Investors Now Steering Clear of USA
As a direct result of the added tax, compliance and other barriers to inward investment created by President Trump’s ‘Big Beautiful Bill’, the global private debt and equity markets are now avoiding major U.S. projects. Over the past six months the UK-based Project Finance Exchange (PFX) has noticed a distinct shift of interest away from the USA and towards major projects in UK/EMEA, Australasia and other world regions by its non-U.S. domiciled registered investors. Many projects, all with investment values over $100m have been disrupted, delayed or abandoned as a result of erratic tariff announcements and new regulations for foreign investors.
PFX Chairman, David Rose, said: “Project finance is unique in that it’s defined as ‘Investment against revenue from a yet-to-be-built asset’, from which institutional investors are precluded by their own regulations, leaving it dominated by the multi-trillion dollar private markets. Project principals, whether public or private sector, can expect due diligence to be deep and granular. We assist by ‘guiding’ them into producing their funding submissions and data-rooms in the format and structure that underwriters and investors prefer to work with. Our investors have an aggregate investment capacity of over $800bn but they are, quite naturally, very selective as to where that money goes. New costly barriers to investment in the USA means they are looking elsewhere for investment opportunities.”
The private markets fund both public and private sector projects worldwide, preferably with a minimum deal value of $/€/£100m, across all social infrastructure (social/affordable housing, healthcare, transport etc) as well as economic infrastructure (energy, hospitality, logistics etc). The financing structure is usually a minority equity stake with the balance provided as debt, although 100% debt can be provided under the right circumstances. Funds are paid to the project in agreed tranches with the construction phase interest rolled-up to when the project starts generating revenue, and added to loan principal.
PFX also assists investors by providing all projects with an insurance ‘Wrap’, the set-up cost for which is paid for by the project, but with premiums added to the loan. This is a series of interlinked policies assembled by ‘A’-or better rated underwriters which cover every contingency from first spades in the ground, through contractor performance to off-take fulfilment. The underwriters investigate and review all the permits, permissions, contracts and agreements for the project. It is these contractual certainties which enables this level of underwriting, with the underwriters’ ratings automatically transferring to the project. M&A, VC, mezzanine and all other investment structures are based on best- or worst-case scenarios and variable forecasts, which cannot be securitised. But structuring the Wrap can take several months and the Bill has created many disincentives to investing the time and money involved for U.S. projects.
In closing, Rose said: “It’s sad to say that in just six months the USA has gone from being a natural and safe destination for private debt and equity, to a febrile and unpredictable investment environment. On the upside, investor focus turning away from the USA means that more funds are available for other world regions. Major projects across energy, construction, infrastructure, hospitality and other sectors, with values over $/€/£100m, in other stable regions worldwide will now be reviewed by investors with much renewed interest.”
A further recent development is that a growing number of incoming new projects from the EMEA and Australasia regions are now presenting their financials no longer in USD, but in Euros.
Further information at https://pfx.exchange.
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