Reality hits infrastructure on Wall Street

Nothing seems to be going right for Citigroup Inc.'s Infrastructure Investors arm. A relative newcomer when it launched in 2007, the unit has stumbled on a series of large-scale privatization bids, notably Chicago Midway Airport. Now Juan Béjar, co-head of the unit and architect of some of the sector's high-profile projects, is leaving. Béjar will become chairman of Global Via Infraestructuras SA, a 50-50 highway operation joint venture of Spanish construction group Fomento de Construcciones y Contratas SA and savings bank Caja de Ahorros y Monte de Piedad de Madrid, better knows as Caja Madrid. This leaves Felicity Gates, former head of Deutsche Bank AG's infrastructure arm, as sole head of the unit.

The quiet departure left infrastructure specialists wondering if Béjar was concerned about compensation caps or whether Citi may be readjusting its expectations for capitalizing on infrastructure's funding needs. Citi confirmed Béjar's departure but offered no further information or comment.

Béjar brought to Citi a pedigree in bidding for large -- some would say aggressively priced -- projects. As CEO of Spain's Grupo Ferrovial SA, and also as executive vice chairman of affiliate Concesiones de Infraestructuras de Transporte SA, or Cintra, he led Ferrovial's purchase of BAA plc in 2006 for £10.1 billion ($16.5 billion). The boom-era deal came with a pile of debt for BAA, which is now divesting assets, including London's Gatwick Airport. Cintra has been the leading toll-road concessionaire in North America.

But with debt markets stalled, Wall Street has been disappointed by megaprivatizations. Citi has had more than its share of setbacks in part because, as its detractors would have it, it has been a high bidder at auctions, even as the financial crisis was unfolding. Last May, Citi, along with Abertis Infraestructuras SA and another backer, was named the preferred bidder on a $12.8 billion concession for the Pennsylvania Turnpike. But the General Assembly nixed that project over worries about putting the asset in private hands.

In April, Citi failed to arrange sufficient equity for its $2.5 billion offer to privatize Midway. Sources say it was an unfortunate bit of miscalculation and bad timing on Citi's part. Equity contributions from Citi's co-investors fell short as cash-strapped limited partners in Citi's infrastructure fund balked at the price, which was considerably higher than the second-best offer. It later lost a bid for the still-pending Gatwick Airport privatization, with media reports suggesting Citi's failure to deliver on Midway may have played a role.

At any rate, other infrastructure departures have been noted. In April, Ron Lepin, the chief operating officer of Morgan Stanley's infrastructure fund, reportedly left the firm. Lepin, formerly Ontario Teachers' Pension Plan's COO, joined Morgan in 2008 with a background steeped in conventional utilities. Morgan's more recent projects, however, have been a parking-lot concession in Chicago, as well as a parking-meter concession that's run into a bit of a commuter backlash that prompted Chicago Mayor Richard Daley to intervene. Morgan also lost investment banker Robert Collins in March to Greenhill & Co.

Word is that Wall Street's infrastructure businesses in general are downsizing their ambitions, at least more in line with harsh realities.