Explain how infrastructure assets are investigated and valued
The idea
Diligence covers the regulatory regime and concession terms (tariffs, duration, termination), the credit quality of offtakers or government counterparties, technical condition, demand studies such as traffic forecasts, construction contracts, environmental and ESG issues, political risk and the financing structure. Valuation is mainly a DCF over the concession or asset life. It has no terminal value if the asset must be handed back, and it uses a discount rate reflecting regulatory, demand and construction risk. Regulated utilities are also judged against their regulated asset base, and comparable transactions provide a cross-check. Run sensitivities on inflation, discount rate and volumes. The trap: optimistic demand forecasts and an unjustified terminal value at the end of a concession overstate value.
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