PPP Funds for Infrastructure Investments Istanbul 8 th

PPP Funds for Infrastructure Investments Istanbul, 8 th November 2006 Alessandro Merlo Sanpaolo IMI Group International Public and Infrastructure Finance

Public Private Partnership PPP schemes continue to develop well throughout Europe and United States Successfully PPP schemes in Europe: France, Germany, Italy, Spain, Portugal, Greece, etc. Supported by: è legislative framework è PPP taskforces è governments commitment

PPP in Italy Which lesson can be learned?

PPP in Italy and MENA countries A parallelism can be drawn between the Italian development of PPP scheme and the experience in MENA countries è Lack of modern infrastructures è Government Budget restrictions è State providing public services (experience vs. efficiency) è Lack of institutional investors è Lack of capital for local sponsors Nowadays Italy can be considered one of the most promising market for PPP projects development in Continental Europe

PPP in Italy a long start-up period The last three years (2002 - 2005), thanks to legislative innovations, can be considered as the true start up phase with: è public entities è private companies è banks That gave the necessary experience and defined operating criteria those will permit to speed up the bidding and structuring procedures

PPP in Italy creating the “legal framework” Modifications to the legal framework: è elimination of limits on the concession period è priority right attributed to the promoter are the factors that have determined a boost of projects under PPP schemes. In a three years’ period the number of tenders has doubled (from 206 to 418), while the number of concessions granted has increased by almost 4 times (from 47 to 229).

PPP in Italy Data related to projects prometed by public authorities Data related to projects promoted by private companies Investors come when revenue stream is supported by a clear regulation.

Financing PPP Not only debt but also equity needs

Role of PPP funds è Leverage è funds PPP funds attract money from long term investors (such as pension funds, banks, foundations). They inject equity or mezzanine finance in PPP projects 100 Debt Project Financing provided by banks Equity provided by sponsors Mezzanine or Equity provided by PPP funds

Role of PPP funds è Benefits è è Help è Investing in stable cash-flow businesses, with a moderate risk sponsors PPP funds help sponsors to: - Structure project financing (making them “bankables”) - Face equity needs (both through capital increase and mezzanine financing) - Control costs during construction and operational period è Benefits è è for investors in PPP funds for public sector PPP funds stress analysis on economic and financial feasibility of projects in the long term PPP funds are bynature long term investor, they are not interested in construction revenues

What comes first ? What comes first: PPP development or PPP funds ? Lesson took from PPP experience in the UK: è the growth has been in parallel.

The PPP Italia Fund SPONSOR FIN. OPI S. p. A. (SANPAOLOIMI GROUP) MANAGEMENT COMPANY Fondaco SGR (controlled by banking foundations) ADVISOR FIN. OPI S. p. A FUND TARGET € 120 million INVESTORS SANPAOLOIMI Group, Banking Foundations, International institutional investors FUND LIFE 12 years (+ 2 years) Investment Period 6 years Fund Strategy Divestment Period 6 + 2 years Geographic Focus Italy Investment Type Social and Public Buildings, Environment projects, Public Utilities networks Investment Philosophy Investing in greenfield and brownfield PPP projects

The PPP Italia Fund Investment strategy PUBLIC BUILDING ENVIRONMENT URBAN DEVELOPMENT TRANSPORTS PUBLIC UTILITIES MEDIUMLOW MEDIUM-HIGH MEDIUM-LOW HIGH RISK LOW MEDIUMHIGH MEDIUM YIELD MEDIUM HIGH MEDIUMHIGH MEDIUM TENOR MEDIUMHIGH MEDIUM-HIGH MEDIUM 50 -60% 10 -20% 15 -20% 5 -10% 20% SIZE of INVESTMENT POLICY OF THE FUND With such an investment policy PPP Italia, raising € 120 mln, will in invest in projects for about € 1, 5 bln

Financing PPP How to have a more efficient use of public and donor funds

Public Investments in PPP funds è To attract investors Public Authorities and Donors normally gives subsidies to project sponsors è Subsidies are one-off investments è Subsidies availability is very restricted è Difficult to choose to which projects grant subsidies and in which amount è Public Authorities and Donors can invest in PPP funds and being able to accept more risk and less return, compared to Private Institutional Investors, they can: è è Decrease the cost of equity and mezzanine for infrastructure projects Have a strong leverage effect: up to 1 to 20 (1€ invested in PPP Funds by Public Authorities can attract additional 2€ from institutional investors and as a result participating to projects for 20€) è Take profit of project analysis and selection made by a dedicated team (fund managers are remunerated based on the success of their investment) è If things goes well Public Authorities and Donors can receives back their investments and participate to extra-performance

A case study: FIDEME è Fideme is a closed-end fund, managed by IXIS CIB, which provides mezzanine finance to renewable energy sector in France Junior Investor A share Ademe € 15 mln French Public Agency for Renewables FIDEME Senior Investor Institutional Investors B share (CDC, Banca OPI, Caisses d’Epargne, …) Mezzanine Finance Project € 30 mln ü 30 projects ü 320 MW installed ü € 370 mln invested

FIDEME Cash Flow Cascade 1. Payment of priority interest to B shares 2. Buy Back of B shares (at nominal value) – reimbursement of invested capital 3. Buy Back of A shares – reimbursement to Public Agency 4. Payment of extra performance, if any, equally divided between A (50%) and B (50%) shares After four years (2002 – 2006) èAll the funds has been invested è No default projects (a portfolio analysis shows an better risk profile compared to initial hypothesis) èPotential èADEME over-performance (current evaluation): € 5 mln will be able to re-invest entirely its commitment, … and even more

Alessandro Merlo Sanpaolo IMI Group International Public and Infrastructure Finance Edin & Suner Plaza Meydan Sok. 14/1, Akatlar Istanbul, Turkey Phone +90 212 3511731 Fax +90 212 3511733 E-mail a. merlo@sanpaoloimi. com