Corporate Financing Analysis - No 'Trump Bump' For Energy & Utilities ECM - 08 MAY 2017

The election of Donald Trump as US President on balance looks likely to be a positive for the growth prospects of the Energy & Utility sector in the US over our forecast period. Indeed, BMI is forecast real industry growth to accelerate by 2.4% in 2017, a significant jump up from growth of just 0.6% last year.

Despite this, uncertainty surrounding the new President's stated desire to scrap legislation supporting the renewable energy sector - starting with the inking of an Executive Order on Energy Independence on March 28, which calls for a review of the Clean Power Plan (CPP) - appears to have led the broader energy sector to take a breath and watch from the sidelines before pushing forward with it its own plans for growth. That is at least what the deathly silence of deals from the sector in the equity capital markets (ecm) arena is suggesting - after all, operators in the sector may well benefit from his policies in the near-term but, further down the line they will no doubt be wary that the pendulum will swing back the other way once more, which would make for an expensive shift of focus back onto renewables.

According to research from Dealogic since the start of February there have been no deals completed in the ecm arena (including IPOs, follow-ons, and equity-linked deals), and even before that there were just two completed during the month of January, which saw issuers tap investors for a combined USD557mn in fresh capital. Such a dearth of deals unsurprisingly represents the slowest start for activity from the sector on record. This is also the first time on record that no issuance for the Energy & Utility sector has priced for three consecutive months in the US market. With the upside potential for the sector - and especially the Oil & Gas sector - growing from Trump's infrastructure plan which would potentially offer tax-credits for private equity investments infrastructure, we fully expect Energy & Utility deals to return to the ecm fray to tap investors for fresh capital before long, however.

Unlike the transport sector, the energy sector in the US is privately owned and operated and thus more accessible for private investors seeking to take advantage of tax credits. Going forward, we expect the Oil & Gas midstream sector to be a major target of investments, especially as Trump has also promised to lift regulatory measures which have held up projects. The Power sector may also benefit from additional investment into capacity generation and transmission and distribution lines.

A Sudden Boost
US - Energy & Utilities Infrastructure Industry Value Real Growth, by % y-o-y
US Census Bureau, BEA, BMI