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ADN - Role of Sustainability by Adam Nicolopoulos at GIB Summit


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Presented at the 4th Global Infrastructure Basel Summit 21 & 22 May 2014.
Read more about the world leading platform for Sustainable Infrastructure Finance at
Next Summit: 27 & 28 May 2015 in Switzerland

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ADN - Role of Sustainability by Adam Nicolopoulos at GIB Summit

  1. 1. May 2014 Roleof sustainabilityinInfrastructureFinance- FromDevelopment Banks to Institutional Investors Adam Nicolopoulos, President and CEO
  2. 2. 2 (800) (600) (400) (200) 0 200 400 600 800 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 year of concession MillionsofUS$nominal Opex Capex Senior debt interest & fees Senior debt repayment Dividends Tax Equity subscribed Debt drawdown Total Revenues Sustainability…
  3. 3. Contractors  ACS Dragados  Vinci  Bouygues  Skanska  Fluor… Asset Operators  Port operators (PSA)  Road operators (Autostrade)  Airport operators (TBI)  Rail Operators (Virgin)  …Public Agencies Developers  Cintra  Abertis  Hochtief PPP  Macquarie  Serco and others  …Public Agencies… Institutional Investors Infrastructure Funds Private Equity Pension Funds ? Institutional investors ? Key Project Investors / Stakeholders Project / Corporate Relationships Multi-Laterals Development Banks Export Credit Agencies Others 3
  4. 4. Have Institutional Investors Officially Entered the Game? Institutional Investors’ AUMin OECD, Dec 2013: Allocation to Infrastructure: Australia and Canada: > $70 trillion < 3% ~ 10-15% Source: OECDReport, 2013 4
  5. 5. Have Institutional Investors Officially Entered the Game? Institutional Investors’ AUMin OECD, Dec 2013: Allocation to Infrastructure: Australia and Canada: > $70 trillion < 3% ~ 10-15% Source: OECDReport, 2013 5 Unlisted Funds, AUM 2004: $24 billion 2010: $210 billion about 10x
  6. 6. Institutional Investors Overview (*) Date source: Prequin 6 ♦ Small and medium-sized institutions make up the majority of all infrastructure investors
  7. 7. Institutional Investors Overview ♦ Small and medium-sized institutions make up the majority of all infrastructure investors (*) Date source: Prequin 7 81%
  8. 8. Largest Pension Funds Globally (sample) Data source: Preqin 8
  9. 9. Identifying the Suitable Capital Match for your Project • Pension Funds • Infrastructure Funds • Insurance Companies • Private Equity • Endowments • Banks • Wealth Managers • Family Office • SWFs • Multi-laterals 9
  10. 10. Risk free rate (treasuries) + Construction risk + Revenue model / sector premium + Operation risk + Upside / Ownership premium + Exit Risk free rate (treasuries) + Project risk premium + Swap rate + Country risk [Premium] how much do I pay for capital? Equity Debt: Expected Returns IRR[low teens – 20s] Margins [250 – 400bp] Credit insurance wrap Upfront fees Or Amortised Credit Enhancement depends 10
  11. 11. Rise of Infrastructure Debt Providers Benefits forfixed-income investors (“Shadow Banking”): Traditional lenders such as banks and governments are undermuch economic pressure. • Stable businesses • Limited exposure to competitive forces and economic environment • Stable cash flows, often with inflation linkage 11
  12. 12. Project’sequityperformance–Value Creation Development Construction Operation Project life Primary Market Equity 20% [Subsidy 30%] Debt 50% Ramp-up    Capital Investment Financial Close Construction Completion  Risk to investor Project Stages Secondary / Refinancing Equity 10-15% Debt / Bond 85-90%  Investor’s Exit? Concept 12
  13. 13. Key Challenges – the Institutional Investors View ♦Greenfield projects are highly complex ♦Long construction periods ♦Upfront development costs ♦Entitlements & permits can be long and challenging ♦Require careful analysis and preparation ♦Require specialists to assess this asset class ♦Higher risk profile / who pays for the risk and how ♦Must prove profitability AND affordability ♦Highly capital intensive (maintenance) ♦Highly contested projects (unions; citizens; etc..) ♦Expensive undertakings 13
  14. 14. Other Challenges and Issues ♦ Public sector as counterparty ♦ Lack of resources trained in new implementation models ♦ Managing procurement change ♦ Easy targets to challenge / high level of scrutiny ♦ Complex design – impact to costs ♦ Necessity for sophisticated/experienced resources in Gov. teams ♦ High uncertainty and risk ...suitable team and strategy is crucial to address these issues and achieve sustainability 14
  15. 15. Future of Financing in Emerging Markets ♦ Bonds from governments or institutions ♦ Institutional Investors look to make new infrastructure investments to move closer to their strategic targets ♦ Collaboration between investors and World Bank/Multi-Laterals ♦ Banks managing a pool of assets based on a fee system. They have the connections but not the capital anymore. Will invest small amounts in long-term debt ♦ SWF huge in emerging markets and could drive growth ♦ Increased involvement of pension funds as they look for long term investments and risk is now shared with other collaborators ♦ Example of ACTIS and RfI in Africa ♦ Oil or mineral extraction rights are exchanged for turnkey infrastructure, complementing standard tax and royalty regimes 15
  16. 16. Public Sector Actions for Successful Implementation ♦ Sophisticated management team (leverage private-sector practitioners’ experience) ♦ Clear priorities and objectives (public & project needs) ♦ Standardize tender process / clear guidelines ♦ Transparency throughout project development ♦ Conduct competitive tender BUT accept unsolicited offers ♦ Clear coordination between Minister’s / Mayor’s governance ♦ Investment incentives (tax deferral, tax holiday, fiscal support) ♦ Fast track permitting ♦ Stick to the timetable 16
  17. 17. Requirements for Successful Private Participation Category Definition Definition Tightly-bound, ironclad definition of project with good & clean limits Size Large enough to attract strong international interest, but not so large as to force need for large bidding groups, thus limiting competition Timeframe Adequate to bring project to completion – balanced, sufficient time to organize tender competition but short enough to maintain high level of bidder interest Skill-sets Should not require extensive skillsets – avoid complex, extensive multi-purpose projects that require expensive and diverse skills Interfaces Complex project structure and inter-organizational agreements take longer to implement than simpler networks “Financeability” Solid capital structure; financial equilibrium Regulation Required to establish project privatization with defined mechanisms on setting tariffs. Legal framework for the Government to regulate and monitor PPP performance Technical Factors Wealth of technical data available for more efficient monetization Land &Permits Clear definition of ownership of land, right of way and permitting process Competition Addressing competition from other projects or sectors 17
  18. 18. What have I learned along the way? Sound structures Experienced advisors are worth the money Clear guidelines and transparency Process to resolve conflict “Win-Win” Multiple funding options Delays destroy project value ... and… Strong Partners; Leadership; Trust and Commitment 18
  19. 19. Global Relationships and Track Record Hato Int’l Airport, Curacao SangsterInt’l Airport, Jamaica Cheddi Jagan Airport, Guyana South African Airports Authority Vienna Airport, Austria Luis Munoz Marin Airport, Puerto Rico Trans-shipment Port Facility, LA Ngqura Container Port, South Africa GreekPort System Privatization Ferry Passenger Terminal, Caribbean ContainerPort Terminal, TX Port Privatization, Bahrain Conf. Port Terminal, Mediterranean Bina Istra Motorway, Croatia Road 1604, TX Indiana Toll Road, IN Ionia Odos Motorway, Greece Highway 2000, Jamaica Maliakos – Kleidi Motorway, Greece Sofia – Varna Road, Bulgaria N4/N6 Motorway, Ireland Funding Alternatives, Transport Infrastructure AsserMonetization Program/PPP Development, USA Our Team has closed numerous successful transactions at a global level. Our experience spans across all types of markets, to offer our (public or private) Clients the best possible value proposition. 770 MWand 775 MW PowerProjects, UK 685 MWSidi Krir PowerStation, Egypt 500 MWPower Project, Tunisia 770 MW, 1540 MWand 1520 MWPower Projects, Turkey $200 million Power Gen. Fund, Turkey Road Transportation Airports & Aviation Ports Power Projects Northwest Parkway, CO 19
  20. 20. Adam Nicolopoulos +1 415 785 4613 (office) +1 415 246 1765 (mobile) Thank you Sustainability Successful Infrastructure