WRITTEN By Daniel Hilpert, Managing Director, Equicap
Infrastructure investing is a perpetual motion machine. Institutional investors and public markets have been pouring all over toll roads, pipelines and wind turbines. According to the data firm Preqin, infrastructure funds raised $98 billion in 2019. The internal rate of return in the infrastructure space is a meager 7.7%. While most US public infrastructure is financed in the ultra-low-cost municipal bond market, green is the magic word, especially with all the political risk hanging over the infrastructure world.
A way to get exposure to the energy transition market is to invest in LEED (Leadership in Energy and Environmental Design) certified US steel mills that produce specialized steel for the hybrid and electric car supply chain. Big River Steel is a 1.76 million square foot flat-rolled steel mill in Arkansas. This mini mill produces 450 tons of hot-rolled steel each day or about 1.65 million tons per year. Funded by $1 billion in high-yield-debt financing, this smart mill can be compared to a self-driving car or technology company that happens to make steel. With only 513 employees its cash flow per employee is $557,000 compared to the $61,000 average for a US steel producer. Including bonus pay, the average Big River production worker earned $129,000 last year, 3.5 times the median household income in Arkansas. Big River is also LEED certified. Markets don’t pay more for steel because it is produced in a LEED certified mill but everything else being equal: price, service, quality, etc., social responsibility has value.