How BlackRock's deal for GIP could complement, challenge the Belt and Road: analysis

The combination of the US giants will create a global infrastructure powerhouse with over $150 billion in assets and a strong presence in Apac, and could help reduce project costs.

The infrastructure giant that will result from BlackRock’s $12.5 billion acquisition of Global Infrastructure Partners (GIP), assuming the deal is approved, could be a competitor of China’s Belt and Road Initiative (BRI), but also partner the development strategy, according to several senior market sources. 

BlackRock, which is listed on the New York Stock Exchange (NYSE), and GIP announced on January 12 that they entered into an agreement whereby BlackRock would acquire GIP for $3 billion in cash plus 12 million BlackRock shares. Both are US companies. BlackRock is the world’s biggest asset manager, managing $9.4 trillion of assets as of the middle of June 2023, while GIP is the largest independent infrastructure manager on the planet with over $100 billion in assets under management.

“The over $150 billion combined business will seek to deliver clients market-leading, holistic infrastructure expertise across equity, debt and solutions at substantial scale,” said the press release from BlackRock and GIP.

The deal will make BlackRock the world’s second largest infrastructure investor behind Australia’s Macquarie Group, a former World Bank officer told FinanceAsia. “This deal is the biggest acquisition of a private equity firm of all time.”

The combined entity will be a competitor to the Belt and Road, said the former World Bank officer who declined to be named. “It will be big enough to take on the big restructuring projects that will emerge from the Ukraine and Gaza conflicts. They can ride on the back of World Bank loans.”

The combined US firm could potentially squeeze Belt and Road out of the best infrastructure deals, the ex-World Bank officer predicted. “They will be tough competitors for global infrastructure deals. This giant infrastructure fund could squeeze out infrastructure investors like Cheung Kong Infrastructure.”

Cheung Kong Infrastructure Holdings is a Hong Kong-listed infrastructure company controlled by Hong Kong’s richest man, Li Ka-shing.

Power of the Belt and Road

The BRI is China’s ambitious megaproject to connect with other countries through infrastructure projects like ports, railway and airports.

At least $1 trillion is estimated to have been spent on BRI projects, and trillions of dollars more are expected to be expended on BRI projects in the coming years. In October 2023, US President Joseph Biden said the US is working with other G7 nations to compete with China’s Belt and Road, including a proposed railway connecting Saudi Arabia and Europe. The G7 comprises the US, UK, Canada, France, Italy, Germany and Japan.

Both BlackRock and GIP have close relations with the US government.

On August 31, 2022, the White House announced that Adebayo Ogunlesi, the founding partner, chairman and chief executive officer (CEO) of GIP, would be the chair of President Biden’s National Infrastructure Advisory Council. In December 2016, Donald Trump, who was then recently elected US President, announced the formation of a council to advise him on creating jobs for Americans and this council included Ogunlesi.

Brian Deese, a former global head of sustainable investing at BlackRock, was previously a director of the National Economic Council under US President Biden and a former advisor to US President Barack Obama. Cheryl Mills, a director of BlackRock, is a former senior US State Department official. The US Federal Reserve asked BlackRock to help the Federal Reserve stabilise the US bond market in 2020 and clean up billions of dollars of bad assets during the Global Financial Crisis of 2008, the New York Times reported.

Hopefully, BlackRock’s acquisition of GIP will make the tendering process and project pricing of infrastructure projects around the world more transparent and competitive, Andre Wheeler, CEO of Asia Pacific Connex, an Australian consultancy, told FA. “There would potentially be a reduction in project cost that would be attractive to some BRI recipient countries and offer an alternative to China financing of infrastructure.”

Competition and cooperation

The BlackRock-GIP combined company will essentially complement the BRI, because it would be looking to protect its financial exposure to China, Wheeler said. A significant amount of BlackRock’s investments, estimated at $500 million, are tied up in China, Wheeler pointed out. “They would be in a vulnerable position with regards potential economic coercion (by China) if they tried to take the BRI on directly.”

Regarding the US and China, BlackRock is caught between a rock and a hard place. In August 2023, a US Congressional committee investigated BlackRock and MSCI, one of the biggest providers of index funds, on whether they were investing Americans’ savings in Chinese companies blacklisted by the US government for security and human rights issues.

BlackRock and GIP appear to view the BRI favourably. BlackRock’s website described the BRI in glowing terms and said China was “a force to reckon with”. On a Chinese government website on March 29, 2023, Jim Yong Kim, vice chairman of GIP and a former World Bank President, said the BRI was “still the right sentiment going forward” and rejected the notion of the BRI as debt trap diplomacy.

It is possible that the BlackRock-GIP company will be both a competitor and partner of the BRI, but there would need to be security protocols in place, Wheeler said. For instance, Washington will not allow BlackRock-GIP to get involved in any infrastructure project with potential military use and links to China, Wheeler explained.

However, one Asian infrastructure investor told FA that BlackRock’s acquisition of GIP will have little impact on the BRI, because the geographical focus and types of projects of BlackRock and GIP are different from the BRI.

“If there is any overlap, these will be few and far between. BRI is more focused on large greenfield infrastructure projects that have too high risks for other investors and uncertain or poor economics. These are typically undertaken for strategic considerations. Investors like GIP would be focused on economically attractive projects of an acceptable risk,” the investor explained.

In Apac, New York-headquartered GIP has offices in Hong Kong, Mumbai and Sydney, and has investments in the likes of Sydney Airport and the Port of Melbourne. GIP’s Asia portfolio also includes Ascend Telecom, an India-based telecom tower company, East India Petroleum and Vena Energy, an Asia Pacific renewable energy power producer, according to GIP’s website

BlackRock declined to comment further beyond its press release. GIP hadn't replied to FA’s questions by the time this article went to press. The deal is expected to complete in the third quarter of 2024.  

¬ Haymarket Media Limited. All rights reserved.
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