Industry calls for bond to raise project finance

Survey calls for new approach to funding infrastructure pipeline

THE Scottish Government has been urged to use its new fiscal powers to issue a bond to boost the pot available for much-needed investment in infrastructure.

Organisations directly involved in the infrastructure sector have called on ministers to use Holyrood’s enhanced borrowing powers to drum up private investment for public projects. The move would swell the funding that is already available to invest in Scottish infrastructure, while providing a return for investors.

The call comes in a survey, commissioned by law firm Brodies, which also signals that developers and investors would welcome earlier and more detailed information from the government on its pipeline of infrastructure projects.

That would stimulate the sharing of knowledge and foster closer collaboration between parties involved in projects at an earlier stage, it found.

The findings come after Aberdeen City Council raised £370 million by issuing bonds to part-finance the council’s capital and infrastructure programme. The bonds were the first to be issued by a local authority and admitted to trading on the London Stock Exchange in November.

Under powers devolved to Scotland following the 2014 independence referendum, Holyrood can borrow up to £2 billion to fund capital expenditure projects.

Michael Stoneham, head of infrastructure at Brodies, said survey respondents are not suggesting that amount should be raised via a bond. But he believes a bond should be among the mechanisms that ministers should be able to access, declaring there is no reason why the Scottish Government cannot replicate the Aberdeen example to fund other public infrastructure projects around Scotland.

Mr Stoneham said: “The Scottish Government has [borrowing] powers and they are limited to £350m a year, or £2bn overall. The point here is raising an infrastructure bond would be a way of accessing finance in a particular way.

The Aberdeen example shows … this is a part of a flexible financing plan, where they source finance from a number of areas. It’s a development, really, of the Aberdeen approach. Why can’t this be done by regional governments as well as local authorities?”

Mr Stoneham said the need for governments to look at alternative sources of funding was arguably more pressing because of the Brexit vote. He noted that European funding for infrastructure projects, made via the European Investment Bank, may disappear as a consequence of Brexit.

“That is a gap that needs to be filled and this would be a way of the Scottish Government helping to fill it,” he said. “Private investment is going to be a bit more expensive.”

Mr Stoneham said the Aberdeen bond was “effectively oversubscribed”, signalling that there is “hunger in particular markets for this type of investment.”

Asked what type of investor