From the AFR:
The Australian infrastructure market is in bubble territory, one of Australia’s most experienced infrastructure advisers has argued.
Breaking ranks with large investors such as the $92 billion Future Fund, Alexander Austin said the market was overpriced, with recent transactions requiring private equity style returns to be profitable.
Mr Austin, co-founder of infrastructure advisory firm Access Capital and managing director of debt investor Infradebt, said the $5.1 billion June acquisition of Port Botany and Port Kembla by a consortium of superannuation funds, was a case in point. He said the price tag, based on earnings before interest, depreciation and tax, was more than double the long-term average price paid for ports.
“I think infrastructure equity is in a bubble. At Port Botany, they will need to cut costs dramatically or ramp up charges, or both. It is like buying a private equity business. I suspect five years from now, they will not get a great return on that business,” said Mr Austin.
That’s financial repression for ya. Anything with a decent return over the risk free rate gets massively overpriced. And when it all falls apart, what will we do? Lower interest rates!
