KUALA LUMPUR (Jan 11): The resilient nature of most global infrastructure and project finance assets mitigates pressures from the weakening macroeconomic environment, according to Fitch Ratings.

In a statement on Tuesday (Jan 10), the agency said the sector has the lowest proportion of "deteriorating" outlooks among global groups, while infrastructure issuers’ rating outlooks are predominantly "stable".

Fitch said many issuers in the sector benefit from a high portion of contracted and inflation-indexed revenue, while the essential nature of their services insulates them from significant demand declines when the economic environment deteriorates.

It said the only sector with an "improving" outlook is Asia-Pacific airports.

The agency said they are benefitting from pent-up demand for travel, as restrictions in some countries were lifted later than in other regions, which will support their performance in 2023.

Fitch said toll roads’ performance is sustained by index-linked revenue protection, which, combined with conservative debt-hedging policies, should offset near-term pressures from high inflation and rising interest rates.

Ports may be most affected by the deteriorating global economic conditions, although Fitch expects the sector’s fundamentals to remain robust due to post-pandemic pockets of demand.

The agency said it anticipates Asia-Pacific power and renewables projects to see increasing electricity demand in 2023, although growth rates will be lower than in previous years.

Europe, the Middle East and Africa (EMEA) airports and UK whole-business securitisations are most exposed to fading pent-up demand, and rising costs and interest rates.

Fitch said these are reflected in their "deteriorating" sector outlooks.

Nevertheless, the essential nature of most other EMEA infrastructure assets, their inflation-linked revenue and capital expenditure flexibility will help withstand the moderate economic contraction that is forecast in many European markets.

The rating agency said this led to "neutral" sector outlooks for toll roads, ports and energy projects.

‘Neutral’ 2023 outlooks for North American transportation sectors reflect expectations of air travel and toll-road traffic still growing in the region.

Fitch also anticipates small increases in ports’ throughput, where performance is normalising after record cargo demand earlier during the pandemic.

It said the region’s energy projects’ revenue is sustained by the prevalence of fixed-price, long-term off-take agreements with investment-grade counterparties, and effective operation and maintenance programmes that limit cost volatility or allow costs to be passed to counterparties.

The US water and sewer sector’s "deteriorating" outlook reflects cost and capital expenditure pressures, while demand remains flat or declines, which could lead to a weaker financial performance and pressures on issuers’ credit profiles.

Fitch forecasts attendance and revenue growth in the global sports sector to remain positive, although growth rates will be normalising in line with pre-pandemic trends, supporting its "neutral" sector outlook.

However, it said the sector is susceptible to discretionary consumer spending pressures in the weaker economic environment.