CI VIEW: US infrastructure under Trump is world’s greatest emerging market investment, Carlyle co-CEO

WASHINGTON/BALTIMORE (BBN)  –  President Donald Trump plan to spend up to USD 1 trillion upgrading US infrastructure has triggered the first serious bipartisan debate in Congress whether the United States should establish a National Infrastructure Bank and/or national bond authority and new infrastructure investment by domestic and foreign players like Washington, DC’s The Carlyle Group and Melbourne, Australia-based Transurban Group (ASX:TCL).

[The Carlyle Group co-CEO Glenn Youngkin on why US Infrastructure is “greatest emerging market opportunity” in the world at America’s Infrastructure Summit: A Time to Modernize at US Chamber of Commerce in Washington, DC. January 18, 2018]

The Carlyle Group co-Chief Executive Officer Glenn Youngkin said he always tells major foreign funds who love to invest in emerging markets that the “greatest  emerging market opportunity around the world today is to invest in US infrastructure.  Rule of law, accountability of a work force, the dependability of construction and we have such a nascent industry investing in something which is our greatest need . This why we are getting so excited.”

During a US Chamber of Commerce hosted America’s Infrastructure Summit, Carlyle’s Youngkin said America’s leading private equity group is already eyeing USD 25bn in US airport privatizations and public-private partnerships. Carlyle is already involved in the modernization of New York New Jersey Port Authority of JFK International Airport Terminal 1 and the upcoming privatization of St. Louis Lambert Airport located next to Ferguson, Missouri. 

[President Donald Trump speaks with Capitol Intelligence/BBN using CI Glass at Economic Club of Washington DC event prior to entering race for Presidency and the opening of Trump International Hotel in Washington, DC. December 15, 2014]

US House Transportation and Infrastructure Chairman Rep. Bill Shuster (R-PA) says he opposes the establishment of a National Infrastructure Bank while US Senator Mark Warner (D-VA) is pressing for an independent National Infrastructure Bank or financing authority.

President Trump’s proposed US infrastructure fund is the brainchild of former Virginia governor and private equity principal Senator Mark Warner who quietly proposed a USD 1trln fund to be managed by a public-private National Infrastructure Bank in February 2010.   Senator Warner proposed banks putting in between USD 100bn to USD 200bn into the fund and the US government financing the rest through leverage.

United States Transportation Secretary Elaine Chao and Maryland Governor Larry Hogan said that USD 5.6bn, 16-mile suburban Purple Line light railway connecting Montgomery County and Prince George’s County is a model that can be used for public-private partnerships across the nation.

[U.S. Transportation Secretary Elaine Chao and Maryland Governor Larry Hogan speaks to Capitol Intelligence/BBN using CI Glass on using historic Purple Line light rail P3 as model for Trump’s USD 1trln US Infrastructure Fund/Bank. August 28, 2017]

Secretary Chao noted that while P3 Purple Line projects are the norm around the world, public-private financing of public infrastructure in the United States are even banned in some US States.

Governor Hogan said he personally told President Trump that  his administration needs to use the successful public-private Purple Line P3 project as an example of best practices for the administration’s proposed USD 1tln infrastructure bank/authority.

The Paris-based Meridiam leveraged its vast experience of major infrastructure projects in Africa and Europe to take over the project financing and financial control of the Purple Line, Meridiam founding partner and CEO Thierry Deau told Capitol Intelligence/BBN in an interview during the IMF World Bank annual meetings.

[Meridiam Chairman and CEO Thierry Deau speaks to Capitol Intelligence/BBN using CI Glass on winning major US P3 projects such as Maryland Purple Line and NYC’s La Guardia airport renovation during World Bank IMF Annual meetings in Washington, DC. October 7, 2016]

Meridiam is already the first mover in President Trump’s plans to invest USD 1trln in US infrastructure via public-private partnerships with Purple Line P3 and La Guardia airport.

Meridiam’s Thierry Deau status as an early  foreign investor in US public-private infrastructure investment will soon change as sovereign wealth funds such as Singapore’s Temasek Holdings; Australia’s MacquarieAbu Dhabi Investment Authority (ADIA); Norway’s Oil Fund and Canada’s Ontario Teachers Pension Plan and Caisse de Depots et Placement du Quebec all position themselves into largest and most lucrative infrastructure finance market in the world.

Public-private partnerships in United States airports and ports are low hanging fruit for global SWFs as US States and local governments increasingly turn to private financing as a way to offset growing deficits caused by growing state sector pension liabilities.

Singapore’s Temasek is likely to become a leader in US transport P3s both for its direct ownership of Singapore’s global port operator PSA International Ltd. and its majority stakes in Singapore Airlines and interest in Basel, Switzerland-based listed airport duty free giant, Dufry AG (VTX:DUFN).

In a brief statement to Capitol Intelligence during her husband’s — Singapore Prime Minister Lee Hsien Loong recent state visit with US President Donald Trump — Temasek CEO Ho Ching said the fund “may look” at co-investing in President’s Trump planned USD 1trln infrastructure fund.

Singapore Prime Minister Lee Hsien Loong’s Oval office meeting with President Trump on October 23, 2017 was highlighted with the announcement that Singapore Airlines would purchase from Chicago-based Boeing Co (NYSE: BA) some 20 777-9s and 19 787-10s aircraft for a total deal value of USD 13.8 bn.

[Temasek Holdings CEO Ho Ching speaks to Capitol Intelligence using CI Glass on investing in US infrastructure fund during Singapore Prime Minister Lee Hsien Loong state visit with President Donald Trump in Washington, DC. October 25, 2017]

Prime Minister Lee Hsien Loong, in a move stressing Singapore’s close ties with US business leaders, participated in an interview by The Carlyle Group Co-Founder and Co-CEO David Rubenstein at a Economic Club of Washington DC event just ahead of his meeting with President Trump.

Temasek’s Ho Ching and other global SWFs are looking at the The Port of Baltimore and Puerto Rico’s Luis Muñoz Marín International Airport as models for private-public partnerships in the United States.

The privatization of San Juan’s airport to Canada’s Public Sector Pension Investment Board (PSP Investments) and Mexico’s Grupo Aeroportuario del Sureste SAB de CV allowed Puerto Rico to have a functioning transport hub while almost all of its major critical utilities and transport hubs were wiped out by Hurricane Maria.

Puerto Rico’s elected representative to Congress and Resident Commissioner, Republican Jenniffer Gonzalez-Colon, said she is more than confident that she will be able to replace the negative elements in the tax bill, such as the highly controversial 12.5% tax rate on licenses and patents and at the same time make Puerto Rico the most attractive US jurisdiction for US and foreign infrastructure investment.

As the Speaker of House of Representatives of Puerto Rico, Congresswoman Gonzalez-Colon passed a public-private partnership law that still serves as a model for the rest of United States and for the President Trump’s USD 1trln fund.

[Congresswoman and Resident Commissioner of Puerto Rico Jenniffer Gonzalez-Colon speaks to Capitol Intelligence (BBN-PR) using Glass on Puerto Rico outlook months after Hurricane Maria abroad JetBlue Airways flight from Washington DC (DCA) to San Juan (SJU) on December 24, 2017]

Puerto Rico is also expected to privatize its post-Hurricane Maria scandal plagued utility Puerto Rico Power Authority (PREPA) to a major domestic or international power player such as Chicago-based Exelon (NYSE: EXC) or Rome, Italy state owned utility ENEL (NYSE:BIT) or Milan, Italy-based listed municipal utility a2a (BIT: A2A).

Puerto Rico has already privatized its toll-road highway concessions to Madrid, Spain-based Abertis (BME:ABE) and Goldman Sachs and will further benefit as Abertis now a EUR 20bn takeover target in the heated battle between the Benetton family-owned Rome-based Atlantia (BIT:ATL) and the Essen, Germany-based Hochtief unit  of Spanish construction giant, ACS Group (BME: ACS). 

President Trump’s  infrastructure fund generate up to USD 250bn in private sector funding to rebuild and modernize US highways, bridges and tunnels, according to to Australia’s listed toll road operator Transurban Group (ASX: TCL). Transurban already operates the I-95 and I-495 Express Toll Lanes in northern Virginia and is seeking new US toll road opportunities, Transurban North America President Jennifer Aument said.

[Transurban North America President and Parkersburg, West Virginia native Jennifer Aument speaks to Capitol Intelligence/BBN using CI Glass at the U.S. Chamber of Commerce America’s Infrastructure Summit: A Time to Modernize in Washington, DC. January 18, 2018]

The Parkersburg, West Virginia native said foreign investors in US infrastructure must overcome the fact that the United States is 50 separate markets and take a long-term investment approach.

“I think one of the big challenges we have seen for foreign investors who try to operate in the US is they come in and have unrealistic expectations on how quickly things can move forward. So they come in, they set-up a fund in New York and they go for 12-to-18 months and they say what happen?, and they leave,” Aument said.

The Port of Baltimore partnership with Oaktree Capital Management unit Highstar Capital allowed the State of Maryland to reap USD 1.8bn in economic benefits and create 5,700 jobs without spending a cent in tax payer money.

Baltimore, with its deep sea (Panamex) port, has become the most efficient transport hub on the United States’ East Coast.

Senator Chris Van Hollen (D-MD), like Warner, says he strongly supports the creation of a National Infrastructure Bank and points to the Port of Baltimore as an example of a successful public-private financing of a strategic US infrastructure project.

Warner’s proposal, while supported by President Barack Obama and US Treasury Secretary Timothy Geithner, faced insurmountable opposition from liberal Democrats against private sector infrastructure funding and  neoconservatives/Tea Party opposition to government sponsored corporate welfare.

[US Senator Chris Van Hollen speaks to Capitol Intelligence/BBN using CI Glass on President Donald Trump proposed USD 1 trln infrastructure fund at Port of Baltimore news conference in Baltimore. Maryland. February 21, 2017]

Donald Trump’s rival Hillary Clinton lifted much, if not all, of Senator Warner’s proposed NIB in her campaign for the Presidency and the USD 1 trln figure was quietly re-appropriated by President Trump and highlighted during his first State of the Union address to Congress.

“I will be asking the Congress to approve legislation that produces a USD 1 trln investment in the infrastructure of the United States,” President Trump during the State of the Union Address on Feb. 28, 2017.

One solution aimed at winning support from Chairman Shuster is to bring back and expand the scope of Build America Bonds. Originally enacted by President Obama as part of the American Recovery and Reinvestment Act of 2009 (ARRA), the taxable municipal bonds that carry special tax credits and federal subsidies expired December 31, 2010.

[US House Transportation and Infrastructure Committee Chairman Rep Bill Shuster (R-PA) filmed by Capitol Intelligence/BBN using CI Glass at hearing with FedEx Corp Chairman and CEO Frederick W. Smith and Cargill Inc CEO David W. MacLennan. Washington, DC. February 1, 2017]

The leading lobbyist for the US bond market, Securities Industry and Financial Markets Association (SIFMA) Managing Director Michael Decker raised the reissue of Build America Bonds at the Bipartisan Policy Center think tank in Washington, DC.

However, Decker noted that Build America Bonds are only interesting to US investors seeking tax credits and not to sovereign wealth funds and major foreign infrastructure funds looking to invest in US infrastructure projects as equity investors.

While the privatization of public utilities has been the norm for decades in Europe and much of Asia, it remains a highly controversial subject in the United States where only a handful of elected officials have the temerity to even raise the subject in public.

A notable exception is Baltimore’s newly elected mayor, Catherine E. Pugh, who does not rule out an eventual privatization of the city’s utility if it would bring the best cost-benefit solution to her citizens.

Baltimore, Washington DC and countless US cities face the real dilemma of how to finance billions on billions of dollars in urgently needed water infrastructure upgrades without eventually privatizing their utilities under a long-term concession to a private sector operator such as New Jersey-based American Water; French water giants Veolia and Suez de Environment or Germany’s RWE.

[Baltimore Mayor Catherine L. Pugh speaks to Capitol Intelligence/BBN using CI Glass on potential public-private partnership for Baltimore of Water & Wastewater at news in Baltimore, Maryland. January 6, 2017]

While the United States is the world’s largest and most vibrant economy, the state of its general infrastructure is either poor or substandard due to inefficient and opaque financing mechanisms.

Much of the blame lies in Congress which continues to approve funding by making annual appropriations to fund infrastructure, putting every long-term investment project at risk from partisan and pork-barrel politics.

President Donald Trump’s pragmatic “Art of the Deal” approach to politics and policy will in all likelihood bring about structural reforms for private sector financing of infrastructure projects throughout the United States.

Senator Warner, one of the most effective cross-aisle deal maker in Congress, has in his own way found a compromise solution to the equity or debt solution for the President’s USD 1 trln infrastructure fund by simply renaming his proposed National Infrastructure Bank as the National Infrastructure Financing Authority.

[US Senator Mark Warner (D-VA) speaks to Capitol Intelligence/BBN using CI Glass on US corporate tax repatriation used to finance US infrastructure investment following Senate Banking Committee hearing on US Export-Import Bank nominees. December 19, 2017]

Senator Warner told Capitol Intelligence that President Trump missed an opportunity to include the proposed National Infrastructure Financing Authority as part of the Administration’s recently passed Tax Reform bill by incentivizing US multinationals to re-invest repatriated corporate profits into US infrastructure.

He said the infrastructure financing authority would provide a one-stop shop to finance public-private infrastructure projects for domestic and foreign investors and at the same time create an agency representing key stakeholders: United States Treasury Department, US States and territories, and local government and authorities.

Observers said that a majority in Congress exists between fiscally conservative and moderate Republicans and conservative and/or pro-business Democrats to push through a major infrastructure reform bill and package through Congress.

One member of Congress that can bridge the current divide between a National Infrastructure Bank pushed by Senator Warner and Van Hollen and the bond market approach favored by Republican Bill Shuster is West Virginia senior Senator and former West Virginia Governor Joe Manchin (D-WV).

[US Senator Joe Manchin (D-WV) speaks to Capitol Intelligence/BBN using CI Glass on debate over National Infrastructure Bank vs Bond market for President Trump proposed USD 1trln Infrastructure Fund at the Atlantic The Renewal Summit in Washington, DC.]

While a Democrat, Senator Manchin has crossed the aisle numerous times in support of President Trump and is the US Senator least concerned about party politics.

By PK Semler in Washington, DC; Baltimore, Maryland; and San Juan, Puerto Rico. For more information please call +1-202-549-3399 or email: pks@capitolintelgroup.com

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