Sunday, February 8, 2015

Interesting project finance deals from 2014

Impressive compilation of project finance deals from 2014 in the World Finance magazine. A summary of few interesting ones.

1. Off-load construction risks and refinance the commissioned project. The 95 km Saltillo-Monterry highway was constructed by CAMS, a wholly owned subsidiary of Isolux Infrastructure Netherlands BV, the power and transportation construction and management arm of infrastructure major Grupo Isolux Corsan, through bank-syndicated loans. The construction was badly delayed, leading to renegotiations, including extending the concession period to 45 years. The road was opened to traffic in phases between 2009-11. In 2013, after protracted re-balancing of the bank loans, CAMS launched two bond-issuances to refinance the project through project bonds - a senior bond maturing in 2037 and carrying an inflation-linked fixed interest rate of 5.9% and a much larger sub-ordinate issue maturing in 2039 and an inflation-linked fixed interest rate of 8%. The project though remained on the balance sheet of Isolux and its O&M is being managed by Isolux's in-house team.

2. Construction and asset management are qualitatively different types of activities, requiring both different sets of concessionaires and financiers. Metro da Sevilla is the 18.1 km metro-line that is the only mass rail transit system servicing Spain's fourth largest city. The line which connects 21 stations was awarded as a private design, build, finance, operate, transfer concession in 2003 to a consortium of construction contractors and its construction was completed in 2009. Once construction was completed, the tenure of Spain's first privately developed and operated metro rail concession was re-negotiated in 2009 and extended till December 2040. In 2014, the Metro da Sevilla was taken over by a consortium led by Globalvia, one of the world's leading infrastructure management companies, in a 634 million euros deal which was financed by equity and three senior debt tranches with European Investment Bank (EIB). The concession has revenue streams that combine availability-based payments and traffic-linked income.

3. Long-term loans by the national infrastructure lending institution (say, IIFCL) with the condition that the borrower must float bonds once the project is commissioned. This would, apart from optimizing the cost of capital would also enable the FI to free up its loan book and move on with further lending. The Sao Paulo Gaurulhos International Airport was being operated by Infraero, the 100% government owned agency, which off-loaded 51% stake in February 2012 for BRL 16.2 bn to a consortium Invepar-ASCA for maintenance and expansion of the airport for a period of 20 years. BNDES gave a loan for the first phase of the project with this condition. BNDES encourages its lenders by offering them more favorable conditions (eg amortization schedule) than if the bonds were not issued.

4. Leverage sovereign wealth funds to invest in infrastructure. Wessal Capital, a joint venture of five SWFs - Morocco, Kuwait, UAE, Qatar, and Saudi Arabia - established at the Moroccon government's initiative, has amassed $3.3 bn in equity capital to invest in transformational projects to create destinations and promote tourism in Morocco. Its first project, Wessal Casablanca Project, involves the regeneration of a 12 hectare harbor area and the historic old-town Medina of Casablanca through a $700 m PPP, to be completed in 5 years. It will feature world-class tourism infrastructure and a marina with comprehensive cruise ship terminal. Wessal's Capital's next project is the redevelopment of Rabat City.

5. Deployment of PPPs in social sector projects. Greece's Attika Schools PPP project, which draws heavily from UK's Building Schools for the Future PPP program,  involves the design, build, finance, operate, and maintenance concession for 24 schools for a period of 27 years at a cost of 110 million euros. The 24 schools were split in two packages of 10 and 14 schools respectively so as to mitigate concentration risks and promote competition. Though the concessions were awarded in 2010-11 to ATESE and J&P Avax, it was renegotiated in the aftermath of the crisis and achieved financial closure in Q2 2014. The project draws funding from the EU's innovative city infrastructure funding tool, JESSICA, which is an initiative of European Commission, EIB, and Council of Europe Development Bank (CEDB). JESSICA aims to correct market failure by investing in sub-commercial terms to support viable urban projects that would not have otherwise attracted sufficient private investment.

6. PPP in urban transportation infrastructure. In 2013, in a $720 million deal, Rutas De Lima was granted a 30 year toll concession for construction, betterment, expansion, conservation, and O&M of 115 km of the three main highways incoming to Lima. Apart from ensuring more effective transportation connectivity to Lima, its specific objective was to improve traffic and road conditions, service standards, and road safety. The project will be financed by a combination of bank loan tranche (for capex financing and whose repayment will begin more than 1.5 years after project financial closure); a local currency denominated fixed rate bond tranche to finance immediate capex and investments at financial closure' and an inflation-linked local currency denominated tranche to be disbursed based on capex and investments chronogram.

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