Ping An Overseas eyes digital and renewable infrastructure to mitigate pricing risks
Ping An Overseas Holdings, the offshore investment arm of Ping An Insurance, believes inflationary risks and higher valuations of Asian infrastructure assets can be mitigated through platform investments as well as through deploying capital in niche sectors with high development gains.
Even though valuations have been high in recent years - especially in niche areas such as renewables and data centres - return on equity (ROE) can still be attractive amid heightened inflation if margins can be navigated through higher tariff and development gains in the right sector with the right players.
Dennis Chan, head of infrastructure at Ping An Overseas Holdings, made the remarks during AsianInvestor’s Infrastructure Investing Forum 2022 on Tuesday.
Ping An Overseas Holdings is the overseas investment arm of Ping An Insurance Company of China.
ESG STILL STRONG
Environmental, social and governance (ESG) is a major theme for infrastructure investment in Asia, Chan said.
As digital infrastructure, data centres, and renewable platforms are becoming popular across Asia, Chan noted that valuations have been going up, a trend he sees continuing in 2022.
He thinks more platform investments and more capital in niche or new sectors could help address such challenges and ensure internal rate of return (IRR) is maintained at similar levels.
“Although sometimes it could be quite high valuations when we get in and there’s some risk, if you can choose the right sectors and right players, it is able to de-risk over time,” Chan told the panel discussion.
MOUNTING INFLATION
As inflationary pressure mounts globally, Chan thinks the development gains in data centres and renewables, for example, could generate higher ROE that would mitigate inflationary risks.
The nature of infrastructure investment is that its pricing is linked to inflation and has inflation protection mechanisms through revenue adjustments or cost pass-through, he said.
Ping An Overseas Holdings, which is also an asset manager for other clients, has a large portfolio of over US$1 trillion in insurance assets that need to be deployed in China.
The majority goes into infrastructure debt, including those sectors that need financial support for development, Chan said.
INFRASTRUCTURE PLAYS
As for infrastructure equity, Ping An has been investing in toll roads for more than 10 years and has been aggressively increasing capital in renewable platforms in recent years, he said.
It still invests in brownfield projects, including public utilities, transportation, energy, telecom and other industries.
“But obviously, platform investment increases returns,” Chan said.
In terms of newer types of infrastructure, such as digital infrastructure, Ping An Overseas is supporting the largest carbon-neutral data centre in China - part of the government’s 5G and digital transition initiative, Chan said, without disclosing further details of the project.