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Market perspective: Jorge Centeno, InfraRed Capital Partners

InfraRed is an international private equity fund manager focussed on infrastructure investments, managing USD 10bn of equity capital. Having successfully raised nine funds so far, InfraRed has developed over 80 greenfield projects and currently manages 200 infrastructure projects worldwide. In 2019, InfraRed opened an office in Mexico City, where Jorge Centeno leads their origination and execution team focused on Latin American investment activities.

“The energy transition is probably the strongest theme we see across Latin America. We think there will be continued investment in renewables, but that will also trigger investment in flexible generation, energy storage and electrification of transport.”, says Centeno. While this trend is already well established in Europe and the United States, he believes it is starting to become a theme in LatAm as countries such as Chile and Colombia announce regulation and strategies aimed at promoting investment in these segments.

As many countries in the region are already advanced in their promotion and investment of renewables, Centeno says flexible generation and storage technologies are required to compensate for the intermittency of renewables and enable incremental penetration of renewables into electricity networks. Furthermore, cheaper and more reliable sources of power, alongside sustainability targets, will boost investment in electric transportation as a service. “InfraRed started investing in the energy transition theme over a decade ago and is therefore well positioned to capture further investment in all of these segments”.

LatAm is working to improve its digital connectivity through fibre to the premises and 5G, but also satellite wireless connectivity. “Satellite connectivity is already kicking off in the US, and we think that will be the lead for Latin American countries to promote it too.” Centeno sees densely populated areas becoming well served digitally by high-speed internet connectivity more quickly, but there will be an ongoing need for investment in newer, wireless technologies to connect the many rural and isolated communities across the region. He says, “We are already seeing some examples. Telefónica has partnered with KKR to lay out open access fibre across Chile and Starlink, the low latency, broadband internet system being developed by SpaceX, has received a licence to start operating in Argentina, and we do think these are going to be trends that become widespread in LatAm.”

As a region, LatAm continues to have strong demand for social infrastructure: healthcare, education and transport. This is illustrated by major PPP programmes in countries like Chile, Brazil and Colombia. According to Centeno, “It’s nothing innovative, but we do think the pipeline of these type of projects continues to be strong. PPP is already well established in LatAm and a number of countries in the region have a long track record in procuring social infrastructure under these schemes.”

InfraRed has long been an investor in PPP projects. Currently, they have four such infrastructure projects on the go in LatAm and the Caribbean, including roads in Colombia and Aruba, along with a hospital in Turks and Caicos. “We do believe PPP is still appealing to investors,” says Centeno. “If anything, it has become very competitive, and returns have tightened in LatAm under PPP schemes. That’s great for countries because they can attract competitive capital, but value-add investors with higher cost of capital will find it difficult to compete for these assets. Instead, value-add investors are shifting towards newer trends such as the energy transition, connectivity and circular economy.”

According to Centeno, the impact of COVID-19 on infrastructure investments in Latin America has been similar to its impact elsewhere. “Energy markets have seen volatility in trade volumes and commodity prices, and transportation assets have experienced low traffic. However, infrastructure has once again proven to be a resilient asset class that is capable of delivering stable cashflow and consistent returns to investors even during times of significant turmoil in the global economy.”

Post-COVID, he sees no major changes to how InfraRed will assess potential infrastructure investments. “We will look at traffic forecasts and energy market fundamentals with incremental scrutiny, but we do not see major amendments in the structure of contracts. It is more about the assumptions that investors make when bidding for these types of projects.”