Chand Chudasama, a Strategic Corporate Finance expert and Partner at Price Bailey, comments:
“To get the private sector to come in, the returns need to be appropriate – the UK has been a volatile place to invest in recently and returns will need to increase to compensate for this. Internal Rates of Return (IRR) have to go up on infrastructure investments to attract equity investors.”
“For some investors looking at the UK, they might decide the theoretical IRR of investing in UK infrastructure isn't worth the risk of adverse publicity, particularly after the shambolic performance of the Thames Water Board, and the backlash against the dividends that flowed up to create the returns to shareholders. Windfall taxes will also make investors reluctant to invest without sufficiently high returns. Even without the market failures in water or energy, consumers seeing bills go up and a portion of those bills going to profit-making investors may cause unease.”
Chudasama continues: “The alternative is we modernise the fiscal rules and let the government borrow more for investment into modern infrastructure and let the premium returns flow back to the Treasury – if the market rate cost of capital is high, why not view that as an opportunity and let the state capture those returns instead of an external investor?”
“Increasing borrowing is viewed negatively, but it all comes down to the value of the asset you’re borrowing against. The UK has enormous potential to grow and deliver attractive future returns – we have a rare opportunity to reform the fiscal rules and build up the net worth of the UK.”
You can read more about PE investment here.
Find out more about Chand Chudasama here.
