Magazine article Public Finance

PFI Returns Too High, Says Treasury

Magazine article Public Finance

PFI Returns Too High, Says Treasury

Article excerpt

The head of the Treasury's Private Finance Unit has warned Private Finance Initiative investors that he wants their returns on equity to be cut.

Speaking at a conference of private investors into government infrastructure, Richard Abadie said that the 14%-15% returns cash investors currently receive on their start-up investments are 'too high'.

He said that the development of a secondary market in PFI equity - in which an investor can sell their share in PFI deals for considerably more than its original value - illustrated that some investors were prepared to accept much lower returns on their investments.

'What we want to focus on is understanding what an appropriate price is for the primary market,' said Abadie. Ι do believe that the liquidity in the secondary market has set a benchmark price for that market - I've seen prices as low as 7%.'

Equity providers invest cash into the start-up period of PFI projects on the understanding that their risk will be rewarded at a given level of returns. The fact that they can now sell those shares in a secondary market demonstrates that the agreed returns are too high, said Abadie. …

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