Why doesn't TICCS® differentiate between greenfield and brownfield?
Answer
TICCS® does not interpret “greenfield” versus “brownfield” as a defining feature of the underlying assets, but more as a moment in the lifecycle of an infrastructure asset. This does not mean that the stage of an asset’s lifecycle is unimportant to understanding risk; these are, however, captured by other factors within our models and within our analytics tools. For example, greenfield assets are associated with higher capital expenditures and higher leverage and, therefore, higher risk premia. Whilst profits and returns are realised when it becomes a brownfield asset, our data aims to capture an asset’s entire lifecycle, including transitional periods from when a greenfield asset becomes a brownfield asset.
Things to consider
The lifecycle of an asset is typically captured by the risk factor exposures found in infrastructure companies: greenfield assets have higher returns simply because they are more exposed to certain systematic risk factors. There is what we call the the 'investment factor' (CapEx) which commands a risk premia i.e. higher CapEx means higher IRRs. There is also a 'profit factor': negative profits during the startup phase are correlated with higher discount rates in the data, while later the effect is reversed as profits turn positive. Then there is the leverage factor, which also commands a positive premium, and of course, the amount of leverage tends to be higher during the greenfield stage, hence higher risk premia.