darrin grimsey - ey - financing light rail projects

Funding models &financial considerations forlight rail projects

Darrin Grimsey – Partner, Infrastructure Advisory

25 February 2016

Agenda

Copyright © 2016 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

1 Australian PPP Market

2 PPP Finance Market

3 Financing greenfield light rail

Australian PPP Market


PPP PipelineTransport projects dominate the pipeline …With some uncertainty

QEII Hospital Car Park

Mundaring Water Treatment Plant

Eastern Goldfields Prison

Perth Stadium

Schools PPP

2nd Schools PPP

Women’s Prison PPPConvention Centre

Northern Beaches Hospital PPP

NorthConnex

Sydney Metro North West

Sydney Light Rail

New Royal Adelaide Hospital

South Road Corridor

Bendigo Hospital

Ravenhall Prison

VCCC

East-West Link – cancelled

Victorian Schools 2

HCMT Rolling Stock PPP

Western Distributor

(Market led Proposal)

Melbourne Metro

Defence Leap 2

ACT Courts Facility

Capital Metro

Moorebank Intermodal

Second Sydney Airport

PPP transactionsRecent deals closed

PPPs in procurement

Potential PPPs

Sunshine Coast Hospital

Gold Coast Light Rail

Gold Coast Light Rail Stage 2

QLD Schools Project

New Generation Rollingstock

Royal Children's HospitalRedevelopment

Toowoomba Bypass

Airport Link

Legacy Way

Clem 7

QML Sale

Cross River Rail


Darwin Prison

Wiri Prison

Hobsonville Point School

Transmission Gully

Auckland Prison

NZ Schools 2 PPP

Puhoi to Warkworth

NZ Schools 3 PPP

Auckland Harbour X

WestConnex

Grafton Prison

Social Housing

Sydney Metro CSW

Parramatta Light Rail

New Stadium

PPP PipelineTransport projects dominate the pipeline …With some uncertainty

QEII Hospital Car Park

Mundaring Water Treatment Plant

Eastern Goldfields Prison

Perth Stadium

Schools PPP

2nd Schools PPP

Women’s Prison PPPConvention Centre

Northern Beaches Hospital PPP

NorthConnex

Sydney Metro North West

Sydney Light Rail

New Royal Adelaide Hospital

South Road Corridor

Bendigo Hospital

Ravenhall Prison

VCCC

East-West Link – cancelled

Victorian Schools 2

HCMT Rolling Stock PPP

Western Distributor

(Market led Proposal)

Melbourne Metro

Defence Leap 2

ACT Courts Facility

Capital Metro

Moorebank Intermodal

Second Sydney Airport

PPP transactionsRecent deals closed

PPPs in procurement

Potential PPPs

Sunshine Coast Hospital

Gold Coast Light Rail

Gold Coast Light Rail Stage 2

QLD Schools Project

New Generation Rollingstock

Royal Children's HospitalRedevelopment

Toowoomba Bypass

Airport Link

Legacy Way

Clem 7

QML Sale

Cross River Rail


Darwin Prison

Wiri Prison

Hobsonville Point School

Transmission Gully

Auckland Prison

NZ Schools 2 PPP

NZ Schools 3 PPP

Puhoi to Warkworth

Auckland Harbour X

WestConnex

Grafton Prison

Social Housing

Sydney Metro CSW

Parramatta Light Rail

New Stadium

Global light rail transactions

Source: Infradeals database, Greenfields Light Rail PPP transactions reaching financial; close 2000-2015

3Average annual number ofLight Rail PPP transactionsglobally 2000 - 2015

6Light Rail PPP transactionsin Australia

Australia’s Light Rail pipeline isglobally significant

012345678910

02,0004,0006,0008,000

10,00012,00014,00016,00018,00020,000

Num

bero

fTra

nsac

tions

Tran

sact

ion

Valu

e($

AUm

)

Value of Transactions Number of Transactions


Potential light rail projects


Canberra: ► 12km, 20 year DBFOM project, c. AU $600m► Four international consortia at EOI Stage► Shortlisted to 2 and Preferred announced► RFP 2015, financial close planned for mid 2016

Parramatta Light Rail: ► Preferred route selected► Stakeholder engagement planned for 2016► Construction anticipated for late 2018

Newcastle: ► Partial conversion of existing heavy rail line► Linked with wider urban redevelopment goals

Melbourne Refranchising: ► Approaching initial 8 year term (15 year maximum term)

Perth MAX: ► Project deferred► 22km route encompassing major activity centres► C. AU $1.88b

Adelaide ► Proposal to introduce six new links► Potential Airport extension

0

2

4

6

8

01,0002,0003,0004,0005,0006,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Numb

erof

Tran

sacti

ons

Tran

sacti

onVa

lue(A

UDm)

Project Value of PPPs at Financial Close Forecast (Committed) PPP Project ValueForecast (Possible) PPP Project Value Cancelled Projects ValueNumber of transactions (Actual, Committed and Possible)

► Brownfield (including patronage risk) and greenfield/PPP appetite

► Main sources:► Australian superannuation funds► UK & European PPP investors► Asian pension funds and Japanese trading houses► North American pension funds► Middle Eastern SWFs

► Target returns on downward trend:► Greenfield/PPP (no patronage risk) – 11%-13%► Brownfield – 9%-12%

The Australian PPP Financing Market has proven to beresilient, deep and innovative

Equity appetite – unprecedented interest in Australia leading to downward pressure on returns …

PPP Market Activityc$10B of financing raised in 2015/2016


Unprecedented international interest inAustralia

14

97

2005 2008 20152011

13

Number of countries represented in PPP bidding consortia


Strong market interest in Australia… but are wesatisfying the demand?

Source: IPA Perpetual Australian infrastructure report 2015, results based on survey of 22 Market participants

79 Percent of respondents arelikely to invest in Australia in thenext 2-3 years

Willing to invest

Knowledge ofparticipants and

partners

Range ofinfrastructure

Positives

50 % willing to invest in projectsover AUD 1B36% willing to invest in projectsover AUD 2B

55% cited strong knowledge ofmarket participant and partners asa factor in making Australia anattractive investment destination

Participants interested in a widearray of infrastructure includingRoads, Water, Energy and Ports

42% believe Australia is unlikely toprovide sufficient opportunities

Lack of visibility on pipeline was citedby 45% of participants

Political risk highlighted by 68% ofparticipants

Bid process is seen as transparent,however high bid costs a concern of45% of participants

Strong interest inAustralia

Lack ofopportunities

Lack of visibility

Political risk

Cost of bidding

Negatives


PPP finance market


Value Capture – Funding not Finance

Infrastructureinvestment

Value creation

Value-based revenuestreams

Financing mechanism


Value Capture – introduction

80

Val

uecr

eate

d

Years

Valueupliftcaptured

Value upliftretained bybeneficiaries

Baseline value uplift(no project)

$

Value capturemechanisms to

support a projectfinancing facility

Additional value createdby infrastructureinvestment

Infrastructureconstruction

Revenue over time to support investment today


0

100

200

300

400

500

Bas

ispo

ints

Australian PPP Transactions (Construction and Operating Margins)

Construction Margin Operating Margin

Positive developments in the debt market

Debt pricing approachingpre-GFC levels

… but refinancing riskremains in PPP deals

because of a lack of long-term debt market

0

5

10

15

20

25

30

2000 2002 2004 2006 2008 2010 2012 2014

Teno

r(Ye

ars)

Australian Greenfield PPPs Term Loan Tenor

Social Infrastructure Transport Other

Creditcrisis


Debt Tenor

Australian projects have higher refinance risk compared with other major marketsthis is reflected in lower ratio of Concession term to loan tenor

Source: Infradeals database, Greenfields PPP transactions; 2000-2015

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

2000 2002 2004 2006 2008 2010 2012 2014 2016

Aver

age

Conc

essio

nTe

mto

Debt

Teno

r

Australia Australia Average Canada Canada Average Europe Europe Average Middle East Middle East Average


Financing Greenfields light rail


Key financing issues

1 Interface risk Light rail is “linear” not “point” infrastructure creatinginterfaces with existing services as well as withtraffic and pedestrians

2 Utilities risk Light rail construction in a new corridor will typicallyrequire relocation of utilities and services with risksdifficult to estimate

3 Refinancing risk Debt tenor in Australian PPP projects are typicallyless than the concession term creating refinancingrisk

4 CommissioningRisk

Light rail operations require accreditation by ONSR,this creates additional commissioning risk


► New Sydney Light Rail network:► New 12km line► Existing 7.2 km Pyrmont Line► New 5.6 km Inner West Extension

► Design, build, finance, operate andmaintain delivery strategy

► Two contract packages:► Early Works► PPP Contract - Government will make

payments for delivery of ongoingservices based on KPIs.

► ALTRAC Consortium► Contractor – Acciona, Alstom► Operator - Transdev► Investors – John Laing, FSS, Acciona

Example Light Rail Delivery ModelSydney Light Rail – Vertically Integrated PPP

Case Study – Capital Metro

► 12km line stretching from the city centre to Gungahlin► 20 Year availability based PPP► Design, build, finance, operate and maintain delivery strategy► Canberra Metro consortia announced as preferred

► Gold Coast University Hospital toBroadbeach

► 13KM light rail service – 16 stations► 18 year contract

► Design, build, finance, maintain & operatePPP

► Government capital contribution► Government payments for delivery of

services based on KPIs

► Contractor – McConnell Dowell► Rolling stock – Bombardier► Operator – Keolis/Downer► Investors – Marubeni, IPP, Keolis,

McConnell Dowell, Plenary, Palisade

► Expansion currently underway

Example Light Rail Delivery ModelGold Coast Rapid Transit – Vertically Integrated PPP

Delivery models for light rail schemesSpectrum of models

Flex

ibili

ty

Risk Transfer | Potential for private investment

Vertically Integrated – delivery and operations► North West Rail Link► Gold Coast Rapid Transit► Sydney Right Rail`

Vertically Separated delivery► UK Rail Franchises

VerticallyIntegrated Ops► Melbourne

franchises

Vertically Separated► Docklands Light Rail

► Single DCMO –infrastructure delivery,maintenance, operationsand rolling stock(potential PPP)

► DCM – delivery &maintenance (potentialPPP)

► Operations contract► Rolling stock maintenance

contract

► D&C – Infrastructure delivery► Operations contract► Rolling stock maintenance contract

(potentially with Operator)


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