Financial Strategy, Second Edition

CASE STUDY 5

Capital Ideas

Keith Boyfield

Goldman Sachs employs some impressive people. Bill Young, a managing director within the bank's Financing Group, is one of them. He gave a thought-provoking presentation recently on the scramble for international capital at Oxera's conference on the future of infrastructure regulation.

The event drew a large and distinguished audience. Young's insights into the current health of the world's capital markets struck at the heart of many utilities' funding dilemmas. He posed a crucial question: what is the competitive return a utility must offer to attract the large amounts of capital required to invest in developing its infrastructure asset base over the next 20 years?

Young emphasised that given the large capital investment needed, the regulator must provide returns that are adequate to compete. The European Investment Bank estimates that €180 billion of investment in infrastructure assets is required over the next five years. And the competition is getting tougher, particularly with airport operators and toll road managers across Europe seeking to raise substantial sums of capital.

In fact, a wide range of commercial concerns need to raise considerable money to renew or develop their infrastructure asset base. Having said that, if the capital structure is balanced correctly between debt and equity, tremendous value can be created for both debt and equity holders. A good example is Autostrade, which manages 3,400 km of motorways in Italy, ...