HSH Nordbank bets on infrastructure

Take a drive in one of Asia's many teeming metropolises and the region's infrastructure deficit becomes immediately apparent. Now, transportation powerhouse HSH Nordbank is entering the fray of firms working to change this, with the launch of a new infrastructure advisory group led by Phillip Hall.

"Generally speaking, infrastructure projects have assumed greater importance among investors in the wake of the financial crisis, due to their predictable earnings and manageable risks," said Mathis Shinnick, global head of transportation at HSH Nordbank. "The formation of the advisory group takes account of this trend."

CLSA Research estimates that Asia ex-Japan will spend $2.5 trillion on infrastructure through 2014, rising at an annual rate of 15%. The firm cites opportunities for transportation companies to invest in, provide advisory for, and be suppliers to Asia's infrastructure growth.

As the German institution's new global head of infrastructure advisory, Hall will market HSH Nordbank's advisory services to investors, owners and developers of financing concepts for transport-related infrastructure, including airports, logistics, ports, roads and rail. The team officially starts operations tomorrow.

London-based Hall will oversee a team of 11 people spread between London, New York and Singapore. Two people will be based in the bank's Singapore office. Duffy said that additional hires from outside the bank are "envisaged" in the new year, but will depend on the firm's year-end results.

Hall joined HSH Nordbank in February from the Royal Bank of Scotland where he was head of infrastructure finance. He reports to Singapore-based John Duffy, who is head of the bank's global infrastructure unit.

Other members of the new team come from existing positions within the bank, though many have joined the institution from the transportation sector. Duffy said members have come from the likes of Siemens, KPMG and Singapore port operator PSA.

"Infrastructure has come through [the crisis] as an asset class with pretty decent colours and we see more infrastructure funds recognising that," said Duffy. "Outside China, the private sector only represents about 20% [of the money] spent on infrastructure. The opportunity to bring the private sector into this asset class in Asia remains huge."

One of the advisory group's roles will be to bring institutional investors together with infrastructure plays. Hall cited Global Infrastructure Partners' purchase of London Gatwick Airport as an example.

Other banks have launched funds to tap this growing market. Earlier this year, Standard Chartered IL&FS Infrastructure Growth Fund's joint chief executive Andrew Yee said he sees the next few years as "great opportunities" to buy Asian infrastructure at "reasonable prices".

In addition to connecting institutional investors to infrastructure opportunities, HSH Nordbank's new team will advise on mergers and acquisitions within the industry. "Most of the M&A is in the logistics area," said Duffy. "By way of an example, in China you have somewhere near half-a-million third-party logistics providers. It's the most fragmented logistics market in the world."

He also cited Australian logistics firm Toll, which has purchased nine other logistics providers in Asia this year, ranging from Japan's Footwork Express to the United Arab Emirates' Logistic Distribution Systems.

The formation of HSH Nordbank's new advisory group follows a tough year for the bank. In November 2008 it took €30 billion ($45 billion) in guarantees from Germany's bank rescue fund, Soffin, and in March its board approved a restructuring plan that involved pooling core assets and either selling or closing non-core businesses.

"Banks which have had to take state money, and we're no exception, have had to look at what is the family silver," said Duffy. "For our bank, infrastructure in Europe and Asia has been endorsed as a core business and, from an advisory perspective, it's a global priority."

When asked whether the new advisory group could be considered a return to HSH Nordbank's roots he agreed and said: "Up until the crisis hit we were going our merry way, acting more as a conventional commercial bank, albeit in very select areas. The bank has always been a sector specialist [in shipping and transportation] and we're just refining the model into more of a merchant banking approach."

HSH Nordbank posted an €821 million net loss, down 76% year-on-year, for the first nine-months of this year on interest income of €1.3 billion.

Despite not officially launching until this week, HSH Nordbank's advisory team has already won some business. US-based aviation facility developer Airis recently gave it a global mandate for airport properties and it advised the bank's India Infrastructure Development Fund during its launch in July.

"HSH Nordbank's global infrastructure advisory group offers breakaway project financing structures that no longer rely on traditional infrastructure financing," said Ronald Factor, president and chief executive of Airis. "This will give our government and airport authority partners new, efficient, and cost-effective flexibilities to develop essential infrastructure."

Duffy would not disclose specifics but said Airis is in negotiations with at least two airports in Asia-Pacific, and the advisory team is currently at the bidding stage for a number of additional mandates.

"By and large, infrastructure is an asset class investors want," he concluded. HSH Nordbank's new team hopes to capitalise on that and help the institution return to the growth it saw prior to last year's credit crunch.