrastructure Investments Mask Pipeline Deficiency

September 19, 2017

Earlier this year the EC introduced a Delegated Regulation that will reduce the risk calibration for qualifying infrastructure corporates by 25% compared to the standard formula. While it is hoped that the amendment will release additional financing for infrastructure corporates, S&P believes that the regulation’s efficacy will be undermined by the continent’s lack of a visible pipeline of quality infrastructure projects.

Here are the report’s key takeaways:

• When effective, the EC’s Delegated Regulation marks a positive step in encouraging insurers to invest in infrastructure corporates. The regulation is likely to enhance the risk profiles of infrastructure corporates and increase standardisation of infrastructure assets;
• That said, there is already ample private capital for infrastructure, but without governments developing new government funding models to unlock infrastructure development, countries will not be able to fully benefit from the current market liquidity, low rates, and credit spreads;
• Pipeline deficiency, caused by a lack of both institutional capacity and funding, has intensified competition for assets. As such, S&P believes that the new capital may be inconsequential for both issuers’ bond pricing and insurers’ capital allocations.

Please click below to download the report.