The cash flow from infrastructure investments often exceeds the accounting profit of the company. This is principally because infrastructure assets typically have high depreciation charges (due to high upfront capital expenditure requirements) but relatively low ongoing capital expenditure requirements. Since dividends on ordinary shares can only be paid out of retained profits, this creates a “cash trap” situation within the company. As a result, the equity investment into infrastructure projects is often structured to ensure that available cash can be distributed to shareholders nonetheless. This is regularly achieved through shareholder loans.
