A shortage of infrastructure investment opportunities could lead to a deterioration of credit quality and mispricing of risk among the opportunities that do exist, according to a new report from New York City-based Moody’s Investors Service, Inc.
This lack of potential investments for institutional investors seeking infrastructure assets in stable countries “has contributed to mismatches between available debt capacity and investable deal flow,” the credit rating agency reported on Thursday.
This is expected to generate competition between debt providers that could result in the erosion of credit quality and the potential mispricing of risk, Moody’s says.
“Substantial long-term debt capacity is available from banks and institutional investors to finance well-structured infrastructure projects located in creditworthy, stable economies”, says Andrew Davison, senior vice president at Moody’s.
“However, access to long-term finance remains constrained where projects are located in less creditworthy countries, or face significant or speculative risks that are difficult for the private sector to quantify and mitigate.”
The need for infrastructure investment is high on the agenda of policymakers around the world, Moody’s notes, and there are a number of international initiatives currently underway to bring forward infrastructure projects, which could present appealing investment opportunities for the private sector.
Several recently launched initiatives, such as the G20’s Global Infrastructure Initiative, the European Commission’s Investment Plan for Europe, and the World Bank Group-led Global Infrastructure Facility are intended to produce high quality infrastructure projects in advanced, emerging market, and developing economies, Moody’s says.
“In due course, these initiatives will provide new investment opportunities in infrastructure debt,” Moody’s says.