Lending a Hann

15 June 2017 Dan Colombini talks to Macquarie’s Nicholas Hann about issues facing North American infrastructure and how the firm views the future of the market
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When overseeing a broad, cross sector pipeline of P3 deals, experience is key. And Nicholas Hann certainly has experience when it comes to global infrastructure.

Hann started his career in infrastructure in the early 1990s, advising on Build Operate Transfer (BOT) projects in Hong Kong, China and across Asia. He has worked on landmark projects in the power, water, airport, highway and rail sectors.

But it was his experience working on several of Hong Kong’s major rail transit projects that spoilt him for life, by showing him a vision of large scale efficient mass transit which was high quality and profitable.

In 1998, Hann took the opportunity to join Macquarie in Sydney, Australia, where he initially specialized in rail projects. The firm at the time was one of the only financial institutions in the world acting as a developer of infrastructure and making equity investments, providing Hann with a platform to increase his knowledge.

Following his work on the Canada Line and the early stages of British Columbia’s highly successful P3 program, Hann set up Macquarie’s Vancouver office in 2002 – where he has remained ever since.

Now senior managing director and chairman of Macquarie’s P3 group across North America and an active board member of the Canadian Council for PPPs, Hann has a good platform from which to survey the landscape in the market. So how does his vast experience around the globe help him navigate the complex world of North American P3s in 2017?

“I like to joke that it was sometimes easier to structure private investment in infrastructure in socialist China in the 1990s than it is in capitalist North America today,” he says. Political issues are perhaps more prevalent in the US than neighboring Canada, but it remains easy to see Hann’s point.

As the P3 model has grown in North America over the past few years, the continuing need to educate public officials as to the genuine merits of the model remains a must for the industry.

Sometimes it has seemed – in the US in particular – that it is one step forward and two steps back as many public officials, from both sides of the political coin, continue to view the model with suspicion.

The market can therefore be hard to penetrate across both the US and Canada, but that is not to say progress has not been made in recent times.

Hann continues to lead landmark transactions in the region, including the Sea to Sky Highway, Abbotsford Hospital, the Denver Fastracks Eagle P3 and recently the KentuckyWired project, which is the first application of the P3 model in the telecommunications space.

“Telecommunications infrastructure is an exciting sector in North America and globally. With the move towards 5G in wireless, greater densification of the fibre optic network to support the vast increase in data being transmitted and the increasing importance of resilient networks for dedicated usage such as public safety, autonomous vehicles and ‘the internet of things’, delivery of core infrastructure by the public sector under PPP models is likely to become increasingly the norm,” he says.

“Macquarie is optimistic on the outlook for infrastructure in the United States in the coming years,” Hann continues. “The investment needs are large to make up for decades of underinvestment and are increasingly recognized across the political spectrum.”

And he’s confident he and his firm will be at the forefront of this. “Macquarie has a wide range of capabilities and capital sources to structure solutions which best fit the needs of the project.

“The US, with multiple layers of political accountability for infrastructure development and often fragmented funding sources, remains a complex and challenging market in which to be a developer and this will probably continue to be a constraint on the number and consistency of projects which come to market successfully.”

However, there remain plenty of reasons for the firm to be cheerful in the country. It continues to be highly active in the US, with Hann acknowledging the potential going forward.

Macquarie has recently bid on deals such as the Landside Access Modernization Program (LAMP) at LAX airport and has agreed an innovative broadband deal with asset optimization firm CNX.

As part of the proposals for the latter agreement, the firms will offer support to jurisdictions across the US seeking to expand their broadband infrastructure by providing advisory and technical services, business planning and financing for the construction, management and operation of fiber and wireless broadband networks.

The agreement has been made to increase the national reach for both firms to appropriately cover market interest in the model, as well as leverage specific skill sets including technical resources and strong stakeholder relationships.

It comes at the right time for Macquarie, off the back of its pioneering KentuckyWired project, which it signed back in September 2015.

“We are excited to partner with CNX to pursue the next generation of broadband projects in North America,” says Hann. “Access to high-speed broadband remains a critical economic infrastructure need for many states and local cities; the KentuckyWired P3 provides a sound model for the use of public-private partnerships to deliver broadband access more quickly, cost effectively and comprehensively.”

But while there are US success stories for the firm, Hann is far more positive about the Canadian market in the current climate. He suggests that there is room for even more growth, as the industry comes to terms with the new Liberal government and some different methods that are likely to be in play in the future.

“Canada has developed into arguably the world’s most consistent and successful P3 market over the past 15 years,” he explains. “Macquarie expects the overall volume of transactions to continue, notwithstanding hiccups in some provinces as the political environment towards the P3 model changes.

“P3s in Canada have proven themselves to be an efficient, cost-effective and largely unobjectionable project delivery method and the benefits of strong business case planning, risk assessment and standardization have trickled down into an improvement in capital planning and project delivery even where the P3 model is not selected.”

But things are not perfect, of course. Hann has concerns that the market has become too complacent in its successes over recent years, something that could potentially isolate the likes of Macquarie in the future.

“The level of government contributions into Canadian P3s focuses attention on construction budget and schedule certainty but may be less effective in the optimization of whole of life operation, maintenance and rehabilitation efficiencies. The small private sector equity checks discourage financial investors.”

This is not an isolated opinion, with many experts in Canada putting forward similar concerns, especially with the creation of the new Canadian Infrastructure Bank (CIB) and the as-yet-unknown role this will play in the development of new projects.

There is, after all, no shortage of capital in Canada and, while the country continues to court the pension funds and promote the CIB, there are valid question marks over the role of existing investors in the market. Nonetheless, Hann still believes that if harnessed correctly, the CIB can spark even more opportunities for investors.

“Canada has the opportunity to extend the scope and scale of its P3 program, particularly in the large mass transit projects such as the Go Train RER project in Ontario,” he adds. “Although very efficient, P3 financing in Canada has become increasingly plain vanilla, the vision of the Canadian Infrastructure Bank to leverage greater private sector financing in user pay infrastructure projects is actually very exciting.

“I am a strong believer that financing is a huge driver of innovation and effective risk transfer and conversely that these things cannot happen without the financial tools to support them.”

As a result, his outlook for the North American region is ultimately positive for the coming years. “The outlook is exciting and is attracting global attention,” he concludes.

“At the same time North American investors, especially Canadian pension plans, are some of the largest and most sophisticated owners of international infrastructure.”

This page was last updated on:
15 June 2017.

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Still banging that drum

P3 remains high on the agenda in Washington, but this week’s global events are a reminder of how the case needs to be continually made

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Lending a Hann

Dan Colombini talks to Macquarie’s Nicholas Hann about issues facing North American infrastructure and how the firm views the future of the market

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