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Vito gamberale - role of private financing to push the development of transportation infrastructures forward in italy
 

Vito gamberale - role of private financing to push the development of transportation infrastructures forward in italy

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Vito Gamberale and private financing

Vito Gamberale and private financing

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    Vito gamberale - role of private financing to push the development of transportation infrastructures forward in italy Vito gamberale - role of private financing to push the development of transportation infrastructures forward in italy Presentation Transcript

    • Vito GamberaleRole of private financing to push thedevelopment of transportation infrastructuresforward in ItalyItaly and Europe ─ Policies to stay in the networkMilan, March 1, 2013Vito Gamberale
    • Vito Gamberale2TABLE OF CONTENTS– Evolution of the Italian infrastructure system Pg. 3– Lack of public funding and privatisations Pg. 6– An anti-infrastructure attitude Pg. 9– Deficiencies and boundaries of the Italian infrastructure system Pg. 10– Highways Pg. 12– Ports Pg. 14– Airports Pg. 16– Focus on the Lombardy Region Pg. 20– Possible evolution for the financing of infrastructure Pg. 29– A modern finance example: the role of F2i Pg. 33– Production chains examples Pg. 41– Conclusions Pg. 45
    • Vito Gamberale3Evolution of the Italian infrastructure system
    • Vito Gamberale4Evolution of the Italian infrastructure systemOverall, and particularly when it comes to infrastructures, post-war Italywas «in the network» until the mid-70’s, thanks to its great tradition ofbuilding big productions.– Italy was the first country in the world to have a highway («Autostrada dei Laghi»,1924).– In 1970 the extension of the Italian highway network (3,913 km)1was second only to the Germanhighway system (4,461 km)1.– During the 60’s Italy ranked among the «leading countries» in nuclear power production (thirdbiggest installed power in the world – 640 mw – after the USA and the UK).– Italy was among the first countries to develop hydroelectric plants on a large scale; in 1960 theseplants had already achieved the current installed capacity (about 20 gw) and covered almost100% of the national power demand.– During the 80’s Italy was the first country, together with France, to launch the project of a highspeed railway network (Rome-Florence).Until the 80’s Italy had an adequate infrastructure system. The high cashflow from the existing infrastructures contributed to the development ofnew productions.1Data from: Eurostat.
    • Vito Gamberale5Evolution of the Italian infrastructure system– Infrastructures in Italy have mainly been supported by public financing,by institutions, as well as public national (IRI, ENI, ENEL, etc.) and local(airports, local utilities, etc.) bodies.– It worked well until the government could no longer supportdevelopment through the national debt.– The main obstacles to the creation of new infrastructures in Italy arosein the mid-70’s, which are still ongoing today.These obstacles were basically caused by two factors:1) first of all, a set of new attitudes against infrastructure were born frompseudo-environmentalist beliefs, which contributed heavily to burden and,in some cases, to block the decision-making process2) secondly, the lack of public financing (worsened by the recent globalcrisis), which had always been a driving force behind the development ofnew big productions, added to the obstacles.After 20 years, the opinion on infrastructures in Italy went from beingperceived as a development opportunity to an environmental threat.
    • Vito Gamberale6At the beginning of the 90’s, Italy was involved in important processesthat forced the country to radically change its economic policy choices:–the Economic decline: Italy’s GDP constantly ranks below the European average–the First Republic’s economic crisis–the adoption of the Euro, accounting for the need to drastically reduce deficit, debt and inflation withvery strict financial actions–the European Community urged a reduction of the public commitment in the member states’economies (Commissioner Van Miert will take advantage of Italy’s particular weakness to «push» thecountry a great deal).The following governments were forced to cut public expenditure and«cash in».Italy could no longer maintain its role of investor for building andmanaging public works, and consequently began entering a phase of«big privatisations».Evolution of the Italian infrastructure systemLack of public funding and privatisations
    • Vito GamberalePrivatisations are usually seen negatively. Contrary to popular belief, they oftenhad positive effects, even if they are different, based on the applied strategies.7Evolution of the Italian infrastructure systemLack of public funding and privatisations1. Initially, all suffering manufacturing companies were privatised. Such privatisationswere usually achieved by selling to private entities operating in the same businesssector, which ensured a successful result of the privatisation itself (e.g. NuovoPignone in 1994 and ILVA in 1995).2. The second step was to extend privatisation to companies operating in the serviceand infrastructure sectors, which earned the greatest proceeds. Theseprivatisations were accomplished through:a) Quotation of part of the assets at the stock exchange, with very successful resultsfor the government (ENI since 1994, ENEL since 1999), but not always for theinvestors (ENEL).Former public bodies became (and still are) real efficient «public companies» able tocompete at an international level.b) Direct sales to private entities, often on a «family-like» basis (Telecom, 1997;Autostrade, 1999; ADR, 2000), and with disappointing or contradicting results (inparticular for TLC companies).This model generated a «hit and run» attitude, risking the ownership of foreign entitiesof strategic Italian assets (together with their cash flows), which would locally bemanaged from a financial point of view only.
    • Vito Gamberale8– for infrastructures/service, it is better to favour stock exchangequotations (such as ENI or ENEL) or share ownerships of «publiccompanies» (such as F2i, see ultra)– set lock-up bonds (for at least 5-7 years)– always introduce the concept of «earn-out» to favour the publicvendor in case of re-selling the company within 5-10 years– set up bindings to prevent selling the company to buyers who wouldplace an exceeding acquisition debt on the company itself.A couple of rules taught by the privatisation of the infrastructuresector:Evolution of the Italian infrastructure systemLack of public funding and privatisations
    • Vito Gamberale9The difficulties in creating new productions in Italy aren’t just due to a lack ofassets, but also a lack of authorisation processes.Since the mid-70’s, infrastructure came to a halt following some thoughtless politicalactions (in 1975, Law 492 prevented the construction of new toll highways; a referendumagainst nuclear power; etc.), which led to discontinuing the development of newproductions:− an overall lacking of strategic synergy (productions were often driven by local interest andwere not included in the national plan)− an extreme fragmentation of the authorisation process (VIA, service conference, fire brigades,ENAC, air force, superintendence of architecture and landscape, regions, municipalities, etc.)− an environmental policy with a «fundamentalist», unscientific approach− excessive burden from local authorities – often following a «NIMBY» logic – in thedecision- making process with «permanent tables» (inherited from 1968)− territorial «compensation» requirements altering the financial plans− frequent appeals to regional administrative courts and to the Council of State, whichaccounts for slowing down the process− continuous and repeated violation of concession rights and inadequate rates.Evolution of the Italian infrastructure systemAn anti-infrastructure attitudeThe exaggerated «democratisation» of the decision-making process andthe indiscriminate appeals to judicial authorities lengthen the approvalprocess indefinitely and prevent the creation of new productions.
    • Vito Gamberale10Deficiencies and boundaries of theItalian infrastructure system
    • Vito Gamberale11– The anti-infrastructure attitude and the lack of public financingconsequently created a phase of extreme shortage of new bigproductions and a lack of maintenance for the existinginfrastructure.– This attitude’s negative effects were amplified by the parochialapproach in managing the existing infrastructure.– All of the above accounted for:– an «infrastructure gap» between Italy and other Europeancountries, which widened over the last 10 years– an overall ownership fragmentation of the assets, often held bysmall local bodies with a very low presence of big players ofnational standing.Deficiencies and boundaries of the Italian infrastructure systemThis gap is also visible in some of the main transportation infrastructures.
    • Vito Gamberale12Deficiencies and boundaries of the Italian infrastructure systemHighwaysData from: Eurostat.In the highway sector, for example, the extension of the Italian network hasn’tbasically changed since the late 70’s, unlike that of in other main Europeancountries.12,819 km14,262 km11,392 km6,668 km3,913 km4,461 km1,542 km1,585 kmHighway network evolution in the main European countries from 1970 to 201 (km)02,0004,0006,0008,00010,00012,00014,00016,0001970 1975 1980 1985 1990 1995 2000 2005 2010Germany Spain France Italy
    • Vito Gamberale13Therefore, it should not come as a surprise that the network extension,compared to population, lies much below the European averageEuropean highway network – Density per inhabitant(km per million inhabitants)Average = 181 km/mil inhabitantsData from: CIA The World Factbook 2011.This shows that Italy needs to develop over 4,000 km of new highways tomatch the European average, which would imply a cost ranging between80 and 180 bil€1!Deficiencies and boundaries of the Italian infrastructure systemHighways1Average cost: between 20 mil €/km (European benchmark) and 45 mil €/km (average costs for the EXPO highways).111212184251050100150200250300Italy Germany France Spain
    • Vito Gamberale14Deficiencies and boundaries of the Italian infrastructure systemPortsAmong the countries of continental Europe, Italy is the first to use maritimetransportation of merchandise, and has a very large number of commercialports (24). Nonetheless, the Genoa port is the only one to appear in the «topten» list of commercial ports (still, in the second to last position)...Transported merchandise through main European ports(thousands of tons)Data from: Assoporti and InforMare 2011Average434,551187,151132,21692,887 88,073 82,200 80,58567,561 50,393 48,7960100,000200,000300,000400,000500,000RotterdamAnversaHamburgAmsterdamMarseilleAlgecirasBremenLeHavreGenoaLondon
    • Vito Gamberale15Deficiencies and boundaries of the Italian infrastructure systemPorts…and only one port (Gioia Tauro) is included in the «top ten» container portlist: Transported merchandise through main European container ports(thousands of container units)Data from: Assoporti and Livorno Port 2011Average11,8779,0148,6645,9154,3273,1742,305 2,215 2,207 2,03402,0004,0006,0008,00010,00012,00014,000RotterdamHamburgAnverstaBremaValenciaAlgecirasGioiaTauroLeHavreZeebruggeBarcelonaThe Italian ports are administered by a mainly public and parochialmanagement approach, with no network strategy, which often leads tothe overall inefficiency of the structures.
    • Vito Gamberale16Deficiencies and boundaries of the Italian infrastructure systemAirportsItaly is the first European countryfor airport density on theterritory1…Regional/national airport density (n. ofairports/100,000 km2- 2011)1Airports with over 100,000 passengers/yearAverage number of passengers per airport – inmillions(airports with over 100,000 passengers/year - 2011))Source: Assaeroporti and the main airport associationsof the represented European countries....these airports, however, are usuallysmall compared to those of majorEuropean countries…4.509.013.546.180.001.002.003.004.005.006.007.008.009.0010.00Italy Germany France Spain11687024681012Italy Germany France Spain
    • Vito Gamberale17Deficiencies and boundaries of the Italian infrastructure systemAirports…the gap widens if we consider the average traffic in the biggest airports(>1 mil passengers/year):Average number of passengers per airport –in millions (airports with over 100,000passengers/year - 2011)Source: Assaeroporti and themain airport associations of therepresented European countriesThe uncoordinated fragmentation of this sector, often due to ownership bylocal public bodies, prevents the development of a strategy and leads to alack of investment resources. Unlike the other big European airports (Madrid,Paris, Frankfurt), which underwent significant renovation and expansion in recentyears, there have been no relevant works in this sector in Italy.6.2610.899.018.300.002.004.006.008.0010.0012.00Italy Germany France Spain
    • Vito GamberaleThe plan has seemingly recognised the major difficulties of this sectorand has identified the correct solutions for the rationalisation andefficiency improvement of the structures in their gradual privatisation.18Deficiencies and boundaries of the Italian infrastructure systemAirports – National Plan for Airport Development– The government finally recognised this obstacle and developed a NationalPlan for Airport Development, which was 25 years overdue (still notconverted into law yet).– The Plan’s objective is to «promote a sustainable development of thissector by identifying the necessary actions to rationalise the ground and airservices, and concentrating the investments on priority infrastructure workswhile increasing the system’s overall competitiveness».– The Plan’s key elements are:– airport classification based on their national relevance (see followingslide), and prevention of the creation of new airports– identification of priority infrastructure works in the existing airports– economic recovery of the management and gradual privatisation– incentive for the «airport networks» managed by a single player, inorder to optimise organisation and costs.
    • Vito GamberaleF2i holds (direct and indirect) shares in seven main airports identified bythe governmental National Plan for Airport Development and is currentlyevaluating the acquisition of further assets:Ongoing tenderSmall (indirect)share(Indirect) relativemajority share= Airports with a direct presence of F2i= Airports with an indirect presence of F2iOpendiscussionsPitchingThe F2i airports transport 53.7mil/passengers, which is 36.6% of thetotal national traffic.19Deficiencies and boundaries of the Italian infrastructure systemAirports – National Plan for Airport DevelopmentOther airportsTraffic over 1,000,000Traffic over 500,000 withspecific territorialcharacteristicsTerritorial continuityOtherairportsRimini: strongly increasing traffic trendSalerno: used to delocate traffic from the Naples airport
    • Vito Gamberale20Focus on the Lombardy Region
    • Vito Gamberale21Focus on the Lombardy RegionLombardy is the most populated (over 9.5 mil inhabitants, 16% of the total population),and richest region in Italy and has the highest concentration of highway networkscompared to population and the GDP, making the region a critical area on the territory:Italian highwaynetworkcompared topopulation(km per millioninhabitants)Italian average = 111 km per million inhabitantsItalian average = 4.2 km per bil € GDPItalian highwaynetworkcompared toGDP (km perbillion € GDP)76 km/mil inh.with the EXPOhighways2,3 km/bil €GDP with theEXPO highwaysThe Lombardy Region is a typical example showing how difficult it is to createnew infrastructures in Italy.888262 232 203 183 170 147 128 128 113 113 110 107 80 77 74 65 58 49001002003004005006007008009001000LombardyTuscanyPiedmontLombardyTuscanyPiedmont26,612,18,8 8,77,46,3 6,0 5,8 5,74,5 4,5 4,0 4,0 4,0 3,6 2,7 2,7 2,7 1,70,00,05,010,015,020,025,030,0
    • Vito Gamberale22Focus on the Lombardy regionIn order to reduce this gap, a few projects have been in a development stage inrecent years to expand the highway network in Lombardy with the construction ofthree new highways, which today are known as the «EXPO 2015 highways».9,422 mil €1– The Pedemontana Lombarda road (87 km + 70 km normal roads): 5,000 mil €– The Bre-Be-Mi road (62 km): 2,420 mil €– The Milan external east ring road (33 km): 2,002 mi l€ExistinghighwaysHighways indevelopmentExisting Italian highways and highways indevelopmentEXPOhighways1Data from: Osservatorio Territoriale Infrastrutture Nordovest – January 2013.
    • Vito Gamberale23Focus on the Lombardy RegionThe main sponsor for the EXPO highway is Milano-Serravalle Tangenziali SpA,a very small company in comparison to European operators…The Milano-Serravalle is a company of mainlypublic assets, controlled by the Province ofMilan through ASAM:ASAM 52.9%Milan municipality 18.6%Gavio Group 13.6%Other public partners 14.9%Source: balance 2011…however, it is committed with significant shares (about one-third) in theconstruction of new highways.Data indicatedin mil €Network (km) Revenues EBITDA % Profit % PFN NFP/EBITDAMI - Serr. 185 211 101 48% 17 8% 227 2.25xAtlantia 5,079 3,976 2,385 60% 840 21% 8,970 3.76xAbertis 3,772 3,915 2,454 63% 775 20% 13,882 5.66xBrisa 1,305 670 459 69% (82) -12% 3,517 7.66xAPRR 2,244 2,181 1,399 64% 395 18% 6,202 4.43x
    • Vito Gamberale24Focus on the Lombardy RegionThe aggregate financial plan for all 3 projects1The efforts are seeminglyexaggerated comparedto the economic«potential» of bothentities.24Almost50public andprivatepartners!Could become 2,100mil €, since the banksfinancingPedemontana haverequested an equityincrease of up to 1 bil €from the partners.1Modified data from: Osservatorio Territoriale Infrastrutture Nordovest – January 2013.Investments mil € % Coverage mil € %Construction 7,370 78%Equities 1,850 20%Other costs 2,052 22% Public financing 1,250 13%Banks 6,322 67%Total investments 9,422 100%Total coverage 9,422 100%Investors % mil €Milano-Serravalle 34% 637EBITDA 11: 101 mil €Autostrade per lItalia 5% 89EBITDA 11: 2,385 mil €Other highways 8% 139Intesa SanPaolo Group 22% 399Builders 20% 376Other 11% 210TOTAL 100% 1,850 Of which about 510 (28%) already committed
    • Vito Gamberale25Focus on the Lombardy RegionAlthough the Milano-Serravalle financial structure seems to be solid today(see previous slides), the efforts still needed to create these three projectsworks are considerable:–Milano-Serravalle has already given out about 160 mil € for both EXPO projects, with480 mil € more to be committed (which could rise to 650 mil € in case the banks requiremore equities for Pedemontana), which is 4.8 times its EBITDA1and 1.3 times the currentnet assets2(366 mil €), and should therefore double. The majority of its partners, however,are public and may encounter obstacles when raising funds.–Although the company accepted a PFN/EBITDA ratio equal to that of Atlantia (3.8 times), itshould raise a debt of 160 mil € more, and collect at least 320 mil € from the partners (whichare still considered high amounts for public entities).–It wasn’t surprising that the the Milano-Serravalle shareholders’ meeting, held at the endof December 2012, had rejected the capital increase request from the executive boardbecause of the partners’ rejection.The main sponsor’s limited dimensions and the high number of minorshareholders account for the permanent obstacles preventing the progressof the project construction (e.g. the settling of financing is still shaky for allthree projects, and only Bre-Be-MI is arriving to a final completion).2516.5 times in case of further increase of Pedemontata equity.21.8 times in case of further increase of Pedemontata equity.
    • Vito Gamberale26− M6 Toll (43 km), is a toll bypass for the overcrowded M6 (160,000 vehicles/daycompared to the estimated 72,000) in the Birmingham area.− The production was achieved thanks to the project financing through privateentities (25% Highway Group, 75% Macquarie Group), who acquired the M6 Tollconcession for the following 53 years.Characteristics− 1989: birth of project− 1992: concession assigned− 1997: project approval− 2000: start of construction work− Opening to traffic: 2003 (3 months inadvance) – average: about 14km/yearHistoryTimespan: 6 years after projectapproval− Total cost was about 880 mil € (about 20 mil €/km).− The project financing was characterised by a financial leverage of about 80% (debtratio ≈4:1).− This was made possible thanks to two promoters (one of which was Italian), and to aninnovative toll regulation that grants the concessionary company complete freedom insetting the tolls.Costs/FinancingThe M6 toll highway in Great Britain is an example of how solid partners can succeed increating a big project according to a planned budget and timeline.Focus on the Lombardy Region
    • Vito Gamberale27– Italy’s main highway projects are, on the contrary, largely delayed.– The heterogeneity of partners and the cost increase – which ranges from 8 to over100% during the approval process (usually due to compensations, variables andhigher expropriation costs) – are the main causes behind the delays on the settimelines.– The cost per km is at least 3 times higher than the European benchmark (M6 Toll –UK).Due to cost and time increase, the projects have not initiated because thefinancial sources could no longer deal with such increased expenses.It should not come as a surprise that no project financing has been completedon the due date!Focus on the Lombardy RegionHighway km Concept Constructionkick-offConstructioncompletion* (b)Timing(b)-(a)CostincreaseCostper km(mil €)ProjectfinancingstatusM6 Toll (UK) 43 1989 1997 2000 2003 6 880 880 +0.0% 20.5 CompletedPedemontanaLombarda157 1950 2006 2010 2016 10 4,560 5,000 +9.6% 31.8 To becompletedBre-Be-Mi 62 1996 2001 2009 2013 12 1,174 2,420 +106.1% 39.0 CompletedTEM 33 2003 2005 2012 2015 10 1,578 2,002 +26.9% 60.7 To becompleted*If currently estimated timelines are met.Preliminaryprojectapproval (a)Initialcosts(mil €)Finalcosts(mil €)
    • Vito Gamberale28Focus on the Lombardy regionTo speed up the construction of new projects, guarantee its creationaccording to the scheduled timing, and allow for the completion of theproject financing, it would be necessary to centralise costs andresponsibilities in the hands of a single big private partner!– In recent years, the main public partners have tried many times to privatise Milano-Serravalle, but all their attempts to date have been unsuccessful:2011 2012 2013June1st announcementof competition –Municipality18.6% at 170 mi €(5.08 €/sh)DesertedOctober2nd announcementof competition –Municipality18.6% at 145 mil €(4.33 €/sh)DesertedNovember3rd announcement ofcompetition –Municipality(together with SEA)18.6% at 145 mil €(4.33 €/sh)Deserted by Mi-SerrOctober1st jointannouncement ofcompetition –Municipality/Province/other public partners82% at 650 mil €(4.45 €/sh)DesertedJanuary2nd joint announcement ofcompetition –Municipality/Province/otherpublic partners82% at 650 mil €(4.45 €/sh)Ongoing– A price beyond measure, uncertainty on the financial commitments for highways and forthe EXPO and (as was the case of the first announcements), the substantial lack ofgovernance allowed to buyers, accounted for the operations’ failure.– In addition, in 2012, the company – as well as other Italian concessionary companies –registered a 6.3% traffic decrease!These announcements for competition were actually attempts by thepublic bodies to cleanse their own cash difficulties with private funds,without taking into considerations the appropriate conditions to attractcommitted and trustworthy assets.
    • Vito Gamberale29Possible evolution for the financing of infrastructures
    • Vito Gamberale30Possible evolution for the financing of infrastructuresNew infrastructures need to be financed by existing infrastructures!– Indeed, infrastructures generate significant profits (EBITDA margin ≥50%),which can, and must, finance development.Obviously, in order to be able to finance new projects, the existinginfrastructures need to have considerable dimensions and should not befragmented.– My self-evident answer to this question is:As we just discussed, the lack of public funding and the anti-infrastructure attitude are developing a series of hurdles that slow downdevelopment of new projects.Who, then, can finance infrastructure nowadays?
    • Vito GamberaleIn order to meet these goals, a modern financing approach is necessary, a new«institutional capitalism»! Institutional investors (banks, foundations, pensionfunds, etc.) need to finance the creation of big sector «public companies»,«national champions» capable of promoting an efficient management and thedevelopment of infrastructure assets. 31Possible evolution for the financing of infrastructures– In the infrastructure sector, Italy should push homogeneous aggregationsforward to create «national champions» in the different sectors!– Only big and specialised players (following the Atlantia and Gavio model in thetransportation sector, as well as ENI, ENEL, etc.) can generate enough cashflows to create new investments.– To date the concepts of «aggregation» and «industry» are missing in theindividual sectors.– It is necessary for each player to specialise in a single industry to allow anefficient management of quality.Despite the presence of a couple of major players (e.g. Atlantia Group andGavio Group in the transportation sector), most of the assets are stillpartitioned (and also characterised by a local management approach)and cannot therefore create «the system».
    • Vito Gamberale32Focus on the Lombardy Region– For this evolution to happen, it is also necessary for the role of the public sector tobe stated more clearly. Today the public sector can no longer finance infrastructuresand, therefore, cannot own them.– The government should switch from acting as a financier and manager tobecome a regulating body, working through authorities to ensure the following:– impartial strategic consultancy, inspired by national interest, instead of parochialattitudes– the rationalisation and specialisation of the players operating within differentsectors– clear and stable regulations– strict decision-making timelines and coordination of the different bodies involvedin the authorisation processes– an environmental policy based on scientific data– adequate and fairly-profitable rates– surveillance on private operators to make sure they accomplish theircommitments as per the investments and quality of their services to the endusers.The public sector has to leave the management and operational control toprivate entities to maximise the efficiency and valorisation of the company .
    • Vito Gamberale33A modern finance example: the role of F2i
    • Vito Gamberale34– The lack of public financing, which prevents the creation of newinfrastructures and the efficient management of the existing ones, canonly be balanced today with private financing.– The key topics brought out through this analysis include:o the role of infrastructures in Italy’s post-WWII developmento the fragmentation of infrastructures, the frequent public ownershipand the need for the privatisation of some key sectorso a lack of public financingo the possibility to create «national champions» specialised in thevarious infrastructure sectors following the model of big Italian andforeign players.…we therefore came up with the idea of F2i, a private yet institutionalfund that can aggregate the existing infrastructures in industriesusing funds from this asset management to allow for theirdevelopment.A modern finance example: the role of F2i
    • Vito GamberaleA modern finance example: the role of F2i35– Thanks to a fundraising of 1,852 mil €, F2i is the biggest fund operating inItaly and counts among the biggest country infrastructure funds worldwide.– Recently, F2i has performed the first closing of a second fund, whichalready raised 575 mil € (final target: 1,200 mil €).– F2i was created as a private, yet institutional tool by high standingsponsors, who contributed to the establishment of the Fund’s solidreputation: the government, through CDP major Italian banks (Unicredit, Intesa SanPaolo) an important international bank (Merrill Lynch – BoA) the networks of former banking foundations and private welfarefunds life insurance companies and pension funds.
    • Vito GamberaleA modern finance example: the role of F2i36 Following its mission and the institutional nature of its investors, F2iaims for long-term participation with an industrial understanding.(FONDO I)Fundraising by «limited partners» is alreadyunder way for further closing.F2i investors (per category)Categories (Fund I) N. Invest. Subscribedamount% on theFundBanks 7 593 M€ 32.02%Welfare funds 13 487 M€ 26.30%Foundations 26 439 M€ 23.70%Insurances 4 175 M€ 9.45%Public financial institutions (CDP) 1 150 M€ 8.10%Management SGR / Sponsors 1 8 M€ 0.43%Total 52 1,852 M€ 100.00%Categories (Fund II) - First closing N. Invest. Subscribedamount% on theFundBanks 2 200 M€ 34.78%Welfare funds 2 90 M€ 15,65%Foundations 6 185 M€ 32.17%Public financial institutions (CDP) 1 100 M€ 17.39%Total 11 575 M€ 100,00%
    • Vito GamberaleA modern finance example: the role of F2i3711For SAGAT all commitments until 2014 areconsidered (share acquisition by otherprivate partners)F2i has created seven industries now reunited in a structured group, committingover 2,150 mil € (90% of total fundraising).1Agreements in development75% 85.1%100%100%100% 40%49,0%100%60.0%100% 70%67.7%44.3%87.7%100.0%53.8%85.0%15.9%100%49.8%26.3%2,099.7 97.5%31.7 1.5%21.9 1.0%2,153.388.7%HIGHWAYS237.5 11.0%242.5 11.3%53.5 2.5%AirportsTLCRenewables748.2 34.7%WaterEnvironmentInfracisAlerion CPCommittedFund 1+2F2iReti ItaliaERG2iGasG6F2i Rete IdricaItalianaMediterraneadelle Acque436.5 20.3%GasSAGATIren AmbienteF2iAmbienteTRMHFVF2iAeroportiGESACSEASaster NetMetrowebItaliaMetrowebBresciaMetrobit252.0 11.7%129.5 6.0%F2i EnergieRinnovabiliDismissalsFund management costsTOTAL COMMITTED% of raised funds
    • Vito GamberaleA modern finance example: the role of F2i38− In the timelapse of a few years, F2i offered a new business model forinfrastructures in Italy, creating a structured group of companiesand company industries, each representing a benchmark in theirrespective sector.− The companies where F2i holds the majority of shares or plays animportant role in their administration, registered in 20121:o aggregated turnover: 1,690 mil €o EBITDA: 738 mil € (EBITDA margin: 44%)o employees: 8,370o investments: 427 mil € (58% EBITDA)1Aggregated closing data 2012. Referred to: ERG, 2i Gas, G6 Rete, Alerion CleanPower (estimanted on 2012 3rdquarter data), HFV, Mediterranea delle Acque, GESAC, SEA, Metroweb, SasterNet and SAGAT.In 2012, F2i subsidiaries have invested almost 60% of their EBITDA.
    • Vito GamberaleA modern finance example: the role of F2i39Thanks to F2i, important assets managed by foreign companies havereturned, together with their cash flows, under Italian control:− E.On Rete Gas− Gesac− G6 Rete− Metroweb
    • Vito Gamberale40F2i was created as a private, yet institutional investment tool to aggregateexisting infrastructures in production chains in order to guaranteesubsidiaries with:– operational effectiveness– a balanced financial management, avoiding that companies becomepoorer through exaggerated debts and extraordinary high dividends– a focus on development, reinvesting a great part of the cashflows generated by strengthening managed networks and assets.A modern finance example: the role of F2iIn a time of very poor public financing, the infrastructure gap – bothquantitative and technological – needs to be filled with the modernfinance model proposed by F2i: using resources from an efficientmanagement of existing infrastructures to finance the development ofnew plants and works.
    • Vito GamberaleA modern finance example: the role of F2iA production chain example41− At the end of 2010, F2i accessed the airport sector acquiring 70% of Gesac,the company managing the Naples Airport, Capodichino, thanks to aconcession expiring in 2043.− Gesac was founded in 1980 through the input of the Naples Municipality andProvince and by Alitalia. In 1997, following the privatisation process, publicbodies sold a participation of 70% to the UK BAA Group (later purchased bythe Spanish Ferrovial Group).− In recent years, the company promoted a significant investment plan todevelop the airport infrastructures (over 190 mil € of cumulative Capexbetween 1998 and 2009, compared to net cumulative gains of 47.6 mil €),partly financed with public funds (63 mil €) and partly self-financed.− In the timespan of 2009-2012, about 65 mil € investments wereaccomplished.− In 2011, Gesac managed a passenger traffic of 5.8 mil/passengers, andemployed over 320 people.AIRPORTSThe airport industry is a perfect example of how F2i works toaggregate infrastructure assets.
    • Vito GamberaleA modern finance example: the role of F2iA production chain example42AIRPORTS− At the end of 2011, F2i purchased 29.75% of SEA shares from the MilanMunicipality; SEA manages the airport network of Milan (Linate and Malpensaairports) since 1948. The current 40-year agreement has been undersignedalongside ENAC in 2001.− SEA and the group companies provide all the related activities and services,such as airplane landings and take-offs, airport security, the activities related topassengers and the handling of merchandise, as well as commercial services− Milan’s airport network is located in one of the most important areas ofeconomic development in Europe (Lombardy’s GDP exceeds the nationalGDP by 20%) and represents a bridge between the Mediterranean region andcontinental Europe.− In 2011 Milan’s airport network registered 28.4 million passengers, 310,00 airflights and over 470,000 t of merchandise.− Turnover is about 580 mil € (net profit 54 mil €); over 5,000 people employed.− Development plans include investments of about 600 mil € by 2015(capacity increase, and a third runway at the Malpensa Airport, enlargement ofthe Cargo area, etc.).
    • Vito GamberaleA modern finance example: the role of F2iA production chain example43AIRPORTS− At the end of 2012, F2i acquired, together with the Turin Municipality, 28% ofSAGAT, the company that manages Turin’s Sandro Pertini airport since 1956.F2i has also acquired another share of this company (22.8%) from Sintonia(Benetton Group) becoming thus the leading shareholder of SAGAT. Furtheracquisitions are planned by private partners within 2014, for a total share of67.7%.− SAGAT will manage Turin’s airport until 2035.− Turin’s airport is located in one of the richest Italian regions (Piedmont) –ranking fifth for GDP (about 124 bil €, 8% of the total national GDP), fourth forexports (10% of the total national exports), sixth for number of inhabitants andsecond for area.− Piedmont’s strong business and tourist vocation and its lowpassengers/province inhabitants ratio (1.6 times vs. 2.4 times on nationalaverage) provide the airport with a solid development potential.− In 2012 the airport registered a total traffic of 3.5 mil passengers (averageannual growth 2000-2012: +1.9%).− Its turnover reaches 64 mil € (net profit 3.6 mil €) with margin levels thatrepresent a benchmark for the country (EBITDA/passenger 4.2 € vs. 2.4national average). The airport employs almost 410 people.− SAGAT is also involved in the airports of Florence (33.4%) and Bologna(7.21%).
    • Vito GamberaleA modern finance example: the role of F2iA production chain example44− F2i made its entrance in the airport industry with a specific know-how and atrack record with a growth perspective:o thanks to Gesac, F2i «brought back» the considerable cash flows producedby the company to Italy and equipped them for growth and developmento thanks to SEA and SAGAT, F2i recognised the needs of local bodies to sellItaly’s strategic assets to reduce their debt and, again, prevent them fromgoing under foreign control.− In 2012 these two companies handled 37 mil passengers, over 25% of thetotal national number (53.7 mil passengers and 36.6% with companiesparticipating indirectly ).− The long-term objective is to promote business and infrastructuredevelopment, rationalisation and achievement of high profitability levels,with benefits for satellite activities and the socio-economic system.− F2i pursues an investment strategy that aims to create a new airportnetwork: therefore, a concept of «national network» instead of«runway-focused» system, which would favour aggregation, theclosing of unemployed airports, and a recognisable, modern airportformat of quality.AIRPORTS
    • Vito Gamberale45Conclusions
    • Vito GamberaleConclusions46− Infrastructures, transportation in particular, have driven Italy’sdevelopment for decades.− The anti-infrastructure attitude and the following decision-makingparalysis that hit Italy in the last decades, worsened by the publicfinance crisis, leading to Italy’s decline, especially when compared withmajor European countries.− The ownership evolution (from public to private), which started in the90’s with the first privatisation changes, has not been completed, and iscausing market fragmentation as well as, in some cases, managementinefficiency.− These deficiencies have limited and brutally blocked the development ofinfrastructure at times, blocking the whole national economy as a result.− Today, Italy has much work to do to catch up: it is necessary to close thegap within the infrastructures, which represent the connective tissue ofany modern economy.
    • Vito GamberaleConclusions47− To function properly, these infrastructures have to be created andmanaged as networks. They have to develop and be coordinatedrationally: their management should succeed on a «country system»basis, replacing the «parochial types of management» and financialspeculation.− Government and the private sector need to explain their respectivetrade-off:− the government, which can no longer support the infrastructuredevelopment, needs to ensure strict timelines and profitable ratesand, through authorities, oversee and regulate a correct marketfunctioning, while leaving operational control to the private sector− the private sector needs to adopt a long-term overview oninfrastructures, and bring «new resources» to prevent the burdeningof target entities with excessive debts, while committing to asignificant reinvestment of profits− In Italy, as in other big countries, it is necessary to concentrate andcentralise such sectors, to create few «national champions» able toensure adequate investments, efficiency and transparency inmanaging the assets.
    • Vito GamberaleThis achievement led F2i to launch a new Fund (already operational andcommitted for almost 60% of the fundraising at first closing), that will allowits work to progress further. 48– The Fund has basically exhausted its dotation before the first deadlineof the investment period.– This happend even though F2i operated with extreme caution in orderto avoid hasty operations in a time of great uncertainty and a progressivelyworsening global crisis.ConclusionsF2i is a clear example of this model in Italy. A true «public company»that could start an infrastructure network system (able to interact witheach other to push Italy forward) by optimising its management andcontrolling its development.− In order to achieve this result, it is necessary to establish an«institutional capitalism model», which could access the necessaryresources to develop the networks (applying, if necessary, innovativetools such as «project financing» and «project bonds»), which couldfinance the growth of big public sector companies and guarantee theirmanagement independence.