Infrastructure Bonds

Bonds have become a increasingly important financing instrument in the debt capital market for infrastructure projects. Until the early 2000s infrastructure finance mainly relied on equity from industrial sponsors (contracting parties that contribute to the establishment of the project) and the public sector. Since then banks and bank syndicates have become more interested in the debt side of large scale infrastructure projects. Since 2010 the share of bonds as part of total project finance has grown steadily to a 12-20%. Bonds can provide a stable long term cash flow over the lifecycle of a infrastructure project and are of interest to banks, pension funds and other investors with a long term horizon. Bonds for financing infrastructure are issued as part of Special Purpose Vehicles that are set up to finance, construct and maintain large scale infrastructure projects. Municipal bonds are debt securities that are issued by municipalities to finance its capital expenditures like highways bridges or schools. There is a bright future for bonds tapping into new capital markets to finance infrastructure for Smart Cities.
Sources: Bocconi/S.Gatti; financing infrastructure projects, Investopedia.
Picture: E class Melbourne Tram, Flickr, Bernard Spragg