BREXIT: Long term nature of infrastructure and energy projects may be attractive to investors, says expert

Out-Law Analysis | 05 Jul 2016 | 2:39 pm | 1 min. read

FOCUS: The longer-term nature of investment in infrastructure and energy projects could keep investment levels higher than in other sectors, and may even bring new opportunities.

This is part of Out-Law's series of news and insights from Pinsent Masons experts on the impact of the UK's EU referendum. Watch our video on the issues facing businesses and sign up to receive our 'What next?' checklist.

Investment in infrastructure or energy assets, like any other sector, is likely to prove volatile for a period of time following the Brexit vote. The currency risks that exist in many deals and potential price rises due to uncertainty on supply and demand in the UK energy market will inevitably make things difficult to predict in the short term. But as things settle this could be recognised as one of the more positive sectors for investment.

Both energy and infrastructure projects tend to be long-term and stable in nature and will be attractive for investors taking a longer view of markets and opportunities. Deals that have limited currency risks, high certainty of revenues and strong sponsors will still go ahead.

Those selling assets could see a new market in overseas buyers attracted by the currently low price of sterling and the potential to realise a substantial upside once the currency recovers.

There are some sectors with a raised risk profile, however. The energy sector has in fact been one of the few areas of 'political risk' in the UK in recent years, as the government has made changes to policies on renewables and other low-carbon initiatives.

The UK may change its legislation further as it seeks to assert sovereignty if it leaves the EU, although the extent to which it can actually do so will depend on any international obligations in each sector.

There is no indication of substantial changes in direction in existing subsidy regimes, but both investors and lenders need to be conscious of this risk of change in law, and its impact on different asset classes. There will still be opportunities, even in these more vulnerable sectors, for investors with robust views on risk. For investors like insurers, looking to match liabilities with long-term investments, the sector may be a very attractive option.

Alexis Roberts is an insurance expert with Pinsent Masons, the law firm behind