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OECD, 7th Meeting on Public-Private Partnerships - Virginie GRAND
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OECD, 7th Meeting on Public-Private Partnerships - Virginie GRAND

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This presentation by Virginie GRAND was made at the 7th Meeting on Public-Private Partnerships held on 17-18 February 2014. Find more information at http://www.oecd.org/gov/budgeting/ppp.htm

This presentation by Virginie GRAND was made at the 7th Meeting on Public-Private Partnerships held on 17-18 February 2014. Find more information at http://www.oecd.org/gov/budgeting/ppp.htm

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  • 1. 7th Annual Meeting of Senior PPP Officials OECD Conference Centre, Paris February 2014 PUBLIC
  • 2. Project Finance Update Global PF deal volume: by financing type • The overall project finance market continues to remain strong and steady (1,000 deals, USD400bn volume) • Project bond element is growing strongly, but project loans remain dominant • Government/DFI involvement still an important component • Liquidity has increased, leading to some margin contraction Source: Dealogic Project Finance Review 2013 2 PUBLIC
  • 3. Project Finance Update Global PF deal volume: by region Global PF deal volume: by sector Source: Dealogic Project Finance Review 2013 • Some of the large markets are "domestic“ • The nature of growth varies between the different regions. • Oil & Gas, Infrastructure and Energy remain the predominant sectors • Petrochemicals, Telecoms and Mining contribute, but from small base, 3 PUBLIC
  • 4. Key considerations for a Successful PPP Framework Public Sector commitment and skills Favourable Legal and Regulatory Framework ‘Bankable’ Project Value for Money Funders’ requirements Private Sector expertise and engagement Adequate Risk Allocation 4 PUBLIC
  • 5. Key considerations for a Successful PPP Framework Institutional Framework • Stable political framework • Well understood and appropriate legal and regulatory and financial environment – PPP law • Good governance - PPP central government institutions • Standardisation • Deal flow: quantity, sufficient scale to justify a PPP strategy, quality • Leverage: create more opportunities to attract new financing using credit enhancing Public Sector Commitment • Clear PPP policy statement; Government support, financial and human resources • Multi-sector PPP/Concession law or regulations • Planning and projects selection; market soundings, consultation, approvals process • Clarity on output awaited from the authority • Dialogue procedures (ability to discuss project specific issues with the bidders) • Transparent and competitive procurement; clear, robust, and objective criteria (technical / price) • PPP Contract performance monitoring capacity 5 PUBLIC
  • 6. Key considerations for a Successful PPP Framework Private Sector • Project discipline • Technical solutions / innovations • Innovative financing • Development of skills (sponsors, contractors, banks); training programmes • How do authorities create the incentives for the private sector to deliver value for money Securing the financing • How attractive is a country and its PPP programme to (domestic and foreign) investors and lenders? • Are lenders/investors comfortable with the law governing project documents? • Are macroeconomic risks of inflation, exchange rate and interest rate allocated efficiently? • Is a country’s lending capacity sufficient to finance its long term PPP programme? • Funders’ requirements - risk allocation: •Specific public credit enhancements; PPP & infrastructure investment fund 6 PUBLIC
  • 7. Common Pitfalls • Poor project scoping • • • • Under-scoping so bidders are unclear about the requirement Over-scoping so bidding is restricted and/or over guided Mis-costing – leading to unaffordable bids Overly complex projects with “combinations” • • • • Project on Project risk Limitations on supply chain Unrealistic or unclear risk allocation • • • • Difficult consortium combinations making EPC difficult (eg rolling stock / infrastructure) Patronage / market Quasi government counterparty rather than government “latent defect” risk on existing assets Inflexible procurement process • • • Locking in funding too early Insufficient flexibility can lead to stranded bids Not considering funding early enough – too much flexibility can lead to unrealistic bids 7 PUBLIC
  • 8. Global project finance trends – bank debt still the preferred route 450 Global Project Finance transaction volumes 1,000 400 900 350 800 300 700 600 500 250 200 150 255 100 203 400 320 275 300 249 200 50 100 0 0 2008 2009 Q3 450 2010 Loan 2011 Bond 2012 Equity # of projects Transaction volumes by region 1,000 900 400 60 350 300 65 55 250 50 95 200 150 70 60 0 2008 2009 Europe Asia 500 400 130 120 100 105 2010 2011 Americas MENA 300 60 100 113 600 20 60 120 100 50 700 107 70 62 800 100 200 0 3Q 2012 # of projects • New structures are emerging as a result of bank market constraints and governments initiatives to encourage institutional investors to fund infrastructure projects. • • First project bonds have closed in the UK, France and Spain in 2013 Infrastructure financing In the emerging markets remains dominated by DFIs and ECAs 8 PUBLIC
  • 9. Greenfield finance structures in Europe Need to adapt bank model and favour alternative funding options A number of funding options have emerged to support the more limited bank debt that is currently available Structure Examples • Long-term amortising debt of 20+ years Bank debt - International - Domestic Types • PFI standard, French & Dutch PPP • “Soft” mini-perm (cash sweeps, large margin step ups) • “Hard” mini-perm • Bank debt bridge to bond • All funding from financial close Government Co-Lending / Support • Bank construction debt facility take-out • Completion payment • Debt Guarantee • Direct funding • Public listed bond • Private placements Project Bond • With our without credit enhancement (PCBE) • Direct lending Multilaterals / ECA • EIB / EBRD • M25, Manchester waste, A41 • Utilities / brownfield / trains • IUK Guarantee Scheme • UK Prudential Borrowing • French rail projects • Dutch Milestone Payment • CDP’s involvement in Italy • EU Project Bond Initiative • N33 in the Netherlands • Cité Musicale in France • Several PFIs in the UK • IFC in emerging Europe • EIB has lent to most TEN-T / TEN-E projects • ECAs • IEP in the UK 9 PUBLIC
  • 10. Greenfield finance structures in the emerging markets Project finance is still driven by the Multilaterals and the ECAs Structure In most cases, commercial banks appetite will be maximized with adequate ECA / PRI cover Examples • Direct lending up to a percentage of the project costs Multilaterals / DFI Types • IFC • Take project risk • EIB • USD funding is the preferred route • A/B loans Regional / national development banks • Domestic / regional focus • Usually provide local currency financing • Direct lending • EBRD • Proparco / DEG / FMO • ADB • IADB • IDB • BNDES / BANOBRAS • IDC /DBSA Export credit • ECA covered commercial facility Cover • 100% political risk and a significant portion of commercial risk • Europe: HERMES, COFACE, SACE, etc.. • Asia: NEXI, KSURE, etc… • South Africa: ECIC • US EXIM Export Credit Direct Lending PRI Providers • Some ECAs can propose direct funding in addition to insurance cover • JBIC • Insurance product offering commercial banks a 100% political risk cover • MIGA 10 • KEXIM • Private insurers PUBLIC
  • 11. Disclaimer The Global Banking division of The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) has prepared this document (the “Document”) for information purposes only. This Document does not constitute a commitment to underwrite or purchase or subscribe for all or any portion of the securities mentioned herein. Any such commitment shall be evidenced only by a fully executed subscription agreement, purchase agreement or similar contractual document. This Document should also not be construed as an offer for sale of or subscription for any investment, nor is it calculated to invite/solicit any offer to purchase or subscribe for any investment. HSBC has based this Document on information obtained from sources it believes to be reliable but which it has not independently verified. HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability for the contents of this Document and/or as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Document. HSBC and its affiliates and/or its or their respective officers, directors and employees may have positions in any securities mentioned in this Document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and/or any of its affiliates may act as market maker or have assumed an underwriting commitment in the securities of any companies discussed in this Document (or in related investments), may sell them to or buy them from clients on a principal or discretionary basis and may also perform or seek to perform banking or underwriting services for or relating to those companies. As HSBC is part of a large global financial services organisation, it or one or more of its affiliates may have certain other relationships with the parties relevant to the proposed activities as set out in this Document, and these proposed activities may give rise to a conflict of interest, which the addressee hereby acknowledges. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. This Document, which is not for public circulation, must not be copied, transferred or the content disclosed to any third party and is not intended for use by any person other than the addressee or the addressee's professional advisers for the purposes of advising the addressee hereon. PUBLIC

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