Erste Group Infrastructure Finance Public Sector Private Sector
Erste Group Infrastructure Finance & Public Sector Private Sector participation in Infrastructure Projects Romanian Infrastructure Conference 25 th
Traditional Financing vs. Project Finance Conventional Financing Project Finance Banks Loan Company / Municipality (Borrower) Project loan Project company Equity n Faultless solvency n Off balance sheet n Municipality liable for debt service n Non recourse to the sponsors n On the balance sheet n n Creditworthiness depends on generated cash flows by the project Risk sharing between participants 2
Instruments for Private Sector Participation Low Leasing Hire-purchase Securitisation Concession Control Operating or Management Contract Public Authority or State Loan Contracting out Cash generation Privatisation or Sale High Long term Control versus Cash generation High Low Factoring Short term 3
When are PPP‘s appropriate? PPP‘s are essentially just a procurement alternative: decision should be based on which alternative (concession, procurement, privatization) offers the best value for money PPP’s may be appropriate § where the public sector wishes to maintain a degree of control over a strategic asset § where the public sector must make a substantial financial contribution to a project to make it “bankable” § where a publicly owned, commercially oriented entity wishes to participate for commercial reasons 4
Key government issues § Budgetary considerations § Time and cost of the tendering phase § Government fear of loosing administrative power without parallel reduction of responsibilities § Continuing necessity of governmental support (mixed models) § Required know-how and experience of governmental agencies § Political commitment to the PPP model is essential 5
PPP rewards for Private Sector Private partner § Private partner must have an adequate return on his investments § Interest in getting a construction contract, EPC contract, O&M contract § Long term contract and revenues Banks § Higher margin and fees § Long term relationship to public and private partners 6
Necessity of risk sharing Risks shall be allocated to the party best able to manage and influence the specific risk: Government Private Partners Supra-national Institutions - Land acquisition (Concessionaire, general contractor, operator) (EBRD, EIB, IFC etc. ) - 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 - Completion risk - Most technical and operational risks - Reducing political risk - Providing access to local currency - Accepting longer tenors - Performance risk - (Some) traffic risk - Provide guarantees - Subordinated standbyfacilities 7
Financing issues § „Bankable“ risk allocation § Equity contribution depending on the financial feasibility of the Project and investor’s expectations § Strong government support (e. g. direct equity / debt guarantees) § Strong revenue support: key financial risks (e. g. traffic, FX) must be borne by the government, shadow toll / availability concepts § Currency risk: Projects generating mainly local currency income, however, local currency funding is not available for the whole amount needed § Maturities needed according to business plan are not bankable at first sight and need careful structuring. Loan tenors can be enhanced through instruments provided by supra-national institutions to reach 15 -20 years as probably required by the economics of the project. § Adequate political risk coverage through the involvement of ECAs/MIGA and supra-nationals such as EIB and EBRD 8
Legal issues § Transparency of the procurement process is a must § Creating the legal structure, limited potential for standardisation § Allocation of risks between private and public sector needs to be clearly defined § Retain certain flexibility to adapt the contracts to a changing environment § Find ways-out for possible events of early termination acceptable to all parties involved, i. e. public entity, investor as well as debt providers § Compensation in case of early termination § Change in law risk is often shared for general change in law. Public sector takes risk on discriminatory change in law. § Create a bankable security structure 9
PPP Project Partners (1) § Sponsors: equity provider (construction companies, infrastructure funds, individuals) § Contractors: EPC contracts, long term maintenance, fixed price, date certain construction § Subcontractors: provide specific services to the general contractor § Operator/facility manager: has to take performance risk, part of long term maintenance § Customers: clients who profit most from a well performing solution based on socially acceptable levels 10
PPP Project Partners (2) § State entities: legal framework, early financial contribution, main party to the concession contract § (International) Banks: financial structure, know-how provider, provide funding on a viable financial structure (DSCR, LLCR, DSRA) § Financial/technical advisors: assist the different parties to find an optimal solution § Market/insurance consultants: market overview, development, provide sufficient necessary insurance package for a project § Lawyers: draft documentation considering the potentially different legal systems involved 11
Key Players: Investment banks… …become Infrastructure Operators Macquarie Group Deutsche Bank (RREEF Infrastructure) § Worldwide leading private infrastructure investor § Over € 6. 1 bn of assets under management § 22 acquisitions § Various infrastructure funds worldwide with more than 100 assets § 2007: acquisition of A 5 Ostregion (Austrian toll road) § € 36 bn of equity under management § Special fund with CEE investment strategy: Macquarie European Infrastructure Fund III § Currently bidding for toll road PPP‘s in CEE (e. g. Slovakian motorways) Goldman Sachs § Focus on traditional infrastructure sectors such as toll roads, airports and ports, as well as regulated gas, water and electrical utilities Morgan Stanley Infrastructure Fund § no other assets in CEE/SEE 3 i § Focus on Europe, North America and Asia § No deals in CEE so far ABN Amro § Focus on OECD countries in Europe § Bidding together with Vinci for R 1 Expressway (Slovakia) Babcock&Brown 12
Key Players: Construction Companies… …become Infrastructure operators Hochtief § Involved in 31 PPP projects worldwide with an investment volume of +€ 11 bn § 16 in the field of public buildings (operation of 89 schools in Germany, the UK and Ireland) § 15 toll roads with a total length of more than 700 km (A 4 Highway, Germany; Vienna North Highway, Austria; § Participating in all major toll road tender PPP‘s in CEE § Hochtief Airports: § stake in Athens, Düsseldorf, Sydney and Hamburg airports § Operation of Budapest and Tirana airports § A toal of more than 89 million pax in 2007 13
Key Players: Construction Companies… …become Infrastructure operators Other main international players with activities in CEE: § Bilfinger Berger § FCC/Alpine § Vinci § Skanska § Strabag § OHL § Porr § Mota-Engil § Egis § Eiffage § Bouygues/Colas § Aktor 14
Key Players: International Infrastructure Operators… …move to CEE Some of the players are: 15
Contacts Bucharest Markus Kriegler Erste Group – Banca Comerciala Romana Head of Project Finance Bucuresti, Str. Lipscani 18 -22, Sector 3 Ioana Gheorghiade Erste Group – Banca Comerciala Romana Deputy Head of Project Finance Tel. : +40 (372) 26 48 03 mobile: +40 (732) 45 06 10 markus. kriegler@bcr. ro Tel. : +40 (725) 26 75 60 mobile: +40 (722) 29 18 25 ioana. gheorghiade@bcr. ro Iuliana Toba Erste Group – Banca Comerciala Romana Senior Client Executive Bucuresti, Bd. Regina Elisabeta No. 5 Tel. : +40 (21) 31 21 505 mobile: +40 (723) 71 46 50 iuliana. toba@bcr. ro 16
Contacts Vienna Werner Weihs-Raabl Erste Group Head of Group Infrastructure Finance & Group Public Sector 1020 Vienna, Obere Donaustraße 17 - 19 Tel. : +43 (0) 50100 - 18010 Fax: +43 (0) 50100 - 9 18010 mobile: +43 (0) 664 818 05 27 werner. weihs-raabl@erstegroup. com Christian Topp Erste Group Head of Energy & Environment Finance 1020 Vienna, Obere Donaustraße 17 - 19 Tel. : +43 (0) 50100 - 18039 Fax: +43 (0) 50100 - 9 18039 mobile: +43 (0) 664 818 15 17 christian. topp@erstegroup. com Christoph Lang Erste Group Head of Health & Education Finance 1020 Vienna, Obere Donaustraße 17 - 19 Erich Mascheker Erste Group Transportation Finance 1020 Vienna, Obere Donaustraße 17 - 19 Tel. : +43 (0) 50100 - 18041 Fax: +43 (0) 50100 - 9 18041 mobile: +43 (0) 664 818 04 73 christoph. lang@erstegroup. com Tel. : +43 (0) 50100 - 19911 Fax: +43 (0) 50100 - 9 19911 mobile: +43 (0) 664 838 92 13 erich. mascheker@erstegroup. com 17
Curriculum Vitae Markus Kriegler, Head Group Project Finance Markus Kriegler heads the Group Project Finance Team of Erste Bank Group as well as the Project Finance Division of Banca Comerciala Romania. He has extensive experience in corporate banking with a strong focus on structured finance. Since more than 10 years Markus Kriegler has been involved in a number of corporate finance transactions almost exclusively in the CEE Region and Austria. Markus holds a master degree from the Vienna University of Economics and Business Administration. Before joining Erste Group in 2008 Markus acted as a Managing Director responsible for Corporate Solutions in the financing team of Unicredit Markets & Investment Banking in Vienna where he was responsible for a number of corporate finance transactions in CEE, Russia and Austria across all sectors. From 2006 to 2007 Markus headed the Structured Finance Team of Unciredit (HVB Bank at this time) in Prague, Czech Republic. Leading a team responsible for project finance, acquisition finance and other structured finance solutions he was overlooking acquisition financings in the heat, power and natural resources sectors as well as in general industries. Moreover he was involved in project financings in various sectors including telecom, power, biofuel, general industries and media. Markus also spent three years in Serbia and Montenegro heading the corporate division of the newly founded HVB Bank in the country. Starting as a greenfield he built the corporate business of the bank to a 25 people operation. Before going abroad Markus was a member of the energy, oil& gas and utlities team within the Project Finance Department of Bank Austria Creditanstalt in Vienna which he headed from 2000 to 2001. In this time he was leading project finance transactions for power stations, refineries and water utilities in the CEE region, mainly in Poland, Hungary, Croatia, Czech Republic and Slovakia. 18
Selected Credentials - Infrastructure Finance Social Infrastructure Finance Transport Finance Sportski Grad, Croatia AZM, Croatia Bina Istra, Croatia D 1, Slovakia M 6, Hungary Financing Transaction volume: EUR 46 Mio. Phase I and II Financing Transaction volume: EUR 375 Mio. Phase II Financing Transaction volume: EUR 693 Mio. with ERSTE participated: EUR 30 Mio. Financial Advisory and Financing Transaction volume: EUR 2, 1 Bn. Financing Transaction volume: EUR 445 Mio. with ERSTE participated: EUR 60 Mio. Energy Finance Transport Finance 2008 Sports and Leisure Finance Jelačićka Sports Hall Varaždin Višnjik Sports Hall Zadar A 5, Austria Enerji SA, Turkey City of Zadar / Sportski Centar Višnjik doo Financing Transaction volume: EUR 1 Bn. Equity Transaction volume: EUR 900 Mio. 25 yr investment loan: EUR 29 mln. 6 yr investment loan: EUR 22 mln. 19
Selected Credentials - Infrastructure Finance Advisory 2008 Infrastructure Finance 2006 -2008 Infrastructure Finance 2006 -2007 Infrastructure Finance 2007 -2008 Infrastructure Finance City Town Hall Czech Republic Courthouses Czech Republic Emergency Care Centre Czech Republic Pardubice County Hospital Czech Republic Zlin Congress Centre Czech Republic Financial Advisory Transaction volume: EUR 40 mln. Financial Advisory Transaction volume: EUR 75 mln. Financial Advisory Transaction volume: EUR 65 mln. Financial Advisory and Project Management Transaction volume: EUR 80 mln. Financial Advisory and Project Management Transaction volume: EUR 20 mln. 2007 Infrastructure Finance 2007 Social Infrastructure Finance 2006 Infrastructure Finance 2007 -2008 Infrastructure Finance PPP methodology Slovak Republic Catholic Church Czech Republic Karlovy Vary Hospital Czech Republic Merger of Two Hospitals Czech Republic Multifunctional Centre Czech Republic Advisory on preparation of methodology Financial advisory Transaction volume: EUR 15 mln. Financial Advisory Transaction volume: EUR 30 mln. Advisory Transaction volume: EUR 17 mln. Financial Advisory Transaction volume: EUR 55 mln. 20
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