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The Philippine PPP Program

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OUTLINE

1. Overview of PPP Projects

2. Financing Case Study: Tarlac-Pangasinan-La Union Expressway (TPLEX)

3. Sources of Financing

4. Domestic Financing: Limitations and Measures to Facilitate

5. Alternative Financing Options

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PPP PROJECTS STATUS NO. OF

PROJECTS ESTIMATED COST

(in billion USD)

PROJECTS UNDER IMPLEMENTATION

Awarded 10 4.20

Other projects for implementation 2 2.13

PROJECTS IN THE PIPELINE

Project for Awarding 1 .09

Projects under procurement 14 11.46

Projects approved for roll-out 2 2.39

For approval of relevant government bodies 6 3.41

Projects with ongoing studies 4 1.28

For procurement of consultants 7 TBD

Under conceptualization or development 7 TBD

Sub-Total 41 18.04*

TOTAL 53 24.96* *This does not include 18 projects with no estimated costs yet

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AWARDED PROJECTS

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FINANCING CASE STUDY: TPLEX PROJECT BRIEF

Scheme BTO

Project Cost USD 358 Million (as approved in 2010)

Length 88.85 km

Financial Close Y2011: by 3 local banks

Status Y2014: Phase 1 (49.3 km) opened Y2015: Phase 2 (13.72 km) opened Y2016: Phase 3 (25.83 km) expected to be completed

First PPP project in the Philippines to feature an all-domestic cast of sponsors

and lenders

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SOURCES OF FINANCING PPPs are primarily financed by domestic banks

• Stable macroeconomic fundamentals • High levels of liquidity and low interest rates • Express government commitment to PPP program • Improved capability of domestic banks (availability of longer tenors,

larger SBLs, expertise in project finance) • Lack of alternative options due to institutional and regulatory issues

Issuance of 10-year corporate notes to

local banks

Syndicated loan and security agreement with 6 local banks

Targeting local bank financing

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DOMESTIC FINANCING LIMITATIONS OF DOMESTIC FINANCING

Regulatory restrictions

• Bank lending to a single entity is limited to 25% of bank’s net worth

• Additional 25% SBL limit for PPP projects will expire in December 2016

• Limitation of loans to director, officer, stockholder or related interest (DOSRI) to an amount equivalent to his unencumbered deposits or book value of his paid-in capital contribution to the bank

• Except with prior approval, combined outstanding DOSRI loans and guarantees should not exceed 15% of bank’s total loan portfolio or 100% of bank’s net worth, whichever is lower

Single Borrower’s Limit (SBL)

• Limitation on real estate loans: 20% of loan portfolio

Related Interest Loans

Real Estate Loans

DOMESTIC FINANCING LIMITATIONS OF DOMESTIC FINANCING

Banking practice

• To mitigate appropriations risk, banks often request for issuance of performance undertakings for PPP projects

• While banks now offer longer tenors (10-15 years), there is still a gap in terms of long-term financing (given the long-term nature of the concession agreement, i.e. 25-30 years)

Lack of long-term financing

Performance undertakings

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DOMESTIC FINANCING MEASURES TO FACILITATE DOMESTIC FINANCING

Regulatory support • Additional 25% SBL limit for PPP projects

Provisions in Concession Agreement

• Step-in rights • Termination principles • Permitted security interests • Refinancing and securitisation • Deficit payments • Grantor compensation payments

• Active domestic credit market • Involvement of government financial

institutions in PPP advisory and financing Financial institutions

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ALTERNATIVE FINANCING OPTIONS There is a need to tap alternative financing options given the scale of PPP projects in the pipeline

PPP Projects in the

Pipeline: USD 18.04B+

Laguna Lakeshore Expressway Dike Project USD 2.73 Billion

North-South Railway Project USD 3.79 Billion

NAIA Development Project USD 1.66 Billion

Regional Prison Facilities Project USD 1.12 Billion

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ALTERNATIVE FINANCING OPTIONS

Financial institutions

Capital markets

• International banks: legislative support allowing full entry of foreign banks to the Philippines

• Multilateral banks (ex. ADB, World Bank and IFC): already involved in PPP advisory

• While capital market is still underdeveloped, market activity is picking up

• Bond market: Volume increased from USD40.3B in 2013 to USD45.9B in 2014

• Corporate bond sector is growing faster than government bonds

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Various Initiatives to Develop Capital Markets

Government

• Consultations and roundtable discussions on mechanisms for regulatory support, credit enhancement and rating and tax incentives

Private Sector

• First infrastructure bonds expected to be issued soon

• Philippine Investment Alliance for Infrastructure (PINAI): fund investing in Philippine infrastructure equities

ALTERNATIVE FINANCING OPTIONS

The Philippine PPP Program

the philippine ppp program - unescap.org - the experience of... · issuance of performance...

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