Developing Market
Ready Projects
Grant Hodges and David Larocca
Infrastructure Advisory, EY
April 2014
Page 2
Agenda
1. Market context
2. Developing market-ready projects
3. Concluding remarks
Financing the delivery of light ...
Page 3
Agenda
1. Market context
2. Developing market-ready projects
3. Concluding remarks
Financing the delivery of light ...
Page 4
There has been a dramatic change in Europe
Financing the delivery of light rail
0
20
40
60
80
100
120
0
5
10
15
20
...
Page 5
A resilient financing market – with a
significant increase in transaction activity
Financing the delivery of light ...
Page 6
What is driving the transaction activity?
► Infrastructure is front of mind at all levels of government
► Unprecede...
Page 7
Financing market continues to improve
► Continual improvement:
► 20-25 active banks
► Each bank is prepared to lend...
Page 8
Debt pricing continues to improve
0
50
100
150
200
250
300
350
400
450
Termdebtmargins
Pre-GFC Post-GFC
Financing t...
Page 9
Superannuation sector is engaged, with an
appetite to invest more … but barriers remain
Financing the delivery of l...
Page 10
Agenda
1. Market context
2. Developing market-ready projects
3. Concluding remarks
Financing the delivery of light...
Page 11
Getting it right up-front
► Business case for the Project, including clear strategic context
“is this a PPP lookin...
Page 12
Market engagement enables the development
of innovative solutions
Financing the delivery of light rail
Issue Examp...
Page 13
Agenda
1. Market context
2. Developing market-ready projects
3. Concluding remarks
Financing the delivery of light...
Page 14
Concluding remarks
► Infrastructure, including PPP, has become a key asset class
► International players heavily e...
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Grant Hodges, Partner, Transactions Infrastructure Advisory Leader & David Larocca, Partner, Infrastructure Advisory Leader Oceania, Ernst & Young - Developing market ready projects

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Grant Hodges and David Larocca delivered the presentation at the 2014 NEW ZEALAND INFRASTRUCTURE SUMMIT.

The New Zealand Infrastructure Summit brings you the most up to date infrastructure news combining case studies and key presentations, addressing developments in the some of the main infrastructure hubs, such as Auckland and Christchurch.

For more information about the event, please visit: http://www.informa.com.au/nzinfra14

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Grant Hodges, Partner, Transactions Infrastructure Advisory Leader & David Larocca, Partner, Infrastructure Advisory Leader Oceania, Ernst & Young - Developing market ready projects

  1. 1. Developing Market Ready Projects Grant Hodges and David Larocca Infrastructure Advisory, EY April 2014
  2. 2. Page 2 Agenda 1. Market context 2. Developing market-ready projects 3. Concluding remarks Financing the delivery of light rail
  3. 3. Page 3 Agenda 1. Market context 2. Developing market-ready projects 3. Concluding remarks Financing the delivery of light rail
  4. 4. Page 4 There has been a dramatic change in Europe Financing the delivery of light rail 0 20 40 60 80 100 120 0 5 10 15 20 25 30 2008 2009 2010 2011 2012 2013 Number of Projects: Value (Billion Euros) Year European PPP Market has shrunk by over 50% over the last 5 years : Value: (Billion Euros) Number of Projects: European investors, contractors and operators looking to diversify – Australia a focus Source: European PPP Expertise Centre
  5. 5. Page 5 A resilient financing market – with a significant increase in transaction activity Financing the delivery of light rail c$10bn of PPPs forecast to close between July 2013 and December 2014 – matching pre-GFC levels of activity 0 1 2 3 4 5 6 7 8 9 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (F) Value of PPP Transactions ($Billions)
  6. 6. Page 6 What is driving the transaction activity? ► Infrastructure is front of mind at all levels of government ► Unprecedented appetite for private sector involvement ► New funding models emerging – asset sales ► Transport has historically lacked „new build‟ activity Financing the delivery of light rail
  7. 7. Page 7 Financing market continues to improve ► Continual improvement: ► 20-25 active banks ► Each bank is prepared to lend more ► UK/European bank withdrawals replaced with Asian and North American banks ► ECAs very active – following local suppliers ► $4B+ of capacity ► Commercial terms: ► Tenors of 7-10 years ► Margins trending down ► Gearing trending up – 85%-90% ► We expect to see more equity investors providing debt products into transactions ► But still lack of long-term bank market and capital market alternatives ► Unprecedented market interest ► Brownfield (including patronage risk) and greenfield/PPP appetite ► Main sources: ► Australian superannuation funds ► UK & European PPP investors ► Asian pension funds and trading houses ► North American pension funds ► Middle Eastern SWFs ► Investors are assuming refinancing risk ► Equity returns on downward trend Debt Market Equity Market Financing the delivery of light rail
  8. 8. Page 8 Debt pricing continues to improve 0 50 100 150 200 250 300 350 400 450 Termdebtmargins Pre-GFC Post-GFC Financing the delivery of light rail
  9. 9. Page 9 Superannuation sector is engaged, with an appetite to invest more … but barriers remain Financing the delivery of light rail The sector wants: ► Greater certainty of pipeline ► Incentives for governments to establish capital recycling processes ► Regulatory certainty over superannuation and taxation policy ► Early project consultation processes This could further open up a $1.75 trillion super industry to Australian and NZ infrastructure opportunities
  10. 10. Page 10 Agenda 1. Market context 2. Developing market-ready projects 3. Concluding remarks Financing the delivery of light rail
  11. 11. Page 11 Getting it right up-front ► Business case for the Project, including clear strategic context “is this a PPP looking for a Project”? ► Strong, consistent and visible political commitment ► Realistic affordability analysis ► Early focus on project governance ► Establishment of a project with appropriate experience ► Realistic timetable – then a relentless focus on meeting it ► Proactive, early, focused and international market engagement strategy ► Interactive tender strategy
  12. 12. Page 12 Market engagement enables the development of innovative solutions Financing the delivery of light rail Issue Example of Mechanism Examples Contractor balance sheet constraints “Discipline based” packaging North-West Rail Link (NWRL) Debt market capacity Capital contribution Gold Coast Rapid Transit, Sunshine Coast Hospital, New Generation Trains, NWRL, East-West Link, Queensland Schools Debt syndication guarantee Melbourne Desalination PPP Optimising the cost of capital Debt Paydown (Conditional on commissioning and operations) Darling Harbour Live, North-West Rail Link, Sydney Light Rail Market aversion to greenfield traffic risk „Build and Sell‟ model Legacy Way, QML, WestConnex Availability PPP with retention of toll revenue East-West Link
  13. 13. Page 13 Agenda 1. Market context 2. Developing market-ready projects 3. Concluding remarks Financing the delivery of light rail
  14. 14. Page 14 Concluding remarks ► Infrastructure, including PPP, has become a key asset class ► International players heavily engaged in the Australian/NZ market ► Buoyant infrastructure market ► A project‟s success is determined at the business case stage Financing the delivery of light rail

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