PPP Funds for Infrastructure Investments

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PPP Funds for Infrastructure Investments

• Istanbul, 8th November 2006

Alessandro Merlo Sanpaolo IMI Group International
Public and Infrastructure Finance
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Public Private Partnership

• PPP schemes continue to develop well throughout
  Europe and United States
• Successfully PPP schemes in Europe
• France, Germany, Italy, Spain, Portugal, Greece,
  etc.
• Supported by
• legislative framework
• PPP taskforces
• governments commitment

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PPP in ItalyWhich lesson can be learned?
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PPP in Italy and MENA countries

• A parallelism can be drawn between the Italian
  development of PPP scheme and the experience in
  MENA countries
• Lack of modern infrastructures
• Government Budget restrictions
• State providing public services (experience vs.
  efficiency)
• Lack of institutional investors
• Lack of capital for local sponsors
• Nowadays Italy can be considered one of the most
  promising market for PPP projects development in
  Continental Europe

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PPP in Italy a long start-up period

• The last three years (2002 - 2005), thanks to
  legislative innovations, can be considered as the
  true start up phase with
• public entities
• private companies
• banks
• That gave the necessary experience and defined
  operating criteria those will permit to speed up
  the bidding and structuring procedures

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PPP in Italy creating the legal framework

• Modifications to the legal framework
• elimination of limits on the concession period
• priority right attributed to the promoter

are the factors that have determined a boost of
projects under PPP schemes.
In a three years period the number of tenders
has doubled (from 206 to 418), while the number
of concessions granted has increased by almost 4
times (from 47 to 229).
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PPP in Italy
Data related to projects prometed by public
authorities
Data related to projects promoted by private
companies
Investors come when revenue stream is supported
by a clear regulation.
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Financing PPPNot only debt but also equity needs
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Role of PPP funds

• Leverage funds
• PPP funds attract money from long term investors
  (such as pension funds, banks, foundations). They
  inject equity or mezzanine finance in PPP projects

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Role of PPP funds

• Benefits for investors in PPP funds
• Investing in stable cash-flow businesses, with a
  moderate risk
• Help sponsors
• PPP funds help sponsors to
• Structure project financing (making them
  bankables)
• Face equity needs (both through capital increase
  and mezzanine financing)
• Control costs during construction and operational
  period
• Benefits for public sector
• PPP funds stress analysis on economic and
  financial feasibility of projects in the long
  term
• PPP funds are bynature long term investor, they
  are not interested in construction revenues

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What comes first ?

• What comes first PPP development or PPP funds ?
• Lesson took from PPP experience in the UK
• the growth has been in parallel.

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The PPP Italia Fund

• Geographic Focus
• Italy

• Investment Type
• Social and Public Buildings, Environment
  projects, Public Utilities networks

Fund Strategy
Investment Philosophy Investing in greenfield
and brownfield PPP projects
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The PPP Italia Fund
Investment strategy

• With such an investment policy PPP Italia,
  raising 120mln, will in invest in projects for
  about 1,5bln

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Financing PPPHow to have a more efficient use
of public and donor funds
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Public Investments in PPP funds

• To attract investors Public Authorities and
  Donors normally gives subsidies to project
  sponsors
• Subsidies are one-off investments
• Subsidies availability is very restricted
• Difficult to choose to which projects grant
  subsidies and in which amount
• Public Authorities and Donors can invest in PPP
  funds and being able to accept more risk and less
  return, compared to Private Institutional
  Investors, they can
• Decrease the cost of equity and mezzanine for
  infrastructure projects
• Have a strong leverage effect up to 1 to 20 (1
  invested in PPP Funds by Public Authorities can
  attract additional 2 from institutional
  investors and as a result participating to
  projects for 20)
• Take profit of project analysis and selection
  made by a dedicated team (fund managers are
  remunerated based on the success of their
  investment)
• If things goes well Public Authorities and Donors
  can receives back their investments and
  participate to extra-performance

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A case study FIDEME

• Fideme is a closed-end fund, managed by IXIS CIB,
  which provides mezzanine finance to renewable
  energy sector in France

Ademe French Public Agency for Renewables
Junior Investor A share
15mln
Mezzanine Finance
FIDEME
Institutional Investors (CDC, Banca OPI, Caisses
dEpargne, )
Senior Investor B share
30mln

• 30 projects
• 320 MW installed
• 370mln invested

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FIDEME Cash Flow Cascade

• Payment of priority interest to B shares
• Buy Back of B shares (at nominal value)
  reimbursement of invested capital
• Buy Back of A shares reimbursement to Public
  Agency
• Payment of extra performance, if any, equally
  divided between A (50) and B (50) shares

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Alessandro Merlo Sanpaolo IMI Group International
Public and Infrastructure Finance Edin Suner
Plaza Meydan Sok. 14/1, Akatlar Istanbul,
Turkey Phone [phone] Fax 90 212
3511733 E-mail a.merlo_at_sanpaoloimi.com