Emerging Markets - Benefits of Investing in Power & Infrastructure Sector

Power & Infrastructure Sector in emerging markets is still somewhat immune to recent financial meltdown as evident by some of the recent deals in the sector and closing of new private equity funds.

Some of the most important benefits of investing in Power and Infrastructure Sector are:

• Significant underlying asset base, whether through ownership of, or contractual or concession based rights to the economic benefits of, the asset base;
• Relatively low volatility return, given that, in general, the main risks to cash flows can be quantified and mitigated through contractual agreements and other means;
• Primary value creation through optimization of capital structure with less of a focus on planned transformational and operational change than would typically be seen with a private equity asset;
• Low correlation of returns to macro-economic cycles, given the essential nature of assets and services provided by the businesses, which leads to high barriers to entry and relative price inelasticity;
• Partial correlation of returns to inflation; and
• Potential for material capital growth including gains from refinancing.

Blog on Risks of Investing in Power & Infrastructure Sector will posted tomorrow.

Palak (Jane)