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Allianz Sees Potential In U.K Infrastructure Funding

Allianz Sees Potential In U.K Infrastructure Funding

  • 05/12/2014

Source: The Wall Street Journal

One of Europe’s biggest insurers has earmarked more than £3 billion ($4.7 billion) to make loans to British infrastructure projects, following changes to the tax treatment of such investments announced in the U.K.’s half-year budget statement yesterday.

Allianz Global Investors, the German insurer and asset manager, said it would join five British insurers in committing more money to infrastructure debt after George Osborne, the U.K.’s finance minister, abolished rules that forced foreign lenders to go through an arduous process to reclaim tax on their investments.

Allianz has put aside more than £3 billion to buy infrastructure debt over the next three to five years, it said. Five British insurers—Prudential, Standard Life , Aviva , Friends Life and Legal & General —said they would invest an combined £6 billion in the sector on top of existing commitments, though they are not directly affected by the tax change.

Previously, foreign investors could receive the interest paid by borrowers only after the U.K. government had taken a slice out of the payment as tax. If the government had taken the wrong amount without taking account of tax treaties, the investors then had to file a set of paperwork to get the tax back. The rule change announced yesterday abolishes that system and allows foreign investors to pay the right amount of tax after receiving interest payments.

The U.K. treasury hopes that the measure will boost the private lending market to free up finance for the country’s aging transport networks, power systems and public buildings.

Deborah Zurkow, chief investment officer for infrastructure at Allianz called the government’s decision “good news for everyone who is passionate about U.K. infrastructure.”

It is not clear, however, that the new money for infrastructure will necessarily go toward the new construction projects the government is most eager to finance. Most pension funds prefer to buy debt in existing projects rather than taking construction risk.

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