The third TICCS® pillar classifies infrastructure companies into four levels of geo-economic exposure that are relevant to understanding potential correlations between investments. Business-risk families defined in the first TICCS® pillar capture the resemblance between infrastructure firms' business models, including how they may or may not covary as contracted or merchant companies. But an additional dimension is the exposure of each company to the different geographic levels of the economy that they serve.
Academic Insights
Infrastructure companies operate typically large immobile structures. Their physical position is a lifelong constant. However, the type of economic activity they are involved in can correspond to different economic factors, creating a multitude of possible interactions between infrastructure companies.
A first example is that two merchant toll roads can be expected to be less correlated if they are farther away from each other in space. This assumes that traffic variability is mostly determined by local economic conditions. However, if the roads in question are part of a regional transport corridor spanning hundreds or thousands of kilometres, they would probably exhibit a high level of revenue-risk dependency.
Likewise, two contracted infrastructure companies can be expected to be relatively unrelated unless they have a similar or the same counter-party, which could be a local government.
Certain infrastructure companies are part of and exposed to the global economy. These include large transportation hubs such as major airports and ports, which are not only exposed to the business cycle but, as a result of that, tend to be correlated with one other [1][2].
Conversely, it's possible for global and regional or national infrastructure companies to be less correlated with each other even when they are relatively close in space and have similar business models. This is the case in the port sector, which can be divided into several categories of global container-shipping hubs; regional ports, which act partly as distribution networks of global port traffic; and national or subnational ports which cater to the local economy.
Certain infrastructure companies are also exposed to global commodity prices: gas pipelines or coal terminals, even when they have a contracted business model, face a highly correlated counterparty risk because commodity price movements can make their off-take contracts uneconomic or bankrupt their sole client [3].
