To help investors monitor risk and portfolio allocations, S&P Global Ratings has conducted a study looking at the size and structure of total project finance debt rated by S&P globally.
During the first half of 2016, S&P Global Ratings rated $159.7 billion of project finance, including energy, power, transportation, and real estate infrastructure projects. Two-thirds of this project finance was investment grade (BBB- and higher), and the majority of debt was issued in the US (46%) and Europe (23%).
The report will detail the specifics of the size, location, and structure of project finance debt S&P rated in 2016. Until it is released, here are a few key finds from the report:
- Globally, 24% of project finance rated debt is from oil and gas projects. Although the oil and gas sector has faced heavy credit downgrades over the past year, the majority of these issues remain investment grade.
- By count, 68% of project finance bonds are investment grade compared with just 40% of nonfinancial corporates globally. The U.S. generally has a higher share of debt that is of speculative debt than other regions, compared to Europe (mainly the U.K.) which holds the majority of ‘AA’ rated project finance debt.
- When comparing projects by type, the largest share of U.S. rated projects are power projects which are mostly (59%) speculative grade. In Europe the largest share of projects is from the public finance/real estate sector (47%), and in emerging markets the largest share of projects are transportation related (46%).
- S&P Global Ratings expects the amount of project finance to increase, especially in the U.S. Because the U.S. Federal Reserve has raised rates again this month, S&P states that the investor demand for real assets such as project finance could be boosted, also considering that President-elect Trump has discussed a $1 trillion infrastructure program over 10 years.
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