Traditional Project Financings vs. PPP

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Traditional Project Financings vs. PPP

• Roman Fuchs
• Macquarie Capital GmbH

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Traditional Project Finance

• What is Project Finance?
• A financing of a particular economic unit in
  which a lender is satisfied to look initially to
  the cash flows and earnings of that economic unit
  as the source of funds from which a loan will be
  repaid and to the assets of the economic unit as
  collateral of the loan.

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Key elements of Project Finance

• Cash flow based
• Valuation on cash flow basis
• Risk allocation
• Risk is allocated to those parties involved, who
  can handle it best
• Non or as little as possible recourse
• No further cash injections apart from the initial
  investment needed from the investor/sponsor of
  the project
• Use of a SPC
• Set up of a Special Purpose Company for the
  project
• Off-balance sheet financing
• Sponsors can finance projects without taking them
  on their own balance sheet as long as stake in
  the SPC is below 50

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Public Private Partnership

• What is a Public Private Partnership (PPP)?
• PPP is a relationship between the public and the
  private sector in order to provide publicly used
  infrastructure more efficiently
• PPPs (in the UK referred to as Private Finance
  Initiative or PFI) are based on different
  contractual structures and cannot clearly be
  differentiated with respect to other forms of
  cooperation
• BOT-Structure (Built, Operate, Transfer)
• The private partner gets a concession to finance
  the building, the operation and the maintenance
  of the project, which gets transferred back to
  the state at the end of the concession (Ownership
  stays with the state all the time)
• BOOT-Structure (Built, Operate, Own, Transfer)
• Ownership is with the private part for the time
  of the concession
• BOO-Structure (Built, Operate, Own)
• Ownership goes totally to the private part

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Financing Alternatives of a PPP

• Depending on the degree of state involvement PPPs
  can but do not necessarily have to involve
  project financing aspects

Project Financing
Public Sector Financing (Public Sector guarantees
debt service to lenders)

• In depth evaluation and due diligence from debt
  and equity
• Optimised technical and economical structure
• Innovative financial engineering
• Risk and quality management
• Close project monitoring
• -
• Higher financing costs

• Lower financing costs
• -
• Less detailed project evaluation
• Less optimised technical and economical structure
• Little focus on financial structure
• Risk and quality management no main target
• Looser project monitoring

vs.
Higher financing costs are usually offset by
higher efficiency of the project
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Project Finance in a PPP-Project

• Typically involved parties in a PPP-Project (road
  sector)

Awarder of Concession (Public Motorway Authority)
Availability Fee
Concession Agreement
Debt
Equity
Concessionaire (SPC)
Lenders
Sponsors
Debt service
Dividends
Construction Subcontractor
Operation Subcontractor
Maintenance Subcontractor
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Risk Allocation in a PPP-Project

• Schematic risk matrix of a PPP-Project (road
  sector)

Risk (examples) Concessionaire Awarder of Concession Shared
Planning X
Land Acquisition X
Ground Contamination X
Increased Costs X
General traffic risk X
Insufficient revenue collection X
Increased inflation X
Default of Concessionaire X
Uninsurable events X
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Cash Flow Risk in Project Finance

• Schematic cash flow diagram

Lenders like to see the worst case cash flows
covering the debt service
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Overview of Macquarie
Global office locations

• Key statistics
• Market capitalisation 11.39 billion1
• Assets under management 82.8 billion2
• Credit rating A1/ A (SP)
• International offices 55
• Employees 8,2002
• History and profile
• Founded 1969 as the Australian subsidiary ofUK
  merchant bank Hill Samuel
• Listed on the Australian Stock Exchange in 1996
  now a top 15 ASX company by market cap
• Selective focus on areas and products where
  specialist skills deliver value for clients
• Entrepreneurial environment combined with strong
  risk management
• 48 of income from activities outside Australia

Annual net profit (m)

1 As at 16 November 2006 2 As at 31 March 2006
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Macquaries European assets
UK Arqiva Birmingham Airport Bristol
Airport Energy Power Resources (UK) M1-A1 Link M6
Toll Moto NM Renewable Energy Red Bee
Media Stagecoach Steam Packet Wales West
Utilities Wightlink
Denmark Copenhagen Airport European Directories
Finland European Directories
Sweden Arlanda Express Energy Power Resources
(Europe) European Directories
Poland Deep Sea- Container Terminal
The Netherlands European Directories NRE Obregas
Net Netbeheer Haarlemmermeer
Belgium Brussels- Airport
Germany Warnow Tunnel NW Renewable
Energy TanQuid(tank storage business)
France Energy Power Resources (Europe) Autoroutes
Paris-Rhin-Rhone European Directories
Portugal Tagus Crossings
Italy Rome Airport
Spain Itevelesa
As at 5 Oct 2006 the assets listed are managed
on behalf of investors with various direct
stakes held in each Subject to financing and
customary closing arrangements
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Contact
Roman Fuchs Business Development Central Eastern
Europe Macquarie Capital GmbH Wienerbergstrasse
11 East Tower, Floor 31 A-1100 Vienna Direct
Line 43 (0)1 205 300 24 Fax [phone]
30 Email roman.fuchs_at_macquarie.com Internet www.
macquarie.com