adn - role of sustainability by adam nicolopoulos at gib summit
DESCRIPTION
Presented at the 4th Global Infrastructure Basel Summit 21 & 22 May 2014. Read more about the world leading platform for Sustainable Infrastructure Finance at www.gib-foundation.org. Next Summit: 27 & 28 May 2015 in SwitzerlandTRANSCRIPT
May 2014
Role of sustainability in Infrastructure Finance - From Development Banks to Institutional
Investors Adam Nicolopoulos, President and CEO
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year of concession
Mill
ion
s of
US
$ n
om
inal
Opex Capex
Senior debt interest & fees Senior debt repayment
Dividends Tax
Equity subscribed Debt drawdown
Total Revenues
Sustainability…
Contractors ACS Dragados
Vinci
Bouygues
Skanska
Fluor…
Asset Operators Port operators (PSA)
Road operators (Autostrade)
Airport operators (TBI)
Rail Operators (Virgin)
…Public Agencies
Developers
Cintra
Abertis
Hochtief PPP
Macquarie
Serco and others
…Public Agencies…
Institutional Investors
Infrastructure Funds
Private Equity
Pension Funds ?
Institutional investors ?
Key Project Investors / Stakeholders
Project /
Corporate
RelationshipsMulti-Laterals
Development Banks
Export Credit Agencies
Others
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Have Institutional Investors Officially Entered the Game?
Institutional Investors’ AUM in OECD, Dec 2013:
Allocation to Infrastructure:
Australia and Canada:
> $70 trillion
< 3%
~ 10-15%
Source: OECD Report, 2013
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Have Institutional Investors Officially Entered the Game?
Institutional Investors’ AUM in OECD, Dec 2013:
Allocation to Infrastructure:
Australia and Canada:
> $70 trillion
< 3%
~ 10-15%
Source: OECD Report, 2013
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Unlisted Funds, AUM
2004: $24 billion
2010: $210 billion
about 10x
Institutional Investors Overview
(*) Date source: Prequin 6
Small and medium-sized institutions make up the majority of all infrastructure investors
Institutional Investors Overview
Small and medium-sized institutions make up the majority of all infrastructure investors
(*) Date source: Prequin 7
81%
Largest Pension Funds Globally (sample)
Data source: Preqin
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Identifying the Suitable Capital Match for your Project
• Pension Funds • Infrastructure
Funds • Insurance
Companies• Private Equity• Endowments • Banks• Wealth Managers• Family Office• SWFs• Multi-laterals
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Risk free rate (treasuries)
+Construction risk
+Revenue model / sector
premium +
Operation risk+
Upside / Ownership premium
+Exit
Risk free rate (treasuries)
+Project risk premium
+ Swap rate
+Country risk
[Premium]
...so how much do I pay for capital?
Equity Debt:
Expected ReturnsIRR [low teens – 20s]
Margins [250 – 400bp]
Credit insurance wrap
Upfront fees
Or
Amortised
Credit Enhancement
depends
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Rise of Infrastructure Debt Providers
Benefits for fixed-income investors (“Shadow Banking”):
Traditional lenders such as banks and governments are under much economic pressure.
• Stable businesses
• Limited exposure to competitive forces and
economic environment
• Stable cash flows, often with inflation linkage
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Pro
ject
’s e
quit
y p
erf
orm
ance
– V
alu
e
Cre
ati
on
Development Construction Operation
Project life
Primary Market
Equity 20%
[Subsidy 30%]
Debt 50%
Ramp-up
Capital Investment
Financial Close ConstructionCompletion
Risk to investor
Project Stages
Secondary /Refinancing
Equity 10-15%
Debt / Bond85-90%
Investor’s Exit?
Concept
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Key Challenges – the Institutional Investors View
Greenfield projects are highly complex
Long construction periods
Upfront development costs
Entitlements & permits can be long and challenging
Require careful analysis and preparation
Require specialists to assess this asset class
Higher risk profile / who pays for the risk and how
Must prove profitability AND affordability
Highly capital intensive (maintenance)
Highly contested projects (unions; citizens; etc..)
Expensive undertakings
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Other Challenges and Issues
Public sector as counterparty
Lack of resources trained in new implementation models
Managing procurement change
Easy targets to challenge / high level of scrutiny
Complex design – impact to costs
Necessity for sophisticated/experienced resources in Gov. teams
High uncertainty and risk
...suitable team and strategy is crucial to address these issues and achieve sustainability
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Future of Financing in Emerging Markets
Bonds from governments or institutions
Institutional Investors look to make new infrastructure investments to move closer to their strategic targets
Collaboration between investors and World Bank/Multi-Laterals
Banks managing a pool of assets based on a fee system. They have the connections but not the capital anymore. Will invest small amounts in long-term debt
SWF huge in emerging markets and could drive growth
Increased involvement of pension funds as they look for long term investments and risk is now shared with other collaborators
Example of ACTIS and RfI in Africa
Oil or mineral extraction rights are exchanged for turnkey infrastructure, complementing standard tax and royalty regimes
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Public Sector Actions for Successful Implementation
Sophisticated management team (leverage private-sector practitioners’ experience)
Clear priorities and objectives (public & project needs)
Standardize tender process / clear guidelines
Transparency throughout project development
Conduct competitive tender BUT accept unsolicited offers
Clear coordination between Minister’s / Mayor’s governance
Investment incentives (tax deferral, tax holiday, fiscal support)
Fast track permitting
Stick to the timetable
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Requirements for Successful Private Participation
Category Definition
Definition Tightly-bound, ironclad definition of project with good & clean limits
SizeLarge enough to attract strong international interest, but not so large as to force need for large bidding groups, thus limiting competition
TimeframeAdequate to bring project to completion – balanced, sufficient time to organize tender competition but short enough to maintain high level of bidder interest
Skill-setsShould not require extensive skillsets – avoid complex, extensive multi-purpose projects that require expensive and diverse skills
InterfacesComplex project structure and inter-organizational agreements take longer to implement than simpler networks
“Financeability”
Solid capital structure; financial equilibrium
RegulationRequired to establish project privatization with defined mechanisms on setting tariffs. Legal framework for the Government to regulate and monitor PPP performance
Technical Factors
Wealth of technical data available for more efficient monetization
Land &Permits Clear definition of ownership of land, right of way and permitting process
Competition Addressing competition from other projects or sectors
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What have I learned along the way?
Sound structures
Experienced advisors are worth the money
Clear guidelines and transparency
Process to resolve conflict
“Win-Win”
Multiple funding options
Delays destroy project value
... and…
Strong Partners; Leadership; Trust and Commitment
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Global Relationships and Track Record
Hato Int’l Airport, Curacao
Sangster Int’l Airport, Jamaica
Cheddi Jagan Airport, Guyana
South African Airports
Authority
Vienna Airport, Austria
Luis Munoz Marin Airport,
Puerto Rico
Trans-shipment Port
Facility, LA
Ngqura Container Port,
South Africa
Greek Port System
PrivatizationFerry Passenger Terminal, Caribbean
Container Port Terminal, TX
Port Privatization,
Bahrain
Conf. Port Terminal,
Mediterranean
Bina Istra Motorway,
Croatia
Road 1604, TX
Indiana Toll Road, IN
Ionia Odos Motorway,
GreeceHighway 2000, Jamaica
Maliakos – Kleidi Motorway, Greece
Sofia – Varna Road, Bulgaria
N4/N6 Motorway,
Ireland
Funding Alternatives,
Transport Infrastructure
Asser Monetization Program/PPP Development,
USA
Our Team has closed numerous successful transactions at a global level. Our experiencespans across all types of markets, to offer our (public or private) Clients the best possiblevalue proposition.
770 MW and 775 MW Power
Projects, UK
685 MW Sidi Krir Power Station,
Egypt
500 MW Power Project, Tunisia
770 MW, 1540 MW and 1520 MW
Power Projects, Turkey$200 million Power Gen.
Fund, Turkey
Road Transportation
Airports & Aviation
Ports
Power Projects
Northwest Parkway, CO
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Adam Nicolopoulos
+1 415 785 4613 (office)
+1 415 246 1765 (mobile)
Thank you
Sustainability Successful Infrastructure