Turkey's recent introduction of the unique Infrastructure Investment Trust (IIT) is the latest reminder of the vast opportunity existent in the developing economies of the world. This privatization of infrastructure development is a powerful force which is not only driving investment globally, but also creating opportunities for investors.
Under Turkey's plan, private trusts will be formed with the cooperation of local governments in order to attract public financing for infrastructure projects. A built in mandate requires the separation of financing and operations, as the trust itself will not be allowed to undertake construction. This critical feature allows for free market pricing of projects, and the opportunity for infrastructure firms to participate in the economic growth Turkey. Similar legislation has been passed in South Africa, Asia, and South America.
The opportunity for Infrastructure Firms has never been clearer, but for the majority of 2008 the S&P Global Infrastructure Index (IGF) has struggled to breakout. One of the main hurdles the sector has had to overcome has been the tightening of lending standards and the general tightening of credit worldwide. The sheer scope of the projects included under the infrastructure umbrella requires massive debt capacity, something which is usually achieved by large bank syndication. Australia, for example, recently announced an infrastructure budget of $14 Billion ($AU) for the upcoming year alone. This type of financing has not been available over the past year from the private sector while expectations of improvements in this arena have varied considerably. This uncertainty put pressure on the prices of these companies' shares as analysts' forecasts for profit growth in the sector have been dampened.
As we move forward and credit market stability returns, these companies will once again be in a position to secure financing at favorable rates, allowing them to pursue growth strategy. The light at the end of the tunnel for these companies is therefore a return to credit normalcy in the second half of the year and early 2009. Combine this with Turkey's shining example of the shift towards private sector involvement in infrastructure development, and the sector looks very attractive at these levels. Consider investing in specific companies at the forefront of road, rail, port, or energy transportation construction or a portfolio investing in a basket of them.
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