New finance bond designed to encourage long-term investors and lessen the risks on infrastructure projects

The Green Investment Bank is considering a new finance delivery model that could attract billions of pounds of investment into UK infrastructure.

The project bond would guarantee about 10% of the project funding, which would give pensions and life insurers the confidence to invest in long-term infrastructure projects.

Speaking at Building’s Infrastructure Executive Forum last week, Richard Threlfall, KPMG’s head of public infrastructure, said that the Treasury was following the EU in establishing a project finance bond.

Threlfall said: “The Treasury has indicated that it will bear risk on infrastructure projects to improve credit worthiness and encourage long-term investors into the market.”

The government wants £200bn of infrastructure investment over the next five years, but only wants to provide 20% of the financing.

By providing 10% of the equity and guaranteeing another 10% investors would only be exposed to 80% of the project debt.

Unbuilt infrastructure projects are considered risky by ratings agencies because of the construction risks. As a result their credit rating is not high enough to allow institutional investors to finance projects.