financial structuring elements of ppps case studies christoph lang head of social infrastructure...

Financial Structuring Elements of PPPs Case Studies

Christoph Lang Head of Social Infrastructure Group Infrastructure FinanceErste Group Bank AG

Public Private Partnerships - Private Financing for Public InvestmentsJW Mariott Grand Hotel, Bucharest, September 27, 2011

2Erste Group Bank AG Sept 27, 2011

Table of ContentsPresentation

Section

1. Erste Group Introduction

2. Group Infrastructure Finance

3. Structuring of PPPs

4. Financing of PPPs (Post) Crisis

5. Motorway Case Study

6. Contacts


We successfully operate in a region with high potential, aiming to provide a high standard in personal service and a comprehensive range of financial products to our 17.4 million customers

One of leading financial services groups in CEE

Based in Austria, we are one of the leading financial services groups in Central Europe and are present in Czech Republic, Slovakia, Poland, Hungary, Slovenia, Croatia, Serbia, Romania, Moldova and Ukraine. Through cooperation with the Savings Banks we are also able to offer our services for Slovenia and Bosnia & Herzegovina.

We provide banking, investment, loans and insurance services, and focus on consumers and businesses, from SMEs to large corporate customers.

We successfully operate in a region with high potential, aiming to provide a high standard in personal service and a comprehensive range of financial products to our 17.4 million customers.

Erste Group

Major steering functions for the group, such as strategy, marketing, performance management, strategic risk management, HR and talent development, etc.

Operating businesses, in the form of the newly established Global Markets (GM) and Group Corporate and Investment Banking (GCIB) divisions.

Provision and planning of infrastructure for Erste Holding as well as for local customer businesses.

Erste Holding is responsible for the following three main functions:


More than 17.4 million clientsErste Group

Erste Group core markets Indirect presence (Savings Banks SLO, BiH) Minority stakes (RU) / Investment Bank (PL)

Clients: 5.3mnMarket share based on:Retail deposits: 29.4%Retail loans: 26.6%Branches: 667

Clients: 3.1mnMarket share based on:Retail deposits: 19.0%Retail loans: 19.1%Branches: 1,047





Clients: 4.6mn Market share based on:Retail deposits: 23.0%Retail loans: 19.7%Branches: 668


Present through Kärntner Sparkasse

Present through SteiermärkischeSparkasse


Erste GroupGroup Infrastructure Finance

Wind Parks

Solar/ Photovoltaic

Biomass

Small Hydro

Energy &Environment

PPP and Concession Advisory

EU Fund Advisory

PPP Strategic Consultancy to Public Authorities and Private Sector Clients

PPP Advisory

Education (Schools, Universities)

Hospitals

Public Buildings

Defense & Security

Parking Solutions

Sports Facilities

Social Infrastructure

Power Plants

Water / Waste Treatment

Gas / Electricity Transmission

Project FinanceInfrastructure

Funds

Social Infrastructure

Transport Energy &

Environment

Airports

Ports

Roads

Railways

Rolling Stock

Electronic Toll

Urban Public Transport

Transportation


Structuring of PPPs

Risks shall be allocated to the party best able to manage and influence the specific risk.

Government

Land acquisition

Claims

Cultural inheritance

Licences and permits

Change in law

Maybe subsidise cash flows or tolls thus bear (some) traffic risk

Provide guarantees for debt facilities

Supra-nationalInstitutions

(EBRD, EIB, IFC etc.)

Reducing political risk

Providing access to local currency

Accepting longer tenors

Private Partners(Concessionaire, operator)

Completion risk

Most technical and operational risks

Performance risk

(Some) traffic risk

Provide guarantees

Subordinated standby-facilities

Necessity of Risk Sharing/Risk Allocation


Structuring of PPPs

„Bankability“ of PPPs and other Infrastructure Projects

Strong Political will /stable regulatoryand legal framework

Secure and Stable

Cash-Flows

Demand forProject

EnvironmentalAspects

Technical Complexity

Early-TerminationRegulations

Liability of Sponsors

Debt ServiceReserve

Government Support

Optimal Risk Allocation

Bankability Issues

strong revenuesupport e.g. through

availabilitypayment mechanisms

e.g. Step-in Rights, compensation payments

Minimum DSCR requirements

Solid Private Partner and adequateEquity contribution

Financing Issues Bankability


Structuring of PPPs

Management plan and operating history

Strength of operator Independent engineer

review of operating costs

Operating/Technology

Shareholders agreement EPC contracts Structure of contractual

agreements

Contractual

Government procurement

Nature of supporting legislation

Enforcement rules Precedents

Regulatory

Regulatory risk on tariff/price

determination Inflationary risk and

ability to increase prices with inflation

Tariff/Price Structure

State support for concession

Well defined concession laws

Political environment GDP growth Currency risk

Sovereign

Capital structure Covenants Intercreditor provisions Liquidity and financial

flexibility Dividend policy

Financial Structure

Cash flow predictability Debt service coverage Financial forecasts Interest rate/ currency

risk

Cash Flow Analysis/ Financial Analysis

Demand risk vs. availability payment

vs. contracted cash flows

Sensitivity of growth and revenue projections to

- Competition- Price regimes- Changes in macro- & micro-economic trends

Demand

Construction complexity/ Technology risk

Well-known construction contractors

Cost-overrun/completion guarantees

Independent review of construction schedule and budget

Construction

Competing assets Future competition Nature of Concession

and non-compete clauses in concession agreement

Competition

Key Structuring Elements/Issues


Financing of PPPs (Post) Crisis

Shorter tenors with re-financing after 5-10 years (mini-perm structures)

Risk premiums have been rising, clear step-up in margins visible

Merket risk is not bankable availability based contracts

Trend towards more simple structures and transparency

smaller project sizes preferred as they are easier and faster to implement

the less complex and risky the construction is, the less the private sector will price in as a risk premium for being able to offer a fixed-price turn key contract

Stronger involvement of multilaterals like EBRD, EIB, etc.

Government as a source for gap financing and re-financing guarantees

Relationship deals gaining importance

Syndication activity is still low and more targeted on higher quality credits, moderate deal size and relationship or existing bank groups

Club deals are commonly used

How Did the Crisis Unfold in the PPP Market


Key Financing Terms Developments

Item Pre 2003 2003-2007 (Post) Crisis

Margins100bps+ (150bps on larger projects)

As low as 40bps 200-500bps

Market flex Occasionally margin flex NoMany clauses aimed at minimising pricing risk

Cover ratios (ADSCR) 1.25x As low as 1.10x 1.20x+

Tenor of debt 25-29.5 years for bankBank debt exceeded 30 years

Max 22-28 years (though marketed as short-term – so-called mini-perms)

Many banks restricted to 7-10 years

Cash sweep Element of sweep post year 8 NoneTypically 100% cash sweep post year 8-10

Source: Mazars


- Total project volume: € 1,130 mn

- construction of 51.6 km of Expressway, 2x2 lanes (will connect the towns of Nitra and Tekovske Nemce and by-pass the city of Banska Bystrica to the east of Bratislava); 41 months construction period

- 30 years concession period (design, build, finance, operate and maintain)

- 4 bidding consortia

- Winning consortium: Granvia (50% Vinci Concessions SAS, 50% Meridiam Infrastructure Fund)

Motorway Case Study: R1 Slovakia (2009)

PPP Toll Road (in the Middle of the Financial Crisis)

Source: Infra-News.com


Motorway Case Study: R1

SPCGranvia

Vinci Concessions

Meridiam

Facilities and Hedging

Agreements

Ministry of Transport and Telecommunications

Concession Agreement

Direct Agreement

GranviaConstruction

D&C Contract

Eurovia CS

Intercreditor Agreement

GranviaOperation

Vinci Concessions SAS

Operator Direct Agreement

Hedging Banks

Direct Constructor Agreement

Subordinated Loan Agreement

O&M Contract

Interface Agreement

Eurovia SAParent Company Guarantee (“PCG”)PCG

Insurance Providers

Lenders TA Independent Engineer

Senior Lenders

Structure of the Deal


Total Project Costs: € 1,130mn

Capex: € 887mn

Two Loan Facilities:

- Senior Facility: € 981mn (thereof Erste Group as MLA: € 85mn)

- VAT Facility: € 34.9mn

Equity + Shareholder Loans: €150mn

Availability Payment: € 127mn per year

Gearing: 87:13


Assumption : From 01/01/09 to 30/04/12 - Financial Model of 3rd April 2009 - BAFO dates

Key Figures

Financial Structure




Project Year Calendar Year

Concession Period End 30y 5m May 2040

Repayment Refi Case 28y 3m March 2037

Repayment Non Refi Case 23y 3m March 2032

Repayment Stressed Non Refi Case [xx]y [x]m [xxx]

Outstanding Senior Debt

Financial Structure



Coordinating Banks Roles Partner

BayernLB Insurance

BBVA Documentation (Financing) WestLB

Dexia Documentation (Project) DZ Bank

Calyon Documentation (Project) BNP Paribas

KfW Ipex Technical

Société GénéraleModelling BankTax & Accounting Bank

Unicredit Documentation (Financing) Banca Intesa

Multilateral Bank

EBRD Participant (€ 200mn)

Banks’ Roles in the Deal



Contacts

Werner Weihs-Raabl Erste GroupHead of Group Infrastructure Finance1020 Vienna, Obere Donaustraße 17 - 19

Tel.: +43 (0) 50100 - 18010Fax: +43 (0) 50100 - 9 18010mobile: +43 (0) 664 818 05 [email protected]

Christoph LangErste GroupHead of Social Infrastructure Finance 1020 Vienna, Obere Donaustraße 17 - 19


Erich MaschekerErste GroupTransportation Finance 1020 Vienna, Obere Donaustraße 17 - 19


Florian PhilippErste GroupHead of Infrastructure Funds1020 Vienna, Obere Donaustraße 17 - 19

Tel.: +43 (0) 50100 – 18046Fax: +43 (0) 50100 – 9 18046mobile: +43 (0) 664 818 36 [email protected]

Marcel Babczynski Erste Group – Česká spořitelna a.s.Head of PPP Advisory 14000 Prague 4, Budějovická 1518/13 B

Tel.: +420 956 714 451mobile: +420 602 265 [email protected]

Markus DornerErste GroupHead of Project Finance1020 Vienna, Obere Donaustraße 17 - 19

Tel.: +43 (0) 50100 – 18065Fax: +43 (0) 50100 – 9 18065mobile: +43 (0) 664 842 54 [email protected]

Marcus Hinrich FischerErste Group Deputy Head of Energy & Environment Finance1020 Vienna, Obere Donaustraße 17 – 19


Group Infrastructure Finance & Advisory

mailto:[email protected]







financial structuring elements of ppps case studies christoph lang head of social infrastructure...

Documents

retail loans

retail deposits

mnmarket share

group corporate

erste holding

mn market share

planning of infrastructure

high potential