Category Archives: Infrastructure
2009 was the year of the stimulus for the US. Though the Capitol talked mostly only about stimulus in terms of funds for highways and on setting up of recovery.gov, We started taking notice by June that indeed it was hard to track and hard to estimate..a lot of state and some police projects were awarded at the level of county and job savings ascribed to each to get to recovery.gov. Not entirely accurate but definitely a notch or two better than any other spending program i know. The rest of the jobs program will be best utilised probably by the same jobs..new roads, highways that needed even just guard rails, railway infrastructure.
In February, Obama made whistle-stop tours and exhorted the people to see how much they needed these highways and bridges, and how these were unfinished business:
Mr. Obama is proposing what he says is the largest increase in infrastructure spending since President Dwight Eisenhower created the Interstate Highway System in the 1950s.
“We will invest more than $100 billion and create nearly 400,000 jobs rebuilding our roads, our railways, our dangerously deficient dams, bridges and levees,” he said.
The president said funding infrastructure projects will also help create jobs in other areas of the economy. He specifically mentioned the Caterpillar company, which makes much of the heavy equipment used in road projects. Caterpillar recently announced more than 20,000 layoffs.
“And today, the Chairman and CEO of Caterpillar said that if the American Recovery and Reinvestment Plan passes, his company would be able to rehire some of those employees,” he said.
By July, we were comparing dollars at each city:
The NY Times story here was obviously received well because of the graphics and the comparative data, much of which may need to be reworked now. A look at recovery.gov shows 40-45% of the funds being drawn by county programs such as the 11921 awards in California, mostly grants and around 10% ($1.3 billion ) in contracts, going to police stations buying LCD Flat screen TVs and Crowd Control System upgrades, waste water collection systems, increase health center services and presumably the roads, bridges and the highways.
Out of the $158.7 billion awarded ( 58%) 13% has been received and more can probably be done now in receiving those funds and working out what is wrong with the process.
Nonetheless, many in the developing world and even Europe could also use the recovery.gov example to start cleaning the Augean stables of public works. Well begun is half done. But with only 12000 jobs related in Arizona and jobs being reported in fictional districts, well..someone needs to figure out what is wrong and fix it. Similarly Texas has only reported 20000 jobs created and the country as a whole is already reporting 600000 jobs created by the stimulus..obviously not going to match with the rising unemployment numbers..and i haven’t heard from any of these folk on twitter..strange?
In California, almost 45% has been allocated by the Department of Education ( 8 out of 18 billion ) and more than 15% to the Department of Transportation – Have people really seen these half a million jobs making a difference? Have these funds to school districts saved the schools or the teachers? There however the reports are still missing, probably dwarfed by the enormity of the task involved
An example of the agency wise allocation is in the included screen grab for Alabama on the right. It is a great time for people at these agencies to get back with the results. America needs it before going on another joyride with public funds. If you go by these statistics the journos at Reuters have done a pretty ‘funny’ piece with the stats
The second stimulus program may just be going the wrong way without a detailed success/failure report on the first one.
The new Jobs program
The “Jobs for Main street” , Whitehouse’s own repartee to the Wall street cats, is equally unrepentant getting another $40 billion for Department or Transportation, to teach us the ‘new deal’ all over again. The ARRA year has gone by and we are still thinking about another set of roads that will be up in ‘120 days’. I thought the overwhelming majority passed it because it was creating jobs? Especially now with the shadow inventory showing, it is time to tread a little cautiously and on sure footing not ‘sidings and tarpools’ The ARRA bill already has 7886 transportation projects underway.
An example of others who could have got the money is below from The Huffington Post
Demand for high-speed rail funding has well exceeded the expectations that existed when the recovery bill was signed last year. Currently, there are close to $60 billion in project applications from more than 30 states competing for the first $8 billion in federal high-speed rail funding, which will go out in a few months. Domestic and foreign investors and private industry have taken notice of the government’s initiative and the sector has exploded over the last few months, providing hope for new employment that can offset the massive losses in the automotive industry. All eyes are on Congress to see if they will follow through on the initial down payment in their next major transportation spending bill.
Jobs are being lost every month even two years after the recession began. While the number has stopped growing very fast, the number of jobs lost is growing every month without fail. These businesses cannot just wait for banks to start lending, and pretty soon we are going to be out of money to print. We were losing more than 600,000 jobs every month just a few weeks back. This recovery will take much longer than in the Asia and Latam markets. The unemployment rate is still above 10% even after November showed up a huge improvement to just 11000 lost jobs ( just Kentucky lost 5000 out of this!) 15.4 million are still looking for work hopelessly stuck with a lasting unemployment with even the limited foreign worker visas going unrequited in this situation. The long term unemployed, looking for work for more than 6 months are a good 38.3% of the unemployed, another record for America.
Even as dismal numbers from the loan modification program caused an extension of the program till October 2010 ( see Geithner extends TARP) the latest shadow inventory nos ( detailing foreclosures shocked the nation with 1.7 million available for sale from foreclosures. St Louis got an award for 800 modifications to save homes from foreclosure! There seems to be no comparison between the two figures, and more is required than depending on just road construction to make new jobs
Probably some of the economists at Obama and Biden’s offices are already at work untangling the confusion of the stimulus and getting ready to tell us what has worked. I think it’s time.
Everyone is in Oil these days and with Dubai coming back off the cliff, China bankrolling African dreams, Indian energy corps going global and Russia waiting to come back from a contraction and Gazprom thru Europe without Ukraine, that is the light at the end of the tunnel. Though a lot of people have talked about it, a market for carbon credits has just taken off this year, Copenhagen may likely have an agreement and time is ripe for the right people to get into energy funds. Who better than the Governments and the World Bank…Great news to hear. Maybe some will bankroll ethanol the right way too! It’s a great collection of baubles from the O’nomics back team to clear out the Christmas tree. Rassmussen reports will love Obama and the markets will love this new Sheikh out of Texas and the sands.
The United States pledged on Monday to contribute $85 million to a $350 million multinational fund aimed at speeding up renewable energy and energy efficiency technologies in poor countries. U.S. Energy Secretary Steven Chu also announced a high-level meeting will be held in Washington next year of major developed countries energy ministers to discuss global deployment of clean energy technology. Chu made the announcements on the sidelines of a Dec. 7-18 international climate conference in Copenhagen. The talks temporarily stalled on Monday when African countries walked out, accusing rich countries of trying to kill the U.N. Kyoto Protocol which set targets for emissions cuts by most industrialised countries. Projects which the fund will support include a plan to speed affordable solar-generated lighting systems and LED lanterns to those without access to electricity. Chu said the devices would eliminate air pollution from indoor kerosene lamps that he said contributes to 1.6 million deaths per year in poor countries. Other facets of the programme are the encouragement of more energy-efficient appliances in developing countries and rich country information-sharing of clean energy technologies. The White House said the financing would enhance a World Bank strategic climate fund that helps poor countries develop national renewable energy plans. Italy, Australia, Britain, the Netherlands, Norway and Switzerland also are participating and already have promised funds.
AIG is in quite a turn having to sell most of its profitable Asian and other International Insurance and Investment Management Businesses ( also see here)
While it announced the division of its businesses into AIA + Alico in Life in Asia, Chartis for Property & Casualty and the Domestic US insurer, it has not gone much further. Till date it has sold the following:
1. Energy & Infrastructure Assets for $1.9 billion : A power generation plant operated by First Energy, a tax equity interest in a Texas wind farm and two lease equity interests in rail car portfolios. Earlier the AIG financial products unit sold an interest in Tenaska Marketing Ventures, its interest in two volumetric production payment transactions and its stake in three Spanish solar power plants
2. Hong Kong based Consumer Finance Unit for $627 million
3. AIG Systems Solution, its IT Outsourcing Unit sold to Mphasis (800 staff would have easily netted $35-50 million but not more than $75 million with all premium) which is likely small change of Rs 225 crores
4. It has earlier sold its Canadian Life subsidiary for $308 million and its Aircraftleasing business ILFC is expected to fetch less than $2.2 billion (assets worth $7 billion)
5. Its Life Insurance Premium Finance business was sold to Wintrust Financials (Ill.) for upto $740 million
According to Businessweek in a report published on Sept. 23, 2008, the Credit Suisse Group (CS) put an aftertax value on AIG’s assets at anywhere from $94 billion to $122 billion. The final tally will depend on how big a “distressed discount” it will face.
It is trying to sell the following for which deals are in process:
A. AIG Investments ( see article here) Earlier proposed to be bought by Franklin Templeton and Temasek, they are still being tracked by Crestview partners and Religare Enterprises of the erstwhile pharma major Ranbaxy. This sale will net at least $300 million, while AIG is likely holding out for $500 million for $80 billion AUM. AIG Investments has lot of fresh investments in Africa and Latin America (private Equity funds)
B. The Global Real Estate Management Business with $12.4 billion in assets and $5.2 billion likely has suitors for $9 billion including the AIG and TARP advisors Blackstone(BX) and Blackrock. According to the dealcom, the Japanese HQ itself is worth $1 billion
C. The AIA and ALICO IPOs could net $25 billion including purchases by Benmosche’s erswhile Metlife, for which Benmosche will have to clear conflicts of interest ( by staying away from negotiations?) . Benmosche owns about 2.5 million diluted equity ( incl options ) of Metlife
D. Private Equity boutiques like Lightyear have shown interest in AIG advisors. Surprisingly, no such interest from the PE firms has come in AIG Global Investments. AIG ADvisors includes AIG Retirement Advisors ( Sage, FSC and Royal Alliance) which has lost 1 in 6 of their Advisors. As is the norm, most of the first bidders including Warburg Pincus have retreated, and the situation is very tense
E. Chartis carved out of all of AIG’s P&C business desires to sell a 20% stake through IPO
F. The Taiwan Life unit: The recent laundry list of asset sales planned by AIG see here continues to find conflict of interest in almost each of its deals, as AIG remains the buck stopper of the entire industry’s claims good or bad.. also this unit (Nan Shan was out of cash earlier last year)
Though some of the initial deals have gone well, each of these deals seem likely to be pie in the sky w.r.t valuations and AIG faces a challenging task ahead.
On the other hand it has been stuck with proposals to sell $20 billion worth of AIA and ALICO Life Insurance in Asia, and another 20% in its restructured Chartis business (P&C) and is not likely to get a price that will pay off the expected debt out of the $80 billion outstanding. They have however made proprietary profits to pay off $2.67 billion in the 2nd Quarter, which is not much considering its global assets in life are $560 billion !!
references via thedeal.com
Countries worldwide are dedicating vast amounts of money to infrastructure spending over the next five years and there are easy avenues to prosper from this spending with ETFs. A recent white paper by Eric J. Gerritsen on The Journal of Commerce Online provides a brilliant snap shot of the infrastructure boom that awaits.
Eye Popping Numbers
According to Gerristen’s White Paper, the U.S. will spend $150 billion of the government’s stimulus funds on infrastructure. Other developed nations like Germany, Australia, Great Britain and Canada are all planning large amounts of infrastructure spending as well. In addition, emerging market nations such as China and India are planning to spend obscene amounts to get their countries into the 21st century. India alone is planning to double the number of its major international airports in the next decade. China also is planning very aggressive airport development. This is not to mention countries like Chile rolling out new roads, schools and stadiums with their $4 billion infrastructure plans and Brazil’s $212 billion spending on railways, roads and airports.
On June 19, 2009 iShares rolled out an Emerging Market Infrastructure (ticker EMIF) fund to join Powershares Emerging Markets Infrastructure Fund (ticker (PXR) in the same space. Additionally, for those not willing to go the emerging markets route take a look at iShares Global Infrastructure (ticker IGF) or SPDR/FTSE Macquarie Global Infrastructure Fund (ticker GII). Obviously, the need for infrastructure in the developing world is much greater than the developed world and hence provides an extraordinary opportunity. Keep in mind though that the U.S. has done very little infrastructure spending in the last 40 years and also presents some great opportunities.
No chart for iShares Emerging Market Infrastructure (ticker EMIF) as it is one day old
Powershares Emerging Markets Infrastructure Fund (ticker PXR) is well above its 200 day EMA