Opinion: These foreign stocks may benefit from U.S. infrastructure privatization
There has been plenty of criticism of President Trump’s infrastructure plan.
Neither Republicans nor Democrats in Congress may be motivated to pass a major spending bill this year after Republicans in December pushed through the biggest tax cut since Ronald Reagan was president.
But there are major trends for infrastructure in the U.S. and globally that investors can take advantage of, no matter what happens in Washington. And, interestingly, it may be European companies that take the lead on U.S. privatization.
‘Something in it for all sides’
Henry Cisneros — secretary of Housing and Urban Development under Bill Clinton and now a partner in investment bank Siebert Cisneros Shank & Co. in New York — called Trump’s proposal “an important starting point,” and said “the administration’s leadership on this will stimulate a conversation on this for better or worse.”
Republicans and Democrats could score political points with increased infrastructure spending, he said.
Republicans would “get productivity and competitiveness in the economy,” while Democrats would “get jobs where they need the new projects,” Cisneros said in an interview Feb. 13. “When there is something in it for all sides, there are incentives to negotiate and pass something.”
A criticism of Trump’s plan was a rejection of the notion of private capital providing most of the financing. Cisneros said financing could be provided through state and local pension funds seeking “bond-like returns” on investment-grade assets, such as airports or toll roads, as well as water and power-utility infrastructure.
Ted Brooks, portfolio manager of Global Listed Infrastructure at CenterSquare Investment Management, said privatization is inevitable.
In an interview Feb. 14, he described a scenario in which a state leases an airport to a private operator, with some financing provided by state or local pension funds. This would lead to an immediate windfall of cash to the state, which could then be “reinvested into social infrastructure, such as schools or hospitals or other aging and neglected infrastructure.”
CenterSquare is based in Plymouth Meeting, Pa., and has about $10 billion in assets under management for private and institutional clients.
In addition to the immediate influx of cash, state and local governments would benefit form the privatized airport being added to the tax rolls, while pension funds would gain from “predictable cash flows” supporting their investments, Brooks said.
The public would presumably benefit from a higher level of service and efficiency. Meanwhile, the private operator would be responsible for maintenance and expansion of facilities, which would keep unpredictable political processes from gumming up the works.
Companies that could benefit
Getting back to the overall discussion of infrastructure investment, Parsons Corp., Bechtel Group and Global Infrastructure Partners are private players that Cisneros said would likely be major beneficiaries if an infrastructure bill were passed.
Brooks said cyclical construction equipment and materials companies are well-positioned for increased infrastructure investment. Those include Caterpillar Inc. CAT, -0.20% United Rentals Inc. URI, -1.44% and Vulcan Materials Co. VMC, +1.41% He called those companies “riskier cyclical entities.”
Among publicly traded companies, Brooks said these six non-U.S. players were likely to benefit from increased infrastructure privatization in the U.S. Here they are, with their local tickers and American depositary receipts (ADRs) or U.S. listings:
|Company||Country||Local ticker||ADR or U.S. listing|
|Ferrovial SA||Spain||FER, +1.09%||FRRVY, +0.31%|
|Transurban Group Ltd.||Australia||TCL, -1.55%||TRAUF, +0.00%|
|Macquarie Atlas Roads Group||Australia||MQA, -1.69%||MAQAF, +0.46%|
|Eiffage SA||France||FGR, +0.60%||EFGSF, +0.00%|
|Vinci SA||France||DG, +0.74%||VCISY, +0.57%|
|Atlantia SpA||Italy||ATL, +1.43%||ATASY, +4.90%|
Those are all primarily toll-road operators, except for Ferrovial, which runs airports.
Brooks pointed out that the limited privatization of toll roads in the U.S. has so far been handled primarily by non-U.S. companies because of a lack of expertise domestically. There would also likely be no domestic bidders to run privatized airports. He acknowledged the political difficulty in assigning the management of U.S. airports to foreign companies, which is why he suggested that partnerships that included U.S. investors, including pension funds, could provide the working model.
When discussing how the public might accept this type of potential public-private partnership for a beleaguered airport, as a hypothetical example Brooks said Andrew Cuomo, or the subsequent New York governor might say, “Good news, we sold 10% of LaGuardia to the people of New York.”
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