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Welcome to World Finance’s Project Finance Deals of the Year 2014 – a compilation of the most impressive infrastructure projects and deals from across the globe. From solar plants and roadways to refinancing and restructuring deals, these projects stand out in their fields. Good infrastructure project proposals need to consider a multitude of factors, including, but not limited to, financing, timing, environmental impact and socioeconomic change. The projects and deals gathered over the following pages have gone the extra mile to satisfy all parties, and to ensure that work is carried out responsibly at all stages, and in all contexts. Many congratulations to all the projects and dealmakers that made our final list, a full index of which can be found on the back page of this supplement. For more information, visit


Infrastructure projects, particularly public-private partnerships, are emerging all over the globe, creating jobs and sustainable long-term income for governments and businesses everywhere Welcome to World Finance’s Project Finance Deals of the Year, 2014, where we celebrate the leading movers and shakers who have transformed the industry and brought options to market. We investigate those projects that have reinvigorated the appeal of investors – both private and institutional. Through the help of our readers and online voting system, our research team has scoured the world in a bid to present the very finest projects in various stages of development and with different finance mechanisms. The result is this: a comprehensive portfolio of the year’s biggest and best projects. It’s no secret market attitudes towards risk have changed dramatically over the last few years. A number of volatile scares and, of course, the debt-led crisis that swept the globe less than a decade ago, are still fresh in the minds of investors and regulators. Stakeholders have abandoned the short-termism that governed markets around the turn of the century, in which returns on investments had to surface as soon as 4


possible with maximum gains to everyone involved. With governments insisting on greater accountability in business practices, corporate entities have moved to please regulators, shareholders and customers by focusing on social responsibilities and sustainability.

Finance models As growth drivers, large-scale projects are among the best. Creating jobs, taxes, and sustainable longterm income for governments and private outfits, projects that are managed and carried out efficiently can keep on paying. The surge in these models has been as a direct result of more approachable and widely accepted forms of financing. Equity markets have certainly brightened up over the last few years. With new agreements between exchanges to create more of an international market place, and attempts to cut out issues relating to globalisation, equity markets have flooded to project financing. As well as the longterm appeal, infrastructure invest-


ment is seen as a safe haven where funds can be placed to avoid market volatility while reaping consistent rewards. The risk, it should be said, is more in the management of the project and commodities markets, with project finance involvement thought to be a stable influence when balancing a portfolio. Debt markets have also opened up once more, with governments attempting to generate market movement by giving money to banks. With states demanding liquidity filters through to borrowers, the cost of capital has been reduced and money is becoming more affordable. That and reduced interest rates have coupled to instill confidence in borrowers attempting projects and getting involved in larger, more dynamic investment proposals. With national, regional and industry-specific regulators keeping an eye on lending criteria, the brakes are still on, but the lending machine is moving in the right direction. The promise of an interest rate rise and fiscal stimulus on the reduction mean 2014 has been the year to invest. For institutional investors in particular, the appeal of becoming involved in project financing has extra benefits and appeals. With investments expected in the larger brackets, projects can provide useful tax shields, offsetting and delaying governmental strains on company balance sheets. They can also provide keen and interesting unrelated business synergies and exposures, hedging against markets and pleasing those shareholders campaigning for greater social governance performance.

A new perspective Public-private partnerships (PPPs) have taken off in the last few decades in a way few could have predicted. The potential in the PPP market has always been regarded as astronomical, but over the last few years, as governments have attempted to get economies back on track, the market has enjoyed huge success. Putting

Public private partnerships have taken off in the last few decades in a way few could have predicted

together different skill sets and utilising the bidding system, the critical issues that needed ironed out in the PPP management process have been smoothed over recent years. Renegotiation times have been reduced as error management has become more sufficient. In the absence of clear guidelines, government bodies and private partners have developed experience in subjectively analysing and implementing fair mechanisms for negotiation tactics. Finance providers have looked more to governments when extending credit, allowing better ratings and lending criteria that are less exposed to default risk. The need for PPPs and largescale projects has been well identified by commentators, analysts, governments and investors. The economic requirements are as obvious as the social benefits. With energy consumption still climbing across the world, projects focused on finding and developing alternative energy sources have heightened investor interest. Of course, that isn’t to say more traditional energy projects have suffered: supply streams are constantly being sought for more oil and gas supplies. Aside from consumption rates, many developers have recognised the need to replace social capital built in and around the 1960s. In both developed and emerging nations, it is considered a necessity to replace private and commercial ventures of all sizes. One factor of which project finance experts have become increasingly wary is globalisation. With firms becoming more and more interested in getting involved in offshore and foreign projects, complica-

tions arise in the form of various new risks. From cultural risk to foreign exchange and funding uncertainty, firms that invest outside their domestic market become more open to exposures that are not always identifiable in early stages. However, well managed and thoughtfully pursued risk management can be advantageous to the firm in dealing with exchange transactions, while moving into new markets is a sure-fire way to diversify and exploit new options. While globalisation has many risks, like any investment, those risks can come with increased rewards. Another great appeal for investors interested in large-scale projects is in the certainty behind the figures. With planners and managers able to provide details of different phases with some degree of accuracy, investors can plan and calculate opportunity costs as well as considering how long funds will be tied up. It’s that timeline that makes projects so succinct and attractive in calculating net present values and comparing results against national interest rates. The future looks bright for the project finance market. The number of ventures across each continent has been on the increase since the turn of the century and, with investor appetite developing and governments showing full support, it’s difficult to see things slowing down. With technological developments also making value chains more accessible and easily processed, more and more projects will benefit from globalisation and the progress inherent in international cooperation. On the following pages, we’ve presented some of the projects that are acting as the standard bearers for the next wave of development. We’ve aimed to cover the globe, from sector to sector, and with a widespread grasp of different finance initiatives. As such, this supplement contains the finest and most international cross-platform list of the year’s enterprises, as well as commentary on PPPs, gearing and government initiatives. Enjoy. n PROJECT FINANCE |






Bringing Mexico closer together The Saltillo-Monterrey toll road project is an essential transport link that will boost connectivity and competitiveness in north Mexico

Concesionaria Autopista MonterreySaltillo, (CAMS) is the party responsible for the construction, exploitation, operation and maintenance of the Saltillo-Monterrey highway and the northwest belt of Saltillo city. Under a long-term concession contract granted by the Ministry of Transport and Communications of Mexico, the toll road will improve connectivity and boost competitiveness for millions of people in the surrounding area. Composed of two sections – the 50km Monterrey-Saltillo road and the Saltillo North Bypass (a 45km bypass that will eliminate the traffic bottleneck in Saltillo) – the development is essential for the region’s economic prospects. The completed project will connect Saltillo, home to 750,000 inhabitants and an economy fuelled predominantly by the 6


automotive industry, with Monterrey, the main industrial and business centre in north Mexico. And with combined inhabitants of around four million, the road represents one of two major commercial corridors linking Mexico with the US. As a wholly owned subsidiary of Isolux Infrastructure Netherlands BV (Isolux Infrastructure), CAMS is under the supervision of a global leader in the development, operation and management of essential infrastructure assets. Working in three core sectors – transmission, transportation and solar energy – Isolux Infrastructure boasts a proven track record of developing and operating infrastructure businesses in both developed and converging markets. The company is 80.77 percent owned by Grupo Isolux Corsán, a global benchmark in the areas of

concessions, energy, construction and industrial services, with a track record spanning over 80 years of professional activity. It operates in more than 40 countries on four continents. The remaining 19.23 percent of the company, however, is owned by the Public Sector Pension Investment Board (PSP), a AAA-rated Canadian pension fund with over CAD76bn in assets under management.

Global projects Not limited to the Saltillo-Monterrey toll road project, Isolux Infrastructure currently owns, develops and operates 5,959km of transmission lines in the US, Brazil and India. The company’s other projects include 1,643km of roads in Mexico, Brazil, India, Spain and the US, as well as 326MW of solar generation in Spain, Italy, the US, India, Peru, Puerto

Rico, Mexico and Japan. However, despite Isolux Infrastructure’s extensive portfolio, the Saltillo-Monterrey toll road is the company’s first project of its kind in Mexico. The Isolux Infrastructure-owned CAMS, meanwhile, has successfully launched two bond issuances in 2013 (senior and subordinate) that have been used to refinance the existing bank-syndicated facility. And although the pathway there proved to be a long and arduous one, the results of both issuances have been highly successful. Before any refinancing could take place, the first task that CAMS had to contend with was rebalancing the economic and financial condition of the concession. Owing to reasons outside of CAMS’ control, there was a substantial delay in obtaining both the rights of way and the environ-


CAMS’ transaction has prompted the AFORES to take a step forward and accept infrastructure project bonds as part of their investments


mental permits, which then resulted in a lengthy delay in the construction phase and a substantial cost overrun. To address the problems that arose, CAMS entered into a long negotiation process with the grantor (Ministry of Transport of the Federal Government of Mexico), which took almost two years and finally came to a conclusion in 2010. As a result, CAMS was granted an extension to the concession period and an increase in toll rates. It’s also important to mention the support offered by FONADIN (Fondo Nacional de Infraestructuras) and Secretaria de Transportes y Comunicaciones (Ministry of Transport) throughout the course of the rebalancing process. CAMS also had to negotiate with the existing lenders – a syndicate loan granted by Banco de Santander, Caixa Galicia, Banobras, ING and Inbursa – to modify the availability and amortisation period and accommodate for the delay in construction. Again, owing to the support of various partners, CAMS was able to successfully match the existing project finance loan to the circumstances of the concession.


Refinancing Deal of the Year Cost

Total investment MXN10.3bn Financial structure

Project bonds Concession start date

2006 Bonds start date

Feb 2013 senior and Oct 2013 subordinate Concession end date

Refinancing part one: senior bonds

Bonds end date

Dec 2037 senior and Feb 2039 subordinate Designers

Dirección de Carreteras Federales, Secretaría de Comunicaciones y Transportes Concession period

45 years Project type

Toll road Location

Mexico Operation date

Open to traffic in three tranches: 44 percent in October 2009, 34 percent in October 2010 and 22 percent in November 2011 Objectives

The Saltillo-Monterrey Toll Road and Saltillo Northwest Bypass are part of two very important corridors in México: Mazatlán-Matamoros and México-Nuevo Laredo. These axes are connected to an international corridor known as The North American Super Corridor. Key partners

Isolux owns 100 percent SOURCE: ISOLUX

In February 2013, CAMS launched a senior bond issuance – rated AA by Fitch and AA+ by H&R – in the local Mexican market. The bond allowed the company to repay the project finance loan in its entirety, as well as a portion of the FONADIN subordinated loan, and provided a measure of excess cash flow to be used at a later date for future projects in Mexico. The sum of the issuance came to MXN4.2m and the bonds were registered in the National Securities Registry and kept by the National Banking and Securities Commission of Mexico. The bonds are due in December 2037 and are inflationlinked, carrying a fixed interest rate of 5.9 percent. Thanks to the lengthy maturity term and the inf lationlinked nature of the bonds, CAMS has seen to it that there is cash generated from the highway to the debt service and that there is a sizeable return for shareholders. The following entities were placing agents: Banco de Santander, JP Morgan, Inbursa, Invex and Value, all of them offering underwriting commitments and strengthening the transaction in the eyes of the


Project management

The project is being managed by Isolux’s in-house team of engineers

market. What’s more, CAMS engaged LATAM Capital Advisors as financial advisors in the matter.

Refinancing part two: subordinated bonds After it was found that investors were still hungry to join the project, a second issuance was launched in October 2013. The issuance amounted to MXN825m and the bonds were registered in the National Securities Registry kept by the National Banking and Securities Commission of Mexico. The bonds are due on February 2039 and are inflation linked, carrying a fixed interest rate of eight percent. Granted an AA- rating by Fitch and H&R in the local Mexican market, the funds raised will be set aside to finance future infrastructure projects in the country. The issuance was fully underwritten by Value. As financial advisors, CAMS again engaged LATAM Capital Advisors.

The Mexican market CAMS’ issuance was far from the first project bond in Mexico, however it has played a significant role in introducing the Mexican market to this kind of product. The investment market in Mexico is heavily concentrated on a few pension funds (called AFORES), which concentrate a significant share of the workers’ contributions for retirement in a country that has a private capitalisation pension system. One of the most characteristic aspects of these pension funds is the conservative approach when it comes to risk. CAMS’ transaction has prompted the AFORES to take a step forward and accept infrastructure project

bonds as part of their investments, making it a long-term financing option for bond investors in Mexico. Bonds were acquired by several AFORES, but also by other investors such as insurance companies and brokerage firms that made a secondary distribution to private banking clients – an important niche market that widened the investor spectrum. In fact, CAMS’ issuance introduced the market to new investors, attracted by brokers such as Value and Inbursa, and freeing the market from the ‘ruling’ of the AFORES. Granted, the marketing process took much longer than usual, given that it was necessary to educate investors about the product and inform them of the benefits investing in infrastructure can bring, particularly in the long run. What’s more, the existence of the FONADIN subordinated loan and the rebalancing process of the concession were also subject to an extensive review from investors, who quickly became confortable with the idea. In addition, the lack of a long track record in traffic congestion also proved to be something of a handicap in the marketing process, since the road had then only been open for around one year. However, the various obstacles were soon overcome, and the senior issuance was a success, to such an extent that many investors requested a second subordinated issuance. The process of providing stable, long-term and tailor-made financing to CAMS has been a long and complicated one, but what can be said with some measure of certainty is that it has also been a very successful one. During the construction phase in particular, CAMS encountered a number of difficulties, and experienced cost overruns that came to around MXN1.8bn. However, after an extensive rebalancing and refinancing process, CAMS is today a highly profitable company and an example to others in the market of how best to run and finance a successful infrastructure project of this type. n PROJECT FINANCE |






Brazilian flight plan As Brazil attempts to further boost its infrastructure ahead of the 2016 Olympic Games, projects like the expansion of the Guarulhos International Airport are more important than ever

As one of the primary financial centres in the southern hemisphere, São Paulo has significant inf luence in shaping the global economy and showcasing the might of emerging markets. Having recently hosted the FIFA World Cup, and with the Olympic Games coming up in 2016, the Latin American nation’s infrastructure has undergone much change. This is most evident in the country’s major metropolises, where the strain placed on infrastructure by international demand is tangible. A growing number of projects in these cities are aiming to further lift the national economy. One of these projects is the Guarulhos/São Paulo International Airport expansion. The project consists of the 20year concession to expand and explore the Guarulhos International Airport, in the metropolitan region 8


of São Paulo, Brazil. The airport is the largest in passenger traffic in Brazil (over 35.9 million passengers in 2013) and in Latin America, according, respectively, to Infraero and to ACI (Airports Council International) in 2013. It was also the largest airport in terms of cargo traffic, according to Infraero in 2012. The airport receives 63 percent of the international traffic in Brazil, according to IATA (International Air Transport Association), and is Brazil’s main gate of entrance and exit for visitors and residents.

Concession partners The 51 percent share in the concession was awarded to the InveparACSA consortium in February 2012, for BRL16.2bn. Investimento e Participações em Infraestrutura SA (Invepar – the investment vehicle in infrastructure of the Brazilian


engineering and construction conglomerate OAS, and the three largest pension funds in Brazil – Previ, Petros and Funcef), owns 90 percent of that 51 percent share (indirectly 46 percent of the total), while Airports Company South Africa (ACSA) owns 10 percent of the 51 percent share (indirectly five percent of the total). The remaining 49 percent of the company’s shares are still owned by Empresa Brasileira de Infraestrutura Aeroportuária (Infraero), the government company responsible for managing airports in Brazil (and, until February 2012, the 100 percent owner of the airport). The concession was envisioned as a way to achieve much needed improvements in capacity and level of service at the airport. The new concessionaire, Concessionaria do Aeroporto Internacional de Guarulhos, assumed airport oper-



02 category

Airport Deal of the Year Cost

BRL5.4bn during the initial phase being financed, up until 2019 Financial structure

› BNDES 14-year BRL2.4 bn direct loan › Commercial bank 14-year BRL1.04bn BNDES on-lending loan (Repasse) › 12-year BRL300m infrastructure project bond, first issuance › 12-year BRL300m infrastructure project bond, second issuance


Start date


02 A view of the spacious interior of the ‘Finger’ development

End date

2014 Concession period

2012-32 Project type

Airport, transportation Location

Guarulhos, São Paulo, Brazil Objectives

A 20-year concession to modernise, expand and operate Guarulhos / São Paulo International Airport – the largest in airport in the region Financial advisor

BNP Paribas Key Partners/Sponsors


01 The new passenger terminal at Guarulhos International Airport, as well as the ‘Finger’

› 46 percent Invepar – Investimento e Participações em Infraestrutura › Five percent ACSA – Airports Company South Africa › 49 percent Infraero – Empresa Brasileira de Infraestrutura Aeroportuária

ations in November 2012 and started the construction for the expansion, including a new passenger terminal, which would be larger than all three of the existing terminals, as well as a new parking garage and other facilities and infrastructure. Completion of the first phase took place in April 2014. The concession to the private shareholders shall expedite investments, and aims to increase airport capacity to 60 million passengers per year in the long term, while improving the level of service to international standards (as the airport has been operating in over capacity for the last years).

Costs and processes The total cost of the project amounts to approximately BRL5.4bn during the initial phase being financed (until 2019). Total project financing for the investments until 2019 adds up to BRL4.08bn, including: ›› A BNDES (the Brazilian development bank) 14-year BRL2.4bn direct loan, closed in December 2013; ›› A commercia l ba nk 14 -yea r BRL1.04bn BNDES on-lending Loan, whereby BNDES provides the funds to some of the largest Brazilian commercial banks (BB, CEF, HSBC, Itaú and Bradesco) and those commercial banks onlend the funds to the borrower, also closed in December 2013; ›› A 12-year BRL300m issuance of Brazilian local debt as an infra-

structure project bond (called, in Brazil, a Debenture de Infraestrutura), closed in March 2014 and rated brAA by Fitch; ›› Another 12-year BRL300m infrastructure project bond subject to the approval of the Brazilian Securities and Exchange Commission, not yet issued. BNP Paribas acted as exclusive financial advisor for the concession tender, supporting the sponsors in the modelling of operational and financing assumptions, and for the bridge and long-term financing. The infrastructure project bond, due to its tax exemption to individual investors, might be a key element for the development of Brazil’s infrastructure in the coming years. BNDES encourages the use of these bonds by providing BNDES loans to the issuer with more favourable conditions (e.g. amortisation schedule) than if the bonds were not issued. This transaction represents the close of the long-term financing following the first round of Airport concessions in Brazil. Finally, the airport revamping was a key investment for the 2014 FIFA World Cup, as it will also be for the upcoming 2016 Olympic Games in Brazil. In addition, with São Paulo being the leading financial centre of the Southern Hemisphere, Guarulhos is also central to the development of the city’s and the country’s affairs. n PROJECT FINANCE |






Building new roads to success The Siervo de la Nación highway project, on completion, looks set to resolve the all-important issue of congestion for those driving in and out of Mexico City

The ever-increasing number of inhabitants residing in some of Mexico’s major metropolises has stretched the country’s infrastructural capacity to breaking point, and asked that the relevant parties take the reigns in restoring a measure of stability to the country’s roads. Enter the Siervo de la Nación highway project, which, on completion, will stand as one of the most important connections between the boundaries of Mexico City and the State of Mexico. By linking three of the region’s main thoroughfares, the Naucalpan to Ecatepec highway, the Circuito Exterior Mexiquense and the México to Tepexpan highway, the 14.5km high-speed route will allow traffic to flow more freely in and out of the country’s most congested areas.

A nightmare commute The infrastructural deficiencies at large in and around the area in question mean that it can take up to 50 10


minutes for commuters to drive little over 25km from Las Americas mall in the heart of Ecatepec to Mexico City. The heavily populated areas, coupled with insufficient roadways have served only to exasperate congestion and prolong commuting. The objective of the project, therefore, is to better connect Ecatepec with Mexico City by building a new and expanded highway and thus save up to 75 percent of the time spent travelling prior to construction. This project was granted by the Government of the State of Mexico through a public tender process in which bidders could submit a proposal for areas including landscape design, concept design, construction procedure, traffic manage logistics, construction programmes, monetary compensations to the government, tariff structure for the users, toll system project, investment amounts, experience and concession terms. In addition, the bidders

were extended the opportunity to propose better project designs in order to make the plan more efficient, not just operationally, but also economically speaking. After the proposals were collated and considered by the government, the project was awarded to a consortium of companies lead by Mota-Engil México, the concession contract for the project development. The offer also includes a landscape integration of bridges and viaducts in the region; green areas and new recreation grounds; trash removal from the Gran Canal surround-


ings; high-level lamp posts along the 14.5km entirety; and teleprocessing infrastructure development for the project. The successful proposal makes specific reference to a road divided into two sections, one of 10km that runs alongside the Gran Canal, and a second 4km section on top of an existing railway. As part of the project, the contracted design is a 2x0 reversible lane infrastructure, open to the traffic from 6am to 11pm and different in some respects from the norm on similar developments. The consortium submitted the design with a view to achieving two primary objectives. The group’s first is to ensure the highway operation is made far more efficient, in particular in the morning, where people commute from Ecatepec to Mexico, and in the late afternoon and night, when they commute back home from Mexico City to Ecatepec. Secondly, the group aims to ensure a far healthier



Left and below Artist impressions of the Siervo de la Nación highway project, which will reduce severe congestion around the Mexico City metropolitan area

Cal y Mayor y Asociados consultants, using information obtained from the Mexican Institute of Transport, commuters look set to save a considerable sum of money once the project is completed. Researchers found that, when compared to the scenario prior to the project’s completion, overall travel cost savings equate to approximately $63.8m on an annual basis (see Fig. 1) What’s more, the core concession business is to build, operate, preserve and maintain the road Siervo de la

er actions to take this back would be achieved by the concessionaire or any other company hired by them. Once construction on the project is complete, the operational stage will commence, which highlights the issues before the project is considered anything close to a success. If at any point during this stage the peak hour traffic reaches a road service level of C, according to the applicable law of the Secretaría de Comunicaciones y Transportes, and if this demand is sustained for the remain-

Nación in accordance with a contract scheduled to run for a 27-year period. The financial structure is under process, depending on negotiations with several banking institutions. The difficulties contained in the project however, are far from excluded to finances, and extend also to a number of logistical issues. For example, in accordance with the concession contract, it is the coresponsibility of both the government and the concessionaire to take back the right of way in case of any incident relating to the project. In the event of this happening, all the prop-

der of the concession period, the concessionaire will issue a request to the Sistema de Autopistas, Aeropuertos, Servicios Conexos y Auxiliares for an extension of the road. The degree of the extension may be either partial or total, depending on the operational needs and the service level specified by the regulatory authority. This extension trigger is deemed necessary once the traffic flaw reaches a sustainable daily demand of 30,000 vehicles, and, according to the tender proposal, this stage could take place in 2017. With the construction phase forecast to last approximately two years, investment will be distributed as and when it’s needed from the end of 2014 onwards. Assuming the project proceeds as planned, the roads in the Mexico City Metropolitan area will be better suited to facilitate everincreasing waves of traffic while also improving upon the standard of living for those in the region. n


Road Deal of the Year Project

Autopista Urbana Siervo de la Nación, Gran Canal Cost

$190m Financial structure

65/35 debt-to-equity Start date

September 2013 End date

August 2040 Concession period

27 years Project type

Highway infrastructure Location

Mexico City Metropolitan area



financial structure by not building unnecessary infrastructure in the initial few years of operation. Nevertheless, as traffic demand closes in on 40,000 Annual Average Daily Traffic (AADT), the consortium will then look to build a second road section, eventually turning the highway into a 2x2 road.

Keeping a watchful eye From the project’s first stage and onwards, the highway will work as an electronic free flow toll collection road. And in order for the group to manage the operation effectively, CCTV will be implemented, allowing the managers to observe real time incidents that might prevent the operation from running smoothly. However, one of the most important benefits of the Siervo de la Nación highway is the reduced environmental spill over, gained by way of reduced CO2 emissions. However, when it comes to analysing the traffic

To allow traffic to flow in a highly congested region into Mexico City Key partners

Mota-Engil Engenharia e Construção Project manager

Mota-Engil México

situation before and after the project, there are factors aside from the environmental benefits to first take into account when considering its importance in paving the way for future infrastructure projects. In terms of traffic improvements, Siervo de la Nación aims to improve quality of life for the surrounding population by way of reduced congestion, commuting time and pollution, in addition to a range of alternative improvements. By improving upon the road’s condition as well as expanding on the number of lanes, the project promises to reduce the time spent by commuters travelling to and from work, and more crucially, set a precedent for similarly minded and much-needed infrastructure projects in Mexico. The benefits of the Siervo de la Nación highway project may also be calculated by way of a number of alternatives. For instance, the reduction in commuting time plays a role, and, according to research by

Fig. 1 Yearly travel cost savings per person

Total cost (MXN, thousands)

Without With project project








GREEN? Can green bonds actually be

Just as climate change has moved up the political agenda in recent years, so too has the market for green bonds, which provide interesting links to project financing



Green bonds can be general corporate bonds where the finance is earmarked for climate projects but backed by the issuer’s balance sheet, or asset-backed, where the bond payments are linked directly to the performance of the asset. Whether dire prognostications for the planet’s climate, such as the IEA’s 2012 warning that the current global emissions trajectory could lead to a rise in world temperatures of up to 6oC by the end of this century – based on energy use and CO2 emissions increasing by one third by 2020, and almost doubling by 2050 – is, in many ways moot. More relevant, in terms of visibility at least, is its estimate that keeping the rise to just 2oC will require investment of approximately $1trn per annum until 2050, which, so its own forecast goes, would result in fossil

fuel cost savings of $100trn.While these forecasts may appear fanciful to some, there is little doubt about pent up investor demand from both institutions looking to raise capital for renewable energy projects, nor investors willing to make the necessary financial commitment. Though much of the impetus for the green bonds industry initially came from the World Bank – which to date has raised $6.7bn through 73 transactions and 17 currencies – following the launch in 2008 of its Strategic Framework for Development and Climate Change document – a growing number of institutions have been showing interest in this market.

Corporate self-awareness The numbers tell their own story with a record $16.6bn of green bonds

having been issued in the six months to June 2014, driven by a surge in corporate self-labelled bonds, coupled with high volumes from large international and supranational institutions, including the World Bank, according to data from Bloomberg New Energy Finance. Total volume meanwhile is expected to surpass $40bn this year; or triple the volume seen in 2013. Putting things in perspective however, global green bond issuance was still only about one percent of the value ($1.4trn) of US corporate bond issuance last year. Major institutions, including JP Morgan Chase, Bank of America, Credit Agricole and others, have certainly been taking the market seriously having drafted, in January 2014, a common set of criteria for green bonds as agents


of financing change in a rapidly developing market. The so-called Green Bond Principles (GBP) is a voluntary set of guidelines recommending transparency and disclosure, as well as promoting integrity in the development of the market by clarifying the approach regarding issuance. If they are intended for broad use by providing issuers guidance on the key components involved in launching a credible green bond; they also, in theory, will aid investors by ensuring availability of information necessary to evaluate the environmental impact of green bond investments; as well as assisting underwriters by moving the market towards standard disclosures that will facilitate transactions. Critics have been quick to question whether the industry doesn’t need to go beyond simple voluntary standards though, with penalties, such as an interest rate increase, applied to those companies no longer found to be complying in terms of how ‘green’ their bonds are. Self-evidently however, it is not in the reputational interest of an issuer to see the credit rating for its bond downgraded, by virtue of it becoming insufficiently ‘green’. Yet what constitutes ‘green’ still varies from issuer to issuer – a number of companies developing their own definitions of what constitutes transport, waste management or land use in a green context. Development banks meanwhile have drafted their own internal rules to guide green lending practices – requiring, in some instances for example, opinion and ‘approval’ from third-party institutions such Vigeo, the French environmental social and governance assessment firm. Industry lobbying group the Climate Bonds Initiative has in the meantime been drawing up its own guidelines.

How green is green? Specific questions that have been raised include whether a nuclear company such as France’s EDF can legitimately issue a green bond, given many view nuclear power as not being ‘green’ energy even if it has zero impact from an emissions

Fig. 1 Global green bond issuances Maturity Date

First Issue Date



Lead Manager


April 24, 2009





December 4, 2009





December 15, 2011





November 24, 2008





February 2, 2010



Daiwa Securities


June 8, 2010



JP Morgan


June 8, 2010



JP Morgan


July 16, 2010



Clariden Leu


September 1, 2010



JP Morgan


October 27, 2010



TD Securities


January 22, 2014



BoAML, Goldman Sachs


August 22, 2013



Morgan Stanley, SEB


November 16, 2010



JP Morgan


November 30, 2010



Daiwa Securities


December 21, 2010





December 20, 2010





January 25, 2011



JP Morgan


January 20, 2011



Daiwa Securities


January 20, 2011



JP Morgan


February 17 , 2011



JP Morgan


February 18, 2011



Daiwa Securities


February 25, 2011



Daiwa Securities


March 17, 2011



Daiwa Securities


April 14, 2011



Daiwa Securities


June 13, 2011



Daiwa Securities


July 5, 2011





November 28, 2011



Deutsche Bank


September 23, 2014





What constitutes ‘green’ still varies from issuer to issuer – a number of companies developing their own definitions of what constitutes transport, waste management or land use in a green context

standpoint. Similarly, is installingpollution fighting equipment at coal-fired power plants ‘green’? It certainly ticks the necessary box in terms of reducing CO2 emissions at least, yet others will counter that it can’t be a green investment because the underlying plant itself isn’t green. Given green bonds offer returns and risk levels comparable to traditional debt of the same maturity and rating, it is unsurprising that institutions have been looking to increase their presence in this market. In November 2013 Zurich Insurance confirmed it planned to allocate up to $2bn in green bonds. One month later French utility firm EDF issued a €1.4bn ($1.79bn) issue that was two-times oversubscribed at the time, illustrating the level of demand for these vehicles.

Since then European companies such as Unilever have issued bonds, helping accelerate a market in a region that has seen 24 sales; including 14 in Sweden – the rest in the UK, France, Italy and the Netherlands, according to data compiled by Bloomberg. Or to put it another way, total issuance has been 50 percent higher than in 2013 and four times that of 2012. Indeed, in its recent Green Bonds Outlook (issued in June) Bloomberg noted the emergence of self-labelled green corporate bonds – bonds issued by corporations with the proceeds ring-fenced for green investments. Bank of America Merrill Lynch, for one, has been both an issuer and an underwriter of these types of bonds. While it was first to the party – through loans and credit lines to industry participants – via its $500m issue last November, some $9.7bn of similar issuance from nine European and US companies hit the market in the following six months (see Fig. 1) When it comes to seeking a commercial return on their investments, so-called ‘green’ investors are no different to any other. And given the commercial unit costs of renewable energy – especially in the case of solar power – are coming down, the future health of the ‘green bonds’ industry is likely assured. Indeed, as the recent example of Goldman Sachs has shown, the wider market going forward is likely to develop in a number of ways. In its case a number of bonds were structured for Japanese renewable energy companies, such as solar plants operator Japan Asia Group. Not only did the investment bank arrange the bonds at cheaper rates than the price of similar bank loans, it also served to plug a gap in the Japanese market where demand for long-term bonds with an A rating has remained strong and yet where there has historically been a lack of corporate and electric utility bonds. Irrespective of how the overall market develops, going forward, an increasing number of would-be issuers are likely to see its utility – even if standard industry guidelines for green bonds are likely to remain illusory. n PROJECT FINANCE |






Making tracks Globalvia has extended its leadership in the infrastructure management market by realising its key strategic goals and demonstrating a keen understanding of the markets in which it operates

01 View of the elevated viaduct over the Montequinto highway 02 Inside view of San Juan Alto metro station


As one of the world’s leading infrastructure management companies, Globalvia is well equipped to see ambitious projects through from conception to completion, not least in the case of the Metro de Sevilla, for which the company won the World Finance Rail Deal of the Year Award. “This transaction consolidates Globalvia as the private operator leader in transporting passengers by metro in Spain and gives the company great credentials to expand its business internationally,” says the company’s CEO Javier Pérez Fortea. The Globalvia business model is based on the management and operation of assets, both brownfield and greenfield, during a given period in which management and development of the asset is sought. And with a focus on the railway sector in particular, the company, – which was incorporated in 2007 with FCC and Bankia as sharehold14


ers at 50 percent each – is preparing itself for the challenges ahead by building on its portfolio and international renown. An equity increase operation amounting to €750m was done later on in two phases. In October 2011 Phase I was completed, securing the support of PGGM and OP Trust, and in December 2013 Phase II was completed, with the Universities Superannuation Scheme joining the Globalvia team. Owing to an astute business strategy and management model, Globalvia boasts a market presence in seven countries and manages more than 30 managed assets in a number of sectors. The company works primarily on highways, ports, and railways, and the acquisition of the Metro de Sevilla represents a key step in its bid for efficiency in the management of transport infrastructure concessions.

Wealth of experience The Metro de Sevilla acquisition would not have been possible without a wealth of experience to draw on, and it is due to a keen understanding of the project financing process that the deal has gone through so smoothly. “It was a long and complex operation, above all because the significant number of participants in the deal – given their interests and concerns – differed,” says Fortea. “Both flexibility and creativity – on all sides – were necessary to complete the operation.” The f inal stake acquired by Globalvia amounted to 88.23 percent for an equity value of €156.2m. The company commenced discussions with Desarrollo de Concesiones Ferroviarias, Iridium and Sacyr Concesiones, who represented a 66.78 percent share of the Metro de Sevilla. Following a lengthy discussion period, both the price of the shares

03 A train leaving the tunnel of San Juan de Aznalfarache

and the share purchase agreement (SPA) were met during a demanding negotiation process. After having agreed the price and fundamental points of the SPA with a majority stake in the Metro de Sevilla, Globalvia offered the same conditions to the rest of the shareholders and acquired an additional 21.45 percent stake from Grupo GEA21 and Inversiones en Concesiones Ferroviarias (CAF), who owned an 11.15 and 10.30 percent share respectively. The grantor, who was responsible for 11.77 percent of the shares owned through the Agencia de Obra Pública de la Junta de Andalucia (AOPJA), was uninterested in selling. The deal was closed at the same time as the signing of the SPA, with each shareholder maintaining the same price per share. The acquisition consolidated Globalvia’s position as a railway sector leader in Spain, and boosted the company’s credentials.

Pension Deal of the Year – USS Pension Fund Financing

The Universities Superannuation Scheme (USS) is one of the largest pension schemes in the UK, representing academics and related support staff in the higher education sector. In December 2013 it announced that it had committed €150m to Globalvia, in the form of a convertible loan. Arranged by USS Investment Management (USSIM), a wholly owned subsidiary of USS and its principal investment manager and adviser, the structured facility added to the growing USS portfolio of infrastructure debt and equity investments. The transaction is also consistent with the company’s strategy to develop private-market investment opportunities that fit its long-term pension liabilities. The subsidiary committed €150m, alongside PGGM and OPTrust, who committed an additional €100m each following a €200m investment in 2011. This total of €350m from the three pension funds assisted Globalvia in expanding on its existing worldwide portfolio of infrastructure and reasserting its dominance in the infrastructure management market.


03 Category

Rail Deal of the Year Cost

Initial cost €634m Financial Structure

Equity plus three senior debt tranches signed with the European Investment Bank (EIB) Start Date

May 2003 (concession award), operating since 2009 End Date

December 2040 Designers

UTE Seville Metro Concession Period

2003-2040 Project Type

Rail that combines availability-type payments and traffic-linked revenues Location

Seville, Spain


In keeping with an established Globalvia investment strategy, the Metro de Sevilla underlines the company’s commitment to a wide array of criteria, namely focusing on brownfield assets, monitoring shareholding interest, generating high and predictable cash flow, and providing a strong regulatory framework.

An attractive proposition Aside from boosting the company’s business credentials in the infrastructure management space, the Metro de Sevilla itself is a unique asset, and has a number of qualities to it that make for an attractive proposition. The Metro de Sevilla is a long-term asset, and has 26 years remaining on its lifespan before it expires in December 2040. The project also enjoys recurrent cash flow and combines availability-type payments with traffic-linked revenues, while also generating high cash flow with



Design, build, finance, operation and maintenance of the Seville Metro Line 1 Key Partners

Agencia de Obra Pública de la Junta de Andalucía (AOPJA)

distribution to shareholders from the first operational year. The Metro de Sevilla is also an under-leveraged asset and presents an opportunity for medium term re-leverage. To underline the unique qualities of the acquisition subject, the Metro de Sevilla withstood the repercussions of the financial downturn and – despite operations beginning midway through the crisis – revenue performance grew through 2010 to 2012 at a compound annual growth rate of 1.8 percent. What was, on completion, the first metro managed by a private operator in Spain – later joined by Metro de Málaga in July 2014 – has performed ahead of expectations and seen an increase in demand on a daily basis. “It is important for us to manage an asset that provides service to a high amount of clients and users. They appreciate the service that the Metro de Sevilla gives,” says Fortea. “This is a

great honour for us and motivates us in improving the quality of our service on a daily basis.” The concession was awarded in May 2003 by the AOPJA to a consortium formed by Desarrollo de Concesiones Ferroviarias, Iridium, Sacyr, Gea 21, CAF, Salvador Rus López Construcciones and Transportes Urbanos de Zaragoza. During the construction period, which ended in November 2009, several transactions took place between shareholders, leaving Iridium with 34.01 percent, Sacyr Vallehermoso with 32.77 percent, Grupo Gea 21 11.15 percent, CAF 10.30 percent and AOPJA with 11.77 percent. The objective of the concession is to design, build, finance, operate and maintain Line 1, which spans 18.1km and passes through 22 stations. However, due to a significant increase in construction costs, an economic rebalance agreement was signed in 2009 that extended the concession term until December 2040 and increased the revenues (technical tariff). Additional financial rebalancing occurred again in 2011, resulting in an additional increase of the 2011 technical tariff, due to a requirement of additional works issued by the authorities.

Ideal location The location of the railway is also key to the company’s success, given that Seville is the capital, financial centre and largest city in the autonomous region of Andalusia. With a popula-

The location of the railway is also key to the company’s success, given that Seville is the capital, financial centre and largest city in the autonomous region of Andalusia

tion base of over 700,000, the city is the fourth largest in Spain and one of the 30 most populous municipalities in the EU, representing a key strategic market for those looking to capitalise on Europe’s budding financial prospects. Managed by more than 170 employees, the 18.1km line connects the centre of Seville with two key points of the metropolitan area (the municipalities of Aljarafe and Dos Hermanas) and serves the four areas of Dos Hermanas, Mairena del Aljarafe, San Juan de Aznalfarache and Seville Centre. It is a key asset for public transport in greater Seville, and, since its completion in 2009, is the region’s only metro line. Operational activities are managed inhouse, while maintenance is mainly subcontracted to suppliers with a strong relationship with the previous shareholders. Globalvia believes that strong operational improvements can be achieved to the point of increasing outstanding quality ratios. The concession has four revenue streams, combining availability payments and traffic-linked income, which make for solid growth with low elasticity in traffic variances. The opening times of the Metro de Sevilla are always focused on providing the city with as much support in transport as possible. For example, at Christmas, Easter and the April Fair special, services are provided to extend the timetable and increase the running frequency at peak times. Service-strengthening devices have also been put in place, depending on other special events. During peak hours, there are 16 vehicles in operation, whereas on special occasions, such as the Annual Fair and football matches, all of the 21 vehicles could be in operation at any one time. As a world leader in the infrastructure management sector, Globalvia and its management of the Metro de Sevilla project offers a glimpse into what can be achieved with an intelligent financial structure and the right partners in place. n PROJECT FINANCE |






Capitalising on Casablanca The Wessal Casa Port in Casablanca is a key part of a broader and far more ambitious initiative to revitalise one of Africa’s leading financial hubs


Wessal Capital, a joint venture consisting of several leading sovereign wealth funds, is an innovative investment fund and a major vehicle for private equity and integrated destination projects in Morocco. Born of the Moroccan state’s determination to support economic and social development, the venture is a product of the radical modernisation and reform programme that has emerged since His Majesty King Mohamed VI took to the throne in 1999. For the last 15 years, Morocco has enjoyed a period of economic expansion and development, with the establishment of Wessal Capital key to realising the country’s strategic vision. As the largest investment fund in Africa, Wessal Capital is well positioned to contribute to Morocco’s remarkable progress by investing in structural projects, such as Wessal Casa Port, to revitalise and replenish the city of Casablanca, the country’s economic capital and the continent’s leading financial hub. The Moroccan Fund for Tourism Development (FMDT), was established on November 11, 2011 by the Moroccan Government and sup16


ported by the Hassan II Fund for Economic and Social Development. FMDT forms part of the Vision 2020 strategic plan, which aims to transform Morocco into one of the world’s top 20 tourism destinations, able to accommodate 20 million tourists by 2020. As a strategic fund, FMDT is an instrument to mobilise national and international tourism investment, and has amassed and committed $1.8bn worth of capital in the 10 years since its incorporation. By attracting investors and partners, structuring and executing investment transactions, and supporting and managing investments within its portfolio, the FMDT aims to consolidate the financing of the Moroccan tourism sector.

An ambitious project FMDT is the sponsor of the joint venture. Wessal Capital, which was established in 2011 to finance transformational tourism, create destinations and contribute to the infrastructure development in Morocco. This ambitious project represents a unique shareholding structure with

five sovereign wealth funds committing an equal amount of capital: the Kingdom of Morocco through the FMDT, the United Arab Emirates through Aabar, the State of Kuwait through Al Ajial, the State of Qatar through Qatar Holding, and the Kingdom of Saudi Arabia through its Public Investment Fund (PIF). In total, Wessal Capital has $3.3bn in shareholders’ equity commitments, making it the largest investment fund in Africa. Wessal Capital invests in projects that promise to enhance Morocco’s socio-economic environment and improve the lives of residents, while attracting international business and tourists. Projects are selected on the basis of potential financial return, as well as social and environmental responsibility and cultural relevance. The venture’s Public-Private Partnership (PPP) strategic approach, in line with Mohamed VI’s vision, allows sophisticated international investors to invest in a private equity style vehicle, which has a clear investment strategy and high levels of governance and transparency. The support of financial institu-

tions, such as the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and the World Bank shows what high levels of interest have been invested in this project. With seven million inhabitants, according to one 2012 estimate, Casablanca accounts for 32 percent of the country’s production units, 56 percent of industrial jobs, and is responsible for up to 44 percent of Morocco’s industrial production. It is also home to almost all of the headquarters for the country’s key economic organisations and institutions. Crucially, Casablanca’s boom first started with the creation of its port, which still ranks as one of the largest artificial ports in the world, and the primary naval base for the Royal Moroccan Navy.

World-class infrastructure On April 1, 2014, Wessal Capital announced its first investment project, the Wessal Casablanca Port, which is set to cover a land surface area of 12 hectares and to, more importantly, regenerate the harbour area and the historic old town Medina of Casa-



01 Artist’s impression 02 Artist’s impression of the Museum of Wessal Casa Port of Sciences by night Category

Social Deal of the Year Sovereign Wealth Fund of the Year (Wessal Capital) Cost

$700m Financial Structure

Joint venture Start date

2014 End date

2019 Designers

Foster and Partners Project type

Structuring tourism and real estate project Location

Casablanca, Morocco Objectives

blanca. By way of a PPP, the project is set for completion in five years time for a total cost of $700m. The Wessal Casablanca Port project will offer world-class tourism infrastructure and will see the establishment of the first marina in the city, with a capacity of 200 moorings and a comprehensive cruise ship terminal. It will feature a beautiful promenade, a modern yet architecturally authentic residential complex and a range of leisure facilities, offering Casablanca residents, tourists and maritime visitors prime economic, social and cultural spaces in the immediate vicinity of Casablanca’s major historic draws. The surrounding area will include offices and commercial space, leisure areas, retail and shopping, public and green spaces, hotels, a science city and a science library, as well as a cultural district, home to a museum and a theatre; two destinations that offer an unparalleled meeting space for creation and knowledge sharing. The project will also include the relocation of the current fishing vessels and fishing channels to a more fitting space in order to create a bet-


The project reaffirms Casablanca’s status as a world-class metropolis with a strong economy and diverse cultural opportunities

The regeneration of a part of the Casablanca old port to create a unique port of call on the African Atlantic coast, as well as the rehabilitation of the ancient Medina of Casablanca Key Partners

Aabar, Al Ajial, Qatar Holding, Public Investment Fund (PIF) and the Moroccan Fund for Tourism Development (FMDT) Project Manager

To be nominated at a later date

ter working environment for the local fishermen, while also preserving all historical traces and monuments associated with the area. The port aims to create better connections between the port and the historic Medina, a key cultural and social heritage site in Casablanca. A 1km grid will be built between the two sites, a pedestrian esplanade offering visitors easy access to Medina, and a social bridge to facilitate travel between the two. The completed grid should succeed in merging tradition and modernity by calling for cultural and social fusion. In accordance with royal guidelines, the $40m spent will be invested to develop Medina’s infrastructure to improve quality of life and facilitate sustainable social development. The project reaffirms Casablanca’s status as a world-class metropolis with a strong economy and diverse cultural opportunities. All the renovation and new construction sites in the Casablanca Port area will be fully respectful of the immediate environment and architectural integrity of the old town, in effect preserving the appeal of the area and ensuring


it remains authentic. The local and social dimensions of the project, for example the creation of public and green spaces, gives its inhabitants a greater sense of ownership and leaves a lasting sense of renewal, while also bringing economic capital. The rehabilitation is also in keeping with an integrated strategy for Medina, matching the inhabitants’ legitimate expectations in cultural, socio-economic and urban matters and so improving living conditions, creating job opportunities, upgrading the city’s buildings and preserving its historical and cultural legacy.

Creating opportunity Once completed, the Wessal Casablanca Port project aims to stand at the centre of a new urban area and serve the city and its outlying regions. This integrated development is anticipated to generate economic activity in Casablanca, inspired by Medina tradition, and strengthen the city’s position as a major business crossroads. More importantly, by enhancing the appeal of Medina and the coastline district, it will help reposition Casablanca as a major destination for cultural, business and cruise tourism. The second integrated project of Wessal Capital will be developed in Rabat city, the capital of Morocco. The development is closely in keeping with the city’s ambition to be seen as the country’s cultural capital, an aim that can best be seen in its slo-

gan: ‘Rabat, city of light, Moroccan capital of culture’. The project’s components will include hotels, a marina, residential housing, urban green spaces, a museum and the grand theatre designed by architect Zaha Hadid, with a property base of 110 hectares. Rabat is beginning to be seen as a key cultural destination, which is why there is great interest in developing a variety of theatres and museums within the project. Indeed, Wessal Capital’s main objective is to invest in integrated projects with a significant cultural and social impact giving the local population a better social environment. The projects in which Wessal Capital is involved have a widespread cultural reach and promise to leave a lasting social impact, bringing with them economic stimulus and creating real employment opportunities in a range of sectors. As is the case with all other major projects launched by Mohammed VI, the Wessal Casablanca Port project takes into account a range of social and economic considerations, and through all project phases, special attention will be given to respecting social responsibility. An improved quality of life, greater economic opportunities and a more diverse cultural perspective in Casablanca goes hand-in-hand with Morocco’s vision of sustainable human development for all, and Wessal Capital continues to play an influential part in ensuring this is so. n PROJECT FINANCE |






Diversity is the key to growth ICTSI’s portfolio of port projects around the globe extends across emerging and selective mature market opportunities

The eight projects presented below highlight the wide range of ventures that International Container Terminal Services (ICTSI) has chosen to embrace on the pathway to global expansion. Although each comes with its own unique set of requirements, all ask for a degree of finan-

cial flexibility for ICTSI to deliver to the fullest. The projects include new concessions offered on a build-operatetransfer (BOT) basis, the takeover and upgrade of existing businesses including those with a strong BOT element on a concession basis, the

development of a container terminal facility on a sub-concession basis, and the acquisition of a publicly listed company. After years spent consolidating and expanding operations, ICTSI’s portfolio amounts to an impressive 29 terminals in 21 countries, and the following projects

offer a brief insight into the company’s international ambitions and proven ability to manage complex financial dealings. It is ICTSI’s exceptional work sponsoring a wide variety of deals that have earned it World Finance’s Sponsor of the Year Award.









Manzanillo, located on the Pacific Coast, is Mexico’s busiest port, and here ICTSI operates the Second Specialised Container Terminal. The new facility serves a hinterland up to and including Mexico City

The aim of the Webb Dock project is to provide muchneeded extra capacity to service the larger vessels planned for key Australian trades, as well as to broaden the base of container handling competition in Melbourne

The Puerto Cortes project is in keeping with the continued modernisation of Honduras’ port services. The upgrade of container and general cargo facilities will assist with the continued expansion of the country’s trade

The new container and general cargo facilities at Matadi constitute a key part of new infrastructure works currently being undertaken in the DRC to facilitate more efficient import and export activities





$250m, 75 percent for civil works and dredging, 22 percent for equipment, and three percent for IT

Overall project cost $510m

Total investment of $624m

$100m phase one





First phase scheduled to open for business end of 2016

The existing facilities were taken over end 2013

Operation to commence in 2016

Opened for business in August 2013





Existing terminal – strong BOT element. 1,100m quay for containers and 400m quay for general cargo on a 62.2 hectare site. Draught alongside the container quay 14m, with the possibility to increase to 15m and overall container capacity of up to 1.8mTEU to be developed on a phased basis

New-build terminal. Two berths over 350m in length, offering 120,000TEU/year for container traffic and 350,000 tonnes/year for general cargo. A second phase expansion, triggered by demand, will double capacity


Existing terminal – strong BOT element. First phase 330m berth, 23.7 hectares of yard/off-dock area, annual throughput capacity 350,000TEU. Second phase, end of 2017 on a second 330m berth – eventual development up to 1.4mTEU/year capacity

34 years from 2010


Build-operate-transfer (BOT) project. First phase 720m of quay, 42 hectares, with three development phases in all


Gateway terminal


26 years from 2014



Gateway terminal


30 years from March 2013

Democratic Republic of Congo


Gateway terminal





To handle import and export cargo



Gateway terminal plus capacity for regional container trans-shipment

To handle import and export cargo



To handle import and export cargo


Local partner – Societe De Gestion Immobiliere Lengo (SDGI Lengo), 40 percent stake





Anglo Ports (local partner)

To facilitate container and general cargo imports and exports, as well as regional container transhipment



02 01 The Puerto Cortes project underway in Honduras 02 An artist’s impression of the Victoria International Container Terminal, Webb Dock 03 The second Specialised Container Terminal in Manzanillo








deep-water port, lekki

Madagascar International Container Services

Pakistan International Container Terminal (PICT)

Manila International Container Terminal (MICT)

The new high-capacity container terminal at Lekki, Nigeria is designed to provide a purpose-built deep-water port to serve the country’s burgeoning import and export trade, and offer a regional hub for container cargo

Acclaimed by various organisations, including the World Bank, for operational excellence, the ICTSI container terminal in Toamasina is the only gateway for container traffic to and from the island of Madagascar

Berths 6-9, East Wharf, Karachi Port. The PICT is seen as a main gateway for Pakistan’s burgeoning container trade, and is well positioned to play a key role in facilitating forecast trade growth

MICT has been a prime mover in meeting the Philippines’ containerised import and export requirements. MICT represents one of the most successful PPP projects undertaken to-date in the Philippines






$74m capital investment

In October 2012, ICTSI, via ICTSI Mauritius Limited (ICTSIML), signed a share purchase agreement with PICT, a publicly listed company on the Karachi Stock Exchange, to acquire 35 percent of the outstanding shares of PICT. In November and December 2012 ICTSIML raised its shareholding to 63.59 percent.

Over $1bn invested since ICTSI took up the initial 25-year concession in 1998

start date

start date

Financial closure 2013 and scheduled to open for operation in 2017

Transaction closed in May 2005


1,200m quay and 66 hectare yard area at full development

Berth length 307m, four mobile harbour cranes operate on the quay – latest round of investment doubling capacity to 400,000TEU/year

Concession period

Concession period

Sub-concession with Lekki Port LFTZ Enterprise for a 21-year period

20 years, existing terminal Project type



Project type

Gateway terminal

Philippines 25 years


start date

ICTSI took the majority equity stake in PICT in December 2012

Gateway terminal


600m quay, 21-hectare terminal area, annual throughput capacity of 750,000TEU/year



Concession period



21-year concession started in 2002


To handle import and export cargo

To handle import and export container cargo Key Partners

CMA Terminals 25 percent equity stake


Annual container throughput capacity of 2.5mTEU. Berth 6 opened for business in 2012, with a 300m quay, 12 hectare yard (1,600m and 75.4 in total). Foundation works for Berth 7 were completed during Berth 6 development, and can be expanded when required by demand

Concession period

Project type

Gateway terminal plus capacity for regional container trans-shipment Location

Pakistan Objectives

To handle import and export cargo PROJECT FINANCE |






A clinical construction Announced last year, the construction of the aptly named Smart Hospital Cantabria is set to give healthcare in northern Spain a much-needed boost


Smart Hospital Cantabria is a joint venture between Ferrovial Servicos and SIECSA that aims to revolutionise and digitise healthcare in northern Spain. Based out of the iconic Marqués de Valdecilla University Hospital in the bustling seaside capital of Cantabria, the €101m ($129m) smart hospital project will see the depression-era hospital given a complete technological makeover. Over the course of two years, the erection of high-rise tower blocks, new operating theatres and a cutting-edge data centre will pump millions into the regional economy, which is in dire need of diversification, and should single-handedly establish the city as a national base for health research. Ferrovial Servicos and SIECSA will then go on to co-manage non-medical related services at Valdecilla for a further 20 years after construction, at a cost of €760m ($99.4m). As a single jointventure, the companies will replace over 40 separate service contractors. Yet in order to oversee operations, the two firms will be forced to draw from a wealth of experience across multiple industries. SIECSA is a domestic construction firm that was founded in 1976 20


by Juan Miguel Garcia, who still heads its board of directors today. The company maintains a pool of around 400 workers that undertake a wide array of industrial projects – from sports and tourist facilities to hotel and catering activities. SIECSA has long held responsibility for the management of water supply and sanitation in Santander and the surrounding area. Almost 85 percent of the company’s suppliers are based across Cantabria, and it has a long-standing relationship supplying construction and infrastructural works to the government of Cantabria and its various public subsidiaries. These have ranged from highway construction to the channelling of river banks, allowing SIECSA to embrace a recent spurt of optimal growth and acquisitions that have drastically reduced its reliance upon subcontractors and expanded its pool of engineers and surveyors.

A joint effort SIECSA’s emphasis on integrated quality management and risk prevention have earned it distinction as the Cantabria region’s most deco-

rated construction firm. Much of the local supply and early infrastructural demands of the Smart Hospital Cantabria project, which was launched at the end of 2013, are reliant upon SIECSA’s firm roots in the area. Ferrovial Servicos, on the other hand, is a multinational firm based in Madrid. It has grown by leaps and bounds over the course of the past two decades. It was founded in 1952 as a railroad construction company – and remained more or less so until it turned its interests towards diversification and investment in the 1990s. Company bosses began by purchasing high-speed rail firm AVE, which led to a series of high-profile contracts that included the Seville Expo and Barcelona Olympic Games. From there, Ferrovial acquired leading Spanish contractor


Agromán in 1995. Shortly thereafter, the firm established subsidiary Cintra in order to handle a wide array of contracts relating to transportation infrastructure. Today, Cintra is one of the largest firms of its kind, with a total investment of €16bn ($20.4bn). Ferrovial continued to expand across Europe at the turn of the century, purchasing Polish competitor Budimex Dromex and multiple UK airports. In 2006, a consortium led by Ferrovial’s bold new board purchased Heathrow Airport Holdings (formerly BAA) for over £10bn ($16m). The company was subsequently delisted from the LSE. From there, a series of high-profile sales have gone on to fuel the company’s revenue margin substantially – including the 2012 sale of Edinburgh Airport for £807m ($1.29bn), as well as shedding Stansted Airport in 2013 for £1.5bn ($2.4bn). Ferrovial also operates US construction firm Webber, Spanish urban and industrial waste firm CESPA and Amey, a UKbased firm involved in infrastructure support services. This wide array of acquisitions has allowed Ferrovial to foster. Today, the once-modest railroad firm


largest financial institutions in terms of market capitalisation. Yet in a desperate bid to diversify the city’s brand capital, local politicians are hopeful this major facelift for Veldecilla will earn Santander a new reputation as the country’s top hospital city. That evolution will require heavy investment in the 900-bed hospital’s blatant technological gap.

Hospital of the future

01 The Marqués de Valdecilla University Hospital, Santander

employs 57,000 workers in over 25 countries – and is responsible for some of North America’s busiest roadways and Europe’s busiest airports. With a total contract backlog of €26.13bn ($33.3bn), the firm’s revenues have already shot up by 11 percent in the first half of 2014, and show no signs of slowing.




€101m Financial structure

Joint venture Start date

Launched at the end of 2013 Concession period

Ferrovial Servicos and SIECSA will co-manage non-medical related services at Valdecilla for a further 20 years after construction, at a cost of €760m

Nationwide presence

Project type

Construction work and renovation of the iconic Marqués de Valdecilla University Hospital in Santander Location

Santander, Spain Objectives


Ferrovial’s primary contribution to its latest joint venture in Santander, however, will revolve largely around its experience in hospital management and maintenance. As it stands, Ferrovial boasts a presence in 144 hospitals across Spain, the UK and Poland through its various subsidiaries – totalling over 41,000 beds. Services on offer include everything from building and medical facility maintenance to the operation of call centres, cleaning and patient transport. The company maintains a particularly large presence in La Paz, Gregorio Marañón and 12 de Octubre hospitas in Madrid, Virgen del Rocío in Sevilla and Clínico Universitario in Valladolid. Yet Ferrovial has recently set its sights on a more encompassing approach to hospital management. In


Integrated Projects Deal of the Year

The construction of three tower blocks, 348 in-patient rooms, a maternity clinic, laboratories, operating theatres and a recovery area. The overall aim is to upgrade and digitalise healthcare in northern Spain and make the region a national base for medical treatment. The work will create 800 direct and indirect jobs in the region Key partners

Ferrovial Servicios and SIECSA

02 A visualisation of one of the hospital’s glass corridors

August, the firm’s services subsidiary won a €146m ($186.27m), 15-year contract to deliver energy, maintenance, cleaning and security services at the three hospitals of Galicia’s Ourense University complex. It is this one-stop-shop brand of management that Ferrovial will implement in its new Smart Hospital; however, this latest project goes a step further by seeking to incorporate a level of technology currently unprecedented in Spain’s general hospital market. Valdecilla University Hospital was founded in 1929 as one of the first nursing schools on the Iberian Peninsula. Following the Spanish Civil War, the school was transformed into a military hospital and earned a national reputation as an ill-equipped, run-down medical base. Later integration into the country’s National Health System, however, saw the hospital gradually evolve into the homes of northern Spain’s top trauma and maternity bases. That said, Santander’s role as a major healthcare provider has been relatively marginalised in recent years by its formidable finance sector. The city is, after all, home to Banco Santander, one of the eurozone’s

The Smart Hospital project should serve to bridge that gap. First and foremost, the hospital will be outfitted with a cutting-edge data centre, new wi-f i network and 3,000 PCs. More important still, the project will introduce a set of high-end medical equipment such as CT and ultrasound scanners and accelerators. Meanwhile, the project will drastically reorganise the hospital’s layout through the construction of three new tower blocks. Those towers will house diverse and currently unattended specialities, operating theatres and laboratories. More important still, the development will fill area demand by constructing 348 new in-patient rooms, a larger maternity clinic and recovery area. For the first time, underground tunnels will be dug in order to better connect the sprawling complex, and 35 new lifts will be installed to relieve footfall congestion. The Smart Hospital initiative is predicted to bring around 800 new jobs to the region as a result of its two-year expansion. As part of Valdecilla’s rebranding as a so-called hospital of the future, Ferrovial has placed extra emphasis on trimming the complex’s energy consumption. At Ourense University Hospital in Galicia, the company is already on track to cut primary energy usage by around 15 percent. Carbon emissions are set to drop by over half. In the nearby city of Bilbao, Ferrovial has cut energy costs by a quarter, earning it a research partnership with MIT. It’s that sort of all-encompassing efficiency strategy with which regional politicians hope Ferrovial and SIECSA will reinvent and rebrand Valdecilla – and, with any luck, the entire city of Santander. n PROJECT FINANCE |






Regenerating a nation The Gigawatt natural gas power plant project marks a significant development for Mozambique, as the country looks to become a major exporter of power


The financial close of the first gasfired power station in Mozambique on May 30, 2014 marked the beginning of a new era for the country, as it took its first steps towards gas-to-power beneficiation and becoming a major energy player in southern Africa. The fact that this project is also Mozambique’s first IPP makes it even more significant. After a lengthy development period, construction on the $210m project commenced on the same day as financial closing. Mozambique achieved its independence from Portugal in 1975, and after an extended period of civil war, peace came in 1992. Since then, the country has held four peaceful elections, and has strong political and economic ties with its neighbouring South Africa as a member of the Southern African Development Community (SADC). Economic growth and the development of large projects in mining, oil and gas infrastructure are key driving forces behind increased electricity demand in Mozambique. At the same time, there is a shortage of energy supply in the Southern 22


African region, which has created an opportunity for Mozambique to not only increase power generation for domestic consumption but also export to a power hungry region. Blessed with a wealth of natural resources, including coal, gas and hydrocarbons, the country’s potential energy generation could reach up to 16GW over the next decade; a huge step up from its current energy demand of 700MW per annum.

Generating capital The figures highlight Mozambique’s potential to become a significant exporter of power to the region, though the key question is whether this will materialise and, if so, when. The closing of the Gigawatt project is a clear indication of the government’s intent to develop power generation in Mozambique and to see the beneficiation of its natural resources take place locally. However, the challenge of attracting investment to facilitate the country’s energy needs will depend on the ability of various stakeholders to overcome enormous challenges and to implement and fund the

projects in the pipeline. The challenges of financing these projects include the country’s ability to attract capital (domestic and foreign), a lack of liquidity in the domestic banking system, political stability and the financial sustainability of the state and state-owned enterprises like, such as Electricidade de Moçambique. It should be said that the success of the country’s energy generation is very much a necessity and, as such, various countries, including South Africa, Namibia, Botswana and Zimbabwe have a vested interest in seeing mega power generation projects come to fruition in Mozambique. None of the challenges for the energy sector are insurmountable, and with the collective effort of all the stakeholders in the region it is entirely possible that the country could become a power generation giant in southern Africa. The gas fired power station is the first in the country to achieve financial close by an independent power producer and the largest project financing in the country’s power sector to date – which are two major

achievements to be celebrated. Located in the Gigawatt Power Park at Ressano Garcia in Mozambique, the power station is close to the main transmission line that connects South Africa with Mozambique. The project was developed by a local Mozambique company, Gigawatt, which holds a gas power generation concession from the country’s government that has been sub-conceded since 2012, for temporary power to Mozambique, South Africa and Namibia. Eaglestone Capital Advisory acted as a financial adviser to Gigawatt, Bowman Gilfillan was a legal adviser, and Worley Parsons and PB Power acted as technical advisers, with AON providing insurance advice. Construction of the facility will be undertaken by a consortium consisting of South Africa-based WBHO and international Parsons Brinkerhoff. A joint venture between TSK Electrónica y Electricidad and Energy Experts Now will provide O&M services to the project. The project is a significant step forwards in the supply of cheap and clean energy to homes and industry’s


Sharing the cost The pioneering spirit of the Southern African project finance market can be seen through the financing of the Gigawatt project, and at $210m it represents one of the largest project financings in Mozambique. The financial structure of the project, with a net gearing ratio of 80 percent, is aggressively geared in line with international experience and the security structure underpinning the PPA and Concession. Mozambique’s government, through signature of the concession contract, provides a level of support for EDM’s financial obligations under the PPA, delivering a typical IPP limited recourse project finance structure. The funding structure for the project is made of $40m in equity, $159m in senior loan funding and $11m in sub-debt funding. The total $170m debt requirement on the pro-


Natural Gas Deal of the Year Name of project

Gigawatt Power Park Cost

$212m Financial Structure

20 percent equity, 75 percent senior debt, five percent subordinated debt Start Date

30 May 2014 End Date

30 June 2029 (end date of PPA) Concession Period

25 years Project Type

Gas-fired power station Location SOURCE: EAGLESTONE ADVISORY

in Mozambique, and, on completion in Q4 2015, the project will provide more than 850 million kwh of energy to Mozambique per annum. Gigawatt has signed a long-term power purchase agreement (PPA) with Mozambique’s state power company, Electricidade de Moçambique, which will purchase all of the power from the project for a 15-year period. The gas supply for the project will be provided by the Matola Gas Company under a long-term gas supply agreement. The gas will originate from the Panda Temani gas fields and is being transported through the 865km-long, 26-inch diameter Republic of Mozambique Pipeline Investment Company (Rompco) gas pipeline, running from the Panda Temani gas to gas fields in Mozambique and Sasol’s plant in Secunda, South Africa. Gas is already flowing to a temporary 240MW gas fired power station that has secured shortterm power supply contracts with South Africa, Namibia and EDM. And once the permanent 100MW power station is operational the current 240MW temporary plant will be de-commissioned.


01 and 02 Gigawatt’s main gas supply pipes through Mozambique

Economic growth and the development of large projects in mining, oil and gas infrastructure are key driving forces behind increased electricity demand in Mozambique


ject was taken on by Standard Bank with the intention of selling down a portion of its exposure after the deal had closed. The senior loan funding was structured with a door-to-door tenor of 12 years, utilising a sculpted capital redemption profile. Standard Bank acted as the lead arranger and underwriter on the debt financing, meeting all sub-debt requirements, and was appointed as the primary account bank for Gigawatt. The $40m of equity required for the project was provided by a consortium of Mozambique shareholders made up of Gigajoule Power (Pty), Old Mutual Life Assurance Company (South Africa) and WBHO Construction (Pty). The shareholding structure shows strong domestic shareholder participation, which is an important imperative when doing business in Mozambique, and both the debt and equity will benefit from long-term political risk insurance. Mozambique’s government has shown its commitment to the development of the energy sector in the country and, most importantly, the beneficiation of its gas resources lo-

cally to deliver economic growth to the national economy. The government has also taken pains to make clear that the country’s natural resources will be exploited with the intention of benefitting local people. With 160TCF, the country has the fourth largest gas reserves globally and its prospects for coal fired power are also strong, with three large coal deposits at Moatize-Minjova, Senangoe and Mucanha-Vuzi in the Tete province and total coal reserves estimated to number at approximately three billion tonnes. Rich in gas and coal resources and with over $12bn of projects in the development pipeline, there is no reason why the government of Mozambique will not achieve its 20 percent electrification target by 2020. One would expect that with the correct resolve, this target will be easily exceeded, and the country will also be able to increase its power exports to its regional neighbours in the Southern African Power Pool. The success of Gigawatt could herald the beginning of a whole new era for the gas sector in Mozambique, with over 200MWs of projects in the

Mozambique Objective

Delivering clean power to Mozambique Project Manager


wings of Gigawatt’s closing. This initial market activity in Mozambique should attract the attention of international power companies, especially where other more mature markets are not delivering attractive growth opportunities to deploy capital and/ or skills. Taking into account the country’s risk profile and the challenges faced by the energy sector in the region it will require a regional perspective, a pioneering spirit and patience. However, those who are able to stay the course will likely be richly rewarded when its energy sector takes off. When the renewable energy sector in South Africa opened up in 2011, there were more questions than answers from the international community, and still the debate continues around long-term sustainability and the risk/reward tradeoff in the South African renewable energy market. Maybe it will be different for Mozambique, but only time will tell. In the meantime, projects such as the Gigawatt plant should give major industry names cause for confidence. n PROJECT FINANCE |






Utilising Colombia’s rivers Recovering the Magdalena River Waterway may be the key to solving Colombia’s transport problems and accelerating economic growth

Alongside its mountainous landscapes, Amazonian rainforest and beautiful coastlines, Colombia is widely recognised as having one of the fastest growing economies in the world. But past political turmoil and a variety of geographical and economic factors have created a notorious gap in transport infrastructure, slowing the potential growth and trade of a country whose coal reserves are the largest in Latin America – and hindering the impact of the Free Trade Agreements that Colombia recently signed with the US, EU, Canada, the EFTA Group and beyond. Those concerns drove President Juan Manuel Santos to place transport infrastructure top on the list of his economic priorities, and to recognise the need for alternative options. He created the National Infrastructure Agency (ANI) and invested $11.7bn between 2010 and 2013, but anxiety with regard to transport re24


mained, with the World Economic Forum placing Colombia 10th for vital infrastructure on last year’s list of Latin America’s top 12 economies.

Restoring Colombia’s mainline Colombia’s topographic conditions, including its location in the Andean Mountains, make developing transport systems there expensive and somewhat of a challenge. But officials at the Magdalena River Waterway PPP programme believe the key to solving these issues is flowing out of the heart of those mountains. The lifeblood for many of Colombia’s citizens, the Magdalena River was once one of the country’s most treasured transport routes, but the past century has seen it overlooked as a viable trade and transport route. The initiative, which is the first of its kind in Colombia, has set its sights on restoring the waterway to its former glory in a project granted by

state regional agency Cormagdalena. This comes under Colombia’s new Public Private Partnership (PPP), an overarching programme whose aim is to develop the country’s infrastructure network and drive innovation. Stretching to the Caribbean Sea, the Magdalena River is overflowing with opportunity and it’s a much-needed alternative in a country where roads make up 80 percent of internal transportation. By opening the river up to new methods of transport, including barges with an individual capacity of 7,200 tons (equivalent to


180 truckloads), the project marks a major milestone in Colombia’s transport history. Alongside expanding the range of transport options available in the country’s northern and central regions, constituting a vital back-up in the event of labour strikes and rebel attacks, it has another important objective; to decrease transportation costs from the Caribbean Sea to Colombia’s central region and to its capital Bogotá. Transport and logistics currently account for 18.6 percent of total business costs in Colombia; that’s 4.3 percentage points higher than the Latin American average. By improving transport links and options, the programme is intended to cut costs and drive sustainable growth so as to realise the country’s opportunities, and to make the most of Colombia’s recent major advances in terms of security and foreign direct investment. As well as developing Bogotá’s links it



The plans involve 256km-long channelling works between the towns of Puerto Salgar/La Dorada and the city of Barrancabermeja, which includes digging trenches and dykes in a rock-fill. Another major part of the project will be dredging and maintenance work between Puerto Salgar/ La Dorada and Bocas de Ceniza, located near the Caribbean Sea. The estimated 13.5 year-long project is set to involve a five-year construction phase and a seven-year maintenance phase, during which the waterway will be maintained to a minimum depth of seven feet and a minimum width of 52 metres, with a 900 metre radius of curvature. That will enable large-capacity barges to pass along the river, while reviving the recently neglected waterway and realising its full potential. Costing $738m in total, the project involves capital expenditures of $476m – to be split 70:30 between channelling plans and dredging and maintenance work – and an estimated financial closing of around $371m, of which $55m will be funded through equity. It is being financed through a combination of private and public sponsors, with public funding comprising of contributions from the government, states, municipalities and other parties such as part state-owned oil company Ecopetrol. Aligning those public and private interests has proven to be one of the many challenges presented by the project. With a view to solving their differences, financial and legal advisor BONUS Banca de Inversión





New navigable stretch


La Dorada/Puerto Salgar


The amount of traded goods that will be moved annually. Currently 1.5 million tonnes is able to be moved along the roadways each year




Making the plans a reality

organised a series of discussions between key private and public players to improve the overall scheme and to address issues such as how to best distribute construction and operational risks when the river’s water levels exceed the 10-year return period. The talks, referred to as the Competitive Dialogue tool, marked a first in Colombian history and involved extensive studies evaluating the risks that the venture entails, while working to bring private stakeholder interests in line with those of Cormagdalena. The discussions led to an extended pre-operational period due to uncertainty over obtaining short-term environmental permits and licences. They also resulted in an extended construction phase to mitigate risks concerning rock-fill and dredging work, among a number of other changes. After the comprehensive risk analysis both parties were able to seek debt resources, and the extensive discussion fully prepared them for the project take-off. But the challenges didn’t end there. Cormagdalena and BONUS faced difficulties with regard to ensuring technical, legal and financial tenets were aligned and that the project would be a sustainable one. They drew up a Concession Contract which, as well as acting as a construction contract, set out technical specifications to determine quality standards for the long term (at least the next 30 years) and to ensure the river would continue to be navigated in any condition. With those challenges overcome, the project is marching forward toward what seems a promising future. And opening up the rivers to navigation doesn’t only mean improving transport links and increasing the variety of Colombia’s options. It also means encouraging investment. For decades, areas surrounding the river missed out on potential private investment for the very reason that nothing could pass along it. Constructing commercial ports would have proved pointless. That meant maintenance and dredging work wasn’t needed, which in turn removed opportunities for public investment. Bringing back the river as a viable transport route means opening it up to a host of opportunities, and it’s already having a seismic effect in the investor community. While consortium Navelena SAS (led by mul-


Water Deal of the Year COST


87 percent debt – 13 percent equity START AND END DATE

September 2014 to April 2028 FINANCIAL ADVISOR


13.5 years PROJECT TYPE



Recover the main river of the country as an important logistic and transportation axis KEY PARTNERS

Francisco Real, Alejandro Paz and Francisco Suarez SOURCE: BONUS

also aims to improve connectivity in Colombia’s other biggest cities, Medellin and Cali, while ensuring they all have access to a major maritime port. Medellin will have the potential to become a powerhouse at the centre of international trade, with road and river links to the Caribbean Coast alongside road and rail connections to the Pacific Port. This has big implications for the country’s trade of goods and, importantly, natural resources. Making coal, oil, nickel and agricultural products easier to transport and reducing the cost of doing so means enabling Colombia to compete against the world’s key players and speeding up the emerging economy’s growth to unprecedented levels.

Bocas de Ceniza


Emmanuel Cáceres de Kerchove and Juan Martinez

tinational business conglomerate Odebrecht) won a public bid to carry out channelling, dredging and other works, Cormagdalena has already received in excess of 40 river port concession requests, worth over $1.2bn. By generating significant levels of investment, while simultaneously helping to fill the wide gap in Colombia’s infrastructure, the Magdalena River Waterway PPP should go some way in relieving concerns over the country’s transport obstacles. Improving links with the Caribbean and the Pacific will help Colombia make the most of its wealth of natural resources and to use the Free Trade Agreements to its advantage. But it also needs to improve its roads, railways and airports. As the river carves its way out of the Andes toward the Caribbean Sea, so the waterway project should pave the way toward economic prosperity and act as an example for other infrastructure initiatives to follow. ■ PROJECT FINANCE |





Public-private partnerships (PPPs) have long been the preferred method for project finance, but in the wake of the financial crisis, new challenges have presented themselves as PPPs become more dependent on private actors. This has prompted an overhaul of classic financing means, writes Sandra Kilhof The impact of the global financial crises has gone beyond simply recession and regulation. Many governments and private sector organisations, which had considered public-private partnerships (PPPs) to be their future, were forced to rethink their strategy in the wake of the crisis, as a lot of the available private funding upon which PPPs relied was suddenly no longer available to the same extent. At the same time, governments and international organisations, like the EU, were striving to make closer partnerships between the public and private sector a hallmark for future policy in order to build and sustain national and local initiatives. Naturally, there was something of a slump following the downturn in financing options post-crisis. Since then, the term PPP has come into vogue again as major institutions such as the UN and the World Bank increasingly consider such enterprises to be key tools for ongoing and sustainable economic and social development. “Increasingly, in our own time, we see signs of politicians and diverse stakeholders working together across party lines and political divisions to address our biggest economic challenges. Even the most antagonistic combatants are beginning to view public-private partnerships as a viable – and necessary – vehicle for responsible regulation and constructive investment in the 21st century,” said the Social Science Research Council in its report Rethinking 21st Century Government: PublicPrivate Partnerships and the National Infrastructure Bank. This has prompted a complete and global revaluation of PPPs, which, depending on their purpose and the location of intent, come in

many forms and provide a plethora of benefits for local economies – from jobs, international partnerships and investment, to better standards of living for local communities. It has been necessary to rethink PPPs in the wake of the financial crisis and make theoretical and strategic advances when it comes to the development of new conceptual frameworks for PPPs, argued the International Institute for Sustainable Development in a recent policy paper. As a result, PPPs have come to be recognised as a central tenet to financial prosperity; indeed, the cornerstone and future of economic development for nations around the world.

Doing it right There are many examples of successful PPPs across various industries. One field in which this type of agreement has been a particular success has been in the mobile telecommunications field. Across Africa, a history of successful PPPs can be found. In Namibia, for example, the government has long focused on the social goals of widespread communication and proliferation of internet access, effectively creating a more advanced economic platform for the country to develop, in order to ensure overall public welfare and prosperity. Mobile telecommunication companies in Namibia have largely achieved this through PPPs, while generating

Even the most antagonistic combatants are beginning to view public-private partnerships as a viable vehicle for constructive investment in the 21st century


funding from the European Investment Bank 1990

€246m 1995

€1.1bn 2000

€1.7bn 2005

€1.5bn 2010


positive returns for shareholders and yielding the reserves with which to develop their operations. Another key area for PPPs is infrastructure, with large-scale projects often proving expensive but necessary, for economic development. Governments can gain significant advantages by adopting PPP frameworks as a method of infrastructure procurement. For instance, the model provides fiscal optimisation. Traditional methods of infrastructure procurement require a government finance construction, which is typically not known for fiscal tightness. PPPs transfer the financing responsibility to the private sector, thereby allowing the government to amortise the cost of the asset over the term of the concession. The arrangement also ensures process efficiency by eliminating the inefficiencies of governmental infrastructure procurement, through tighter contracting and increased rigour of execution. Under PPP arrangements, the risks of constructing and operating the asset are passed to the private sector through the head and sub contracts and the private sectors. In this respect, performance risk is mitigated, as sponsors are heavily incentivised financially to ensure full asset performance. As such, large scale projects are exposed, explored, and constructed by some of the more experienced and qualified engineers and developers in the world. This can be pivotal given the intricacies and scale of some of the projects essential to governmental progress and efficiency. Infrastructure construction and development are typically large projects, but PPPs can also be applied to smaller projects such as land conservation and similar projects. » PRO J E CT FINANC E |



Private finance for PPPs has become much more selective, but the rationale behind them remains, as they have historically provided strong value for money

Such structures not only provide much-needed new sources of capital, but also bring significant discipline to project selections, construction, and procedures.

Public-private challenges One of the core aspects that challenges the concept of PPPs is the idea that the state should be the sole provider of services that are traditionally considered to be public. By accepting that certain capital projects and services can be developed and rendered by the private sector, public sector resources can be directed elsewhere. There are many examples of successful PPPs at work within major public service sectors – in education and medical facilities, for instance. Private finance for PPPs has become much more selective, but the rationale behind them remains, as they have historically provided strong value for money, delivering high quality outcomes on time and on budget. They are also attractive to private sector contractors and services providers. Furthermore, despite previous capital raising issues, well-structured projects remain fundamentally good credit risks and have attractive lending and investment prospects. The challenge for the PPP market is therefore to ensure that these projects can be financed in current market conditions, while continuing to deliver value for money. From the investor’s perspective, PPPs can be useful for creating low risk options, through long-term present value returns as well as providing an interest in societal developments. In all aspects, “the fundamental prerequisites for PPP financing have changed and the view on risk is a lot more prudent in the post-crisis era. This is why an overhaul of traditional PPP models is necessary to find a structure that works for all parties”, KPMG’s Manish Aggarwal told World Finance in a recent interview 28


on capital projects and infrastructure in India. There is no doubt that these partnerships are one of the strongest and most successful ways to approach project finance. It’s simply a matter of applying a model relevant to current economic times, and then finding the right funding, planning and implementation models.

The new model The private finance initiative (PFI) is one form of PPP which has been used frequently and successfully for project finance in the UK. However, this particular model has been reviewed following allegations of waste, inflexibility and lack of transparency. This eventually led to a fundamental reassessment of PFIs and a roadmap for a more efficient, transparent and durable model that investors can approve of (see Fig. 1) According to the UK Treasury, the new model aims to provide access to wider sources of equity and debt finance to improve the value for money of financing projects; to increase the transparency of the liabilities created by long-term projects and the equity returns achieved by investors; to speed up and reduce the cost of the procurement process; and to provide greater flexibility in the provision of services. The new model also involves private finance in the delivery of public infrastructure and services through a long-term contractual arrangement called Private Finance 2. This continues to draw on private

Fig 1. PPPs vs. public procurement in the UK Proportion of projects over budget PPP Public

Proportion of projects with time overrun PPP Public
















EXAMPLES OF PPP CONTRACT TYPES Contracts for providing public assets and services

‘Partnerships’ with private sector

PPP finance and expertise in the delivery of public infrastructure and services while addressing past concerns with PFIs and responding to recent changes in the economic climate. New PPP models are often characterised by joint working and risk sharing between the public and private sectors. These can include relatively simple outsourcing-type partnerships – where services are provided on short- or medium-term contracts – or longer-term private finance partnerships such as the PFI. Such well-formed partnerships with the private sector have delivered clear benefits in driving forward efficiencies; getting projects built to time and to budget; and creating the correct disciplines and incentives for the private sector to manage risk effectively. In another move to revolutionise PPPs, capital projects in Namibia are tackled by applying a very specific and tailored approach to project finance. PPPs are regarded as an important developmental tool pivotal to the progress of the country’s infrastructure. In its mandate, Namibia’s Development Bank considers financing the development of infrastructure projects undertaken either by local authorities or state owned enterprises together with private sector operators within a PPP arrangement. Finance options the bank offers include direct loans for PPP enterprises, subordinated debt, or participation in syndication facilities.

Financing methods Modern-day PPPs will involve financing from various sources, often with different gearing ratios that may have seemed fairly advanced in years gone-by. With different debt and equity ratios comes a different range of profits, and as such a new type of investor will have a variety of options across the world in choosing which options will suit their own particular portfolio. The ratios of

Sector regulation

these different contributions will depend on negotiations between the lenders and the shareholders and will essentially govern the relationship between the different investors and debt holders. The most popular financing options nowadays include equity contributions, debt, bank guarantees or letters of credit, bond or capital markets financing, mezzanine or subordinated contributions and inter-creditor agreements. In particular, bond financing where project bonds are issued as debt instruments and bought by institutional investors is considered a key solution for the sponsorship of future PPPs, according to the European PPP Expertise Centre. “Until recently, the European PPP market relied to a large extent on project finance debt provided by commercial banks and/or public financing institutions. Since the onset of the financial crisis, commercial bank debt has become more difficult to secure and lending terms have deteriorated significantly, affecting the bankability and value for money of PPP projects. In current financial market conditions, bond financing can play a major role in bridging the financing gap for infrastructure investments,” EPEC said in a recent report. Another option is private debt finance, which presents some challenges initially, but with current innovations in the structure of projects, governments can take several practical measures to foster reliable financing. This includes accepting a lower level of financing commitment in bids, instead of the traditional

model of requiring underwritten commitments of finance for a period of six months or more and taking measures to facilitate maximum competition for debt finance, which could, for instance, involve a funding competition after appointing a preferred bidder, argues KPMG in a recent report. What makes the industry so competitive is the number of bidders, which has seen a significant increase over the past couple of years as economies get back on track. With greater supply of bidders for different projects, standards are raised and government contractors are able to consider a wider array of talents and essentials for each project. For larger projects in or above the $500m-$1bn bracket, being willing to provide either capital grants or debt finance on a pari passu basis with banks is also crucial. Finally, governments must investigate credit guaranteed finance or counter-indemnity models as possible ways of increasing market capacity and reducing funding costs, which could also prove facilitating for PPP financing. Under these models, the government either provides the finance or effectively guarantees it, but benefits from a guarantee of project risks, essentially making the project much safer and more interesting in private actor eyes. In the end, it comes down to governments providing a PPP model that works to attract private investors. By focusing on new, reliable financing options, risk concerns are reduced and the success of a PPP becomes entirely more viable. By providing different financing options to the market, more investors will welcome new projects, consider different options, and aim to become more involved in the new form of PPP. For now, all governments need to start doing is planning for the future and deciding what is important for different stakeholders. ■ PROJECT FINANCE |






Bridging the healthcare gap The Calabar Specialist Hospital aims to improve national access to quality healthcare in Nigeria

Led by the Cross River State Government under the leadership of Senator Liyel Imoke, the Calabar Specialist Hospital constitutes a key part of the country’s on-going infrastructure modernisation programme and a landmark project on the way to advancing quality and affordable healthcare in Nigeria. Situated in the 367-hectare Summit Hills real estate development, the project represents a single facet of the country’s continued commitment to address its glaring infrastructural inadequacies and its commitment to fostering effective public-private partnerships throughout. The Summit Hills development marks the first of its kind for any government in Nigeria – either state or national – to deploy public private partnership approaches in bundling diverse, interrelated offerings over a large geographic area. The site is home to the 5,000 capacity Calabar International Convention Centre (Alliance Facilities Management Pty); the Calabar Golf Course Residential Estate (joint venture with United Property Development Company); the 18-hole Golf Course (maintenance contract with Bouman 30


Golf) and a host of others, though the Calabar Specialist Hospital is arguably the most impressive project of them all. The Governor’s Office, as the coordinating agency, is the implementing authority charged with delivering the project, based on a Design-Build-Operate PPP model. Both the design and construction is tendered in combination with the equipment and operation of the hospital, and the private contractor was originally responsible for constructing and equipping the hospital within the estimated capital spend, and for running the hospital in the confines of a set operational expenditure budget. This was reappraised through an addendum to the PPP Agreement in January this year, under which the concessionaire is expected to provide $20m, otherwise equivalent to 50 percent of the estimated project capital expenditure, as equity participation. In doing so, a special purpose vehicle – Calabar Specialist Hospital Limited – has been incorporated to reflect the new ownership structure of the venture.

The Cross River State Cross River State is in the south-eastern corner of Nigeria and shares a national boundary with the Republic of Cameroon to the east of the state. With a population of approximately 3.2 million people and a reputation for being the most peaceful, secure and environmentally conscious state in Nigeria, the region has come to be seen as the country’s investment and tourism destination of choice. The region’s reputation is best seen by way of the numbers in attendance at the annual Calabar Festival/Carnival Calabar, which routinely attracts over 100,000 visitors and nearly half a million on-site spectators to the state each December. What’s more, the state has enjoyed over $3bn worth of inward investment throughout the last five years, stemming from global giants such as General Electric, Arte Group, Wilmar International and a host of local investors – Brentex Petroleum, Honeywell Group and UNICEM among them. The Cross River State House of Assembly, through the powers conferred on it by the Constitution of the Federal Republic of Nigeria (1999),

enacted the Cross River State Public Private Partnerships Law in 2010 so the Public Private Partnership Council and the Bureau of Public Private Partnerships might regulate the relationship better between the public and private sectors in the provision of goods and services. The law, combined with existing policies, regulations and institutions supports the origination and sustainability of the hospital project, including the establishment of health insurance schemes. The concept of the Calabar Specialist Hospital was born of a vision of the state administration to provide quality and affordable healthcare services, primarily to the people of the state, with a view to extending these same services to neighbouring states. Acknowledging the importance of transparent procurement and technical assistance in successful PPPs, the government retained the services of the International Finance Corporation (IFC) in 2011 to provide technical advisory support towards establishing the project on the basis of a PPP. The project was to become the IFC’s first experience of healthcare at a sub national level


and outside the state through referral from primary public health centres and private facilities. This aspect features prominently as part of the government’s social welfare programme, which includes its free healthcare scheme – Project HOPE – for pregnant women and children of less than five years, and is set to include citizens of over 60 years of age to extend the coverage on offer. The hospital will recruit, train and present development opportunities to local health staff, while also ensuring that referral services are provided to public patients within its catchment primary and secondary local healthcare providers. All

patients, public and private, are expected to pay for services, including drug prescription and dispensaries, and public patients will benefit from government subsidies to compensate for tariffs in excess of medical insurance thresholds. The procurement process, all things considered, spanned a total of 15 months and began with the IFC undertaking several missions to Cross River state to gain a more thorough understanding government expectations, as well as assess the economic and financial viability of the opportunity. A rigorous, thorough and transparent procurement process was

01 A computer generated aerial view of the Calabar Specialist Hospital

in Nigeria, and so, the IFC enlisted the support of PharmAccess-AMPC (PAI) as technical consultants, and the consortium of Eversheds and Aluko & Oyebode as legal counsel.




02 A computer generated image of a main operating theatre in the Calabar Specialist Hospital, Nigeria


$40m Financial structure

Project cost sharing between the private and public party

Wide-ranging services

Start Date

2006 End Date

February 2015 (clinical operations to commence March 2015) Designers

Cunningham Group Architects Concession period

Initially 10 years, the transaction structure was modified to allow Concessionaire 51 percent equity in the business. Concessionaire now part owner Project type

Referral healthcare development Location


The project rationale is to provide an extensive package of secondary health care services, including a gateway clinic offering primary healthcare within a referral mechanism. This, in the medium- to long-term, is expected to significantly reduce the increasing level of medical evacuations, as well as guarantee specialist healthcare and provide system-wide efficiency gains, consistent with the state’s aspirations to cement medical services as part of its tourism offering. The $40m project encompasses the design, build, finance and longterm maintenance of the 105-bed facility and, upon completion in March 2015, the hospital will offer a full spectrum of secondary healthcare solutions, including specialist services such as diagnostics, surgery, radiology, orthopaedics, paediatrics, gynaecology, and neurology. The hospital will also provide equitable access to all residents within


Healthcare Deal of the Year

To provide quality and affordable top-of-the-range healthcare Key partners

Cross River State Government and Utopian Consulting Project manager

Courtney Michael Partnerships

adopted in selecting the concessionaire, the objectives being to safeguard public interest in the project; demonstrate value for money; achieve sufficient measure of accountability and transparency, and, by doing so, earn and retain stakeholders’ confidence in the opportunity. Beginning with the publication of a request for qualification (RfQ) in both local and international media, 14 firms/consortia responded to the request, and an Evaluation Committee was soon made up of representatives for key ministries, departments and agencies in the state. The committee then adopted an evaluation protocol designed by the IFC, and with strict governance compliance requirements to ensure the project is carried out responsibly.

Finalising technical options Subsequently, requests for proposal (RfP) and a draft PPP contract were sent to the five successful pre-qualified bidders. Under the RfP, the bidders were required to submit both a technical bid – containing conceptual designs, construction time-table, proposed staffing requirements and proposed equipment, facilities man-

Governments and public administrators are constantly searching for more efficient ways to deliver healthcare services to the public more effectively and economically agement regime and clinical services – and a financial bid. The draft PPP contract set out the rights and obligations of the parties, including technical and output specifications, service and performance standards and other proposed key engagement terms. As part of the procurement process, a compulsory bidders conference was attended in December 2012, which gave the pre-qualified bidders the opportunity to visit the site and review the project in further detail with both government officials and the IFC team. For the evaluation of the RfPs, four technical evaluation teams were formed, namely medical technical (facilities management, construction plan and human resources); medical technical (clinical services); legal technical and the finance technical teams. These teams accessed the bids in detail and gave a rating for each, only for the reports to then be approved and scored by the Project Evaluation Committee. PPP council approvals were sought and eventually received for each of the three phases of the project procurement. At the concluding stage of the process, UCL Healthcare Services, a consortium made-up of Nigerian medical practitioners, health workers in the Diaspora in partnership with Cure Management Services, emerged as the preferred bidder. As is the case right across the world, governments and public administrators are constantly searching for more efficient ways to deliver healthcare services to the public more effectively and economically. Outlining his expectations for the project, the state governor spoke of what he hoped would lead to “quality secondary healthcare service delivery to the public at affordable prices, and financial and operational sustainability.” It is hoped that, upon completion, the Calabar Specialist Hospital will bridge the gap in the provision of quality healthcare and serve as a model of dynamism and innovation in the healthcare sector. n PROJECT FINANCE |






Power to the people ACWA Power projects promise a range of social and economic benefits to each of their respective communities


On 14 March 2014, the Government of Mozambique together with a consortium headed by ACWA Power signed a 25-year concession contract for the development of the Moatize IPP project. Situated in the Tete Province, 1,500km north of Maputo, the 300MW (first phase) coal fired power plant is set to bolster the country’s production capacity by a considerable margin. “Signature on this concession agreement is a significant milestone for the Moatize IPP project, enabling us to complete the financing process and commence full scale construction,” says Paddy Padmanathan, President and CEO of ACWA Power. “Moatize IPP will significantly enhance ACWA Power’s position as a rapidly expanding power developer in the Southern Cone of Africa, one of our target markets. This also helps to diversify ACWA Power’s fuel experience beyond oil, gas and solar to now coal, all the while making a significant addition to the electricity generation capacity of Mozambique and contributing to the socio-economic development of the country.” Also joining the lead developer, investor and operator of the project is Vale, one of the largest mining companies in the world, and Mitsui Co, the global Japanese trading house, who will act as co-sponsors throughout the duration of the project. The Mozambican state-owned utility, Electricity de Mozambique (EDM) and local investor Whatana Investment Group will also enter as minority shareholders. 32


Economic development Moatize IPP is a greenfield independent power project and will be developed on a build-own-operatetransfer (BOOT) basis with a total investment cost of approximately $1bn. On completion, it will act as a pulverised fuel, subcritical coal-fired power station with the coal supplied by Vale from the adjoining mine. Approximately 220MW of the 300MW capacity will be fed to what is one of the largest coal mine in the world, developed by Vale, with the remaining 50MW supplied to EDM to feed the grid. The sponsors have selected a reputable international contractor, GS Engineering and Construction, from Korea for the engineering, procurement and construction phases of the project, as well as ACWA Power’s wholly owned subsidiary NOMAC, which will be responsible for the operation and maintenance of the plant. The project is to be the first largescale greenfield power project in the country to be financed using the project finance framework. And apart from satisfying the electricity needs of Vale, a major industrial user in Mozambique, the power plant, when in operation will also contribute a sizeable amount of much-needed power generation capacity to the Mozambican economy, which has been growing by more than seven percent annually over the last five years. With connectivity to the grid being one of the core challenges for those operating in the Mozambican

economy, projects much like the Moatize IPP are crucial for the country to capitalise on what resource opportunities exist there. A wealth of coal and gas reserves coupled with an electrification rate of only 12 percent is proof if ever it were needed that there is a mismatch between the country’s resource potential and its infrastructural capacity. ACWA Power, therefore, plays a vital role in boosting the country’s economic credentials and in bolstering its energy sector. Aside from supporting the economic development of the country by augmenting power generation capacity, the project will also inject

significant socio-economic value into what remains a very underdeveloped and remote part of Mozambique. By creating over 2,800 jobs during the construction phase and approximately 160 permanent skilled jobs during the operational life of the plant, the project provides opportunities to improve the lives of those in the surrounding community. In addition, the sponsors of the project have also committed to a comprehensive social-economic development programme, including the training of approximately 1,000 local Mozambican over the next five years. The project is therefore contributing significantly to the expan-


M oati z e I P P P roject d ata

in recent years, The MENA region has made a name for itself as a world leader in the renewable energy space category

IPP Deal of the Year Project cost

$1bn Financial structure

Build-own-operate-transfer (BOOT) of 25 years Start date

March 2014 Concessionaire

ACWA Power Concession period

25 years Project type

Coal-fired power plant Location

Tete Province, Mozambique Objectives

To significantly bolster Mozambique’s electricity production capacity and improve the socio-economic environment in the country



sion of the valuable local skills pool in Mozambique.

Energising Morocco In recent years, the MENA region has made a name for itself as a world leader in the renewable energy space, and with conditions there ripe for the exploitation of solar energy, enterprising names such as ACWA Power have rushed to capitalise on an abundance of new opportunities. As the developer, investor, co-owner and operator of numerous power projects that together generate 15,731MW of electricity and 2.4 million cubic metres per day of desalinated water, the company is well equipped to partake


Key partners

NOOR 1 CS P Project d ata

03 Maintenance work being carried out on NOOR 1’s parabolic cells

in what will be the world’s largest concentrated solar plant (CSP). At 160MW, the NOOR1 CSP plant is Morocco’s flagship solar project and a key part of the country’s programme to install 6,000MW of clean capacity representing 42 percent of its total electricity generation capacity renewable sources. With an ambition to produce 2,000MW of solar capacity by 2020, the country’s $9bn solar energy plan aims to build multiple solar clusters, backed by a combination of private and IFI funding. A consortium, headed by ACWA Power, signed a power purchase agreement (PPA) in November 2012 to supply the Moroccan Agency for Solar Energy (MASEN) with power from the country’s first standalone CSP plant, marking the first step on the road to Morocco’s solar ambitions. A 160MW CSP plant with three hours of thermal storage, NOOR1 IPP is today the world’s largest parabolic trough CSP power plant and the first utility size thermal solar generation project in Morocco. Located in the Ouarzazate province, 200km south of Marrakech, it is jointly owned by ACWA Power, MASEN Capital, Aries and TSK, and is being developed on a BOOT basis by the project company ACWA Power Ouarzazate. The completed plant will provide the country with reliable power, benefitting both consumers and businesses by providing a safe and sustainable means of generation. What’s more, the construction phase

ACWA Power, Government of Mozambique, Vale Mining, EDM, NOMAC, Mitsui Co, Whatana Investment Group Project Manager

Paddy Padmanathan, President and CEO, ACWA Power category

Solar Deal of the Year Project cost

$1bn Financial structure

Build-own-operate-transfer (BOOT) of 25 years Start date

Second half of 2015 Concessionaire

ACWA Power Concession period

25 years Project type

Concentrated solar plant (CSP) Location

Ouarzazate, Morocco Objectives

The project involves the design, construction, commissioning, testing, ownership, operation and maintenance of a 160MW CSP plant with a three hour thermal power storage Key partners


01, 02 The solar panels at the NOOR 1 CSP in Morocco

ACWA Power, Moroccan Agency for Solar Energy (MASEN), Aries Ingeniería y Sistemas, TSK Electrónica y Electricidad, NOMAC Project Manager

Paddy Padmanathan, President and CEO, ACWA Power

of the project will provide employment opportunities for more than 1,500 individuals and another 70 permanent roles during operation. Taking into account job creation, alongside the immediate advantages in terms of energy capacity, the project has improved upon the area’s economic outlook. Here, the country’s solar plan has succeeded in marrying local industrial talent with a promising manufacturing and technology sector. By combining the experience of these sectors, the three parties are well equipped to accommodate the renewable energy power plant development, operation and maintenance activity, not only in Morocco but also in the wider MENA region. ACWA Power is playing an important role in boosting the local industrial base, namely by sourcing goods and services from local suppliers and contractors wherever possible.

Diverse benefits The benefits of the project, however, are far from excluded to achieving industrial integration and enhancing economic development. For example, ACWA Power has partnered with local universities, research centres and companies to educate these parties in various matters relating to the renewable energy and water desalination. By forming relationships with local talent, the company aims to further enhance renewable energy technology with a view to developing intellectual property. Already in the R&D field, ACWA Power has instated the development of a joint R&D programme – focusing on CSP – between King Abdullah University of Science and Technology, a Saudi tertiary educational facility, and Université Internationale de Rabat. ACWA Power is making arrangements for students from Morocco to join the solar programme at the Higher Institute for Water and Power Technologies (HIWPT), a facility that was founded by ACWA Power and located in Rabigh, Saudi Arabia. As a not-for-profit college, licensed by the Technical Vocational Training Corporation, HIWPT provides industry specific vocational training to regional high school graduates so that they may join the water desalination and power generation sector as skilled and certified operators and technicians. n PROJECT FINANCE |






Stabilising Brazil’s water system Few OECD nations work as tirelessly as Brazil to bridge the development gap and attain financial prosperity. The State of Minas Gerais is doing just that, by increasing its water waste management

A general view of Belo Horizonte from Mangaabeiras district, Minas Gerais, Brazil, South America’s most heavily populated state




With a view to expand sewage collection treatments to 95 percent of the state’s population by 2022, the Divinópolis Wastewater System is perhaps one of the most ambitious PPPs in Brazil today. Having only gone to tender in October 2014, the programme will see state utility firm Copasa hand over a 27-year concession that involves investment in civil work, equipment and overall maintenance of the project. Construction is set to kick off by 2016 under a revised budget of $97m. New transportation and sewage treatment infrastructures are already being planned for the Itapecerica, Pará, and Ermida rivers as part of the project’s first phase. Consequently, the collection systems of Itapecerica will need to expand capacity by 400L/s, while Ermida’s is set to increase by 15L/s. Then, the second phase will see the Itapecerica system expanded to handle 600L/s. Meanwhile, the current sewage system at Divinópolis is to receive a noticeable facelift – including the installation of new interceptors, pumping stations and treatment


Recently actualised

stations. In turn, the city’s current Pará wastewater system will be expanded to accommodate 30L/s. The project is Minas Gerais’ most ambitious public works upgrade in recent memory. Copasa should be more than up to the task of overseeing the effective deliverance. The water and sanitation firm is a private-public enterprise that controls water supply in over 600 area municipalities, and holds concessions to sanitation services in around 300 towns and cities across Minas Gerais and beyond. Minas Gerais was the first regional authority in Brazil to approve the use of PPPs in 2003 – and Copasa was among the first state firms to benefit from the legislation. Thanks to a flurry of international funding, the firm’s customer base is only on the rise. In recent years, Copasa has relied less upon traditional domestic funding sources like Brazil’s Federal Savings and Loans Bank or the National Development Bank, and has instead shifted its focus towards attracting the attention of the German development bank Kreditanstalt fur Wiederaufbau. Those investments have gone on to fuel hundreds of new public service projects across Minas Gerais. At the end of 2013, Copasa’s total investments hit $368.3m – over a third of which related to water supply systems. Last year, the firm was consequently able to increase the population it serves by 484,000. Some $229m of the firm’s investments, meanwhile, are now in sewage collection and treatment. In 2013, Copasa saw a 12 percent rise in the volume of treated sewage it was able to process – and the activa-


Wastewater Deal of the Year Project name

Divinópolis Wastewater System Project phase

Public consultation Project location

Brazil Revised budget

$97m Facility type

Wastewater Financial closure

October 2014 PPP length SOURCE: COPASA

Nestled between Rio de Janeiro and Sao Paolo, Minas Gerais is the industrial buffer zone that’s South America’s second most populous state, and it maintains one of the highest regional GDPs to boot. Much of that success stems from the state’s thriving metalwork industries. Translated literally from Portuguese, the name Minas Gerais means ‘general mines’, and the region wears the badge well. From mining and metallurgy to steel and automotives, much of the area’s economic stability depends exclusively on the valley’s rich bounty of natural metals – and in turn, upon reliable water and waste water treatment. In recent years, investment in the latter has begun to slide; however, new government initiatives and public-private partnerships (PPPs) are slowly seeing Minas Gerais’ public infrastructure catch up with its thriving industrial firms. Since 2011, the state has invested billions to increase the regional capacity of water waste treatment. It’s already risen by a third. Yet a new project linking two of the state’s great rivers should serve to thrust its central region to the forefront of global water sustainability.

27 years Construction begins


Minas Gerais was the first regional authority in Brazil to approve the use of PPPs in 2003 – and Copasa was among the first state firms to benefit from the legislation

tion of new systems across the state have helped the company’s bring its total customer base for the service rise to some 9.3 million. At present, Copasa boasts just under 150 plants in operation; by 2016, the firm will maintain 230.

Sign on the dotted line In recent years, water management in Brazil has become a slightly more complicated beast. The industry is still playing catch up following the introduction of legislation that has drastically raised treatment guidelines that favour only long-term projects. Consequently, the primary challenge for firms like Copasa has been to consolidate that regulatory framework in order to develop projects that aim to establish a more universal take on sanitation services. Any project designed to be implemented for a period of less than 20 years is no longer given a second glance. Yet Brazil’s federal government does not merely penalise firms for failing to contract sustainable works – states are rewarded with major subsidies for investing in longterm sanitation projects such as that in Divinópolis. Ecological ICMS is a state value added tax that’s transferred in part to Brazilian municipalities based upon the levels with which those local authorities are able to preserve ecological reserves and curb landfill and sewage contributions through the implementation of new infrastructure and recycling centres. Last year, Minas Gerais brought in $32.9m in ICMS government subsidies for its investment in new waste water infrastructure. In order to adequately facilitate their largest project to date, Copasa and Minas Gerais have relied upon the scrutiny of the likes of Banco de Desenvolvimento de Minas Gerais (BDMG), the state’s development bank. Last year, BDMG was brought on board to advise Copasa on the project’s economic, financial and legal

structuring. The bank was a natural selection due to its high level of experience in offering technical support and guidance on the PPPs of various municipalities across Minas Gerais. Although the institution faces intense competition from larger, international development banks, the bank boasts an unrelenting degree of security due to the state’s long-term role as a financial agent. Because the government is its primary shareholder, BDMG is an essential policy tool for local officials, and has played a pivotal role in the state’s recent flurry of infrastructure upgrades. Standard & Poor’s has added that BDMG maintains a high bill of health in its asset quality due to its old-fashioned, conservative funding procedures and guarantees quality. It’s that same unwavering structure that the bank’s analysts have applied to Copasa’s 27-year PPP at Divinópolis. Last year, BDMG was brought on board in order to advise on the financial structuring of the project, as well as the consolidation of mechanisms within the project that ensure it adheres to the state’s stringent public policies on good governance. Those viability studies, which are valued at $344,847, are set to be reimbursed to the bank by the project’s eventual concession winner. Copasa has invited up to three firms, investment funds and consortiums to bid for the concession on the development. Approximately $49.4m worth of investment is anticipated within the first three years of the contract. Authorities have already indicated the bidder requesting the lowest monthly concession payment will be favoured; although the state is expected to pay the winner approximately $172.6m across the length of the project. From the moment Copasa determines the winning bid, gears will be set into motion at break-neck speed. Construction must begin by 2016 – and in order to meet those deadlines, Copasa has already approved a 17 percent budget increase for the project. With a burgeoning population and a backlog of industrial contracts, austerity-focused officials are more than aware that Minas Gerias’ economic stability rests almost entirely upon the promise of a modern, cutting-edge water infrastructure system. The Divinópolis Wastewater System will surely be a blessing to the local population. n PROJECT FINANCE |






Greek PPP sector back on track PPPs are fast emerging as the go-to method of launching high-profile infrastructure projects in Greece

Greece is finding its financial feet, but it will take time, reform and investment to establish the longterm sustainable growth required to match the fiscal consolidation process that is currently underway. PPPs (public-private partnerships) and innovative financing structures can be substantial contributors to this process, as exemplified by the recent closing of the Attika Schools PPP project. All available data points to the Greek economy climbing out of the deepest recession since the Second World War, following a six-year long downturn. According to official statistics, its economy shrank by 0.2 percent in Q2 2014 compared with 2013 – the smallest contraction since 2008 – and a return to positive growth figures is anticipated for the fiscal year 2014. In addition to the fiscal consolidation and structural reforms, the revival of investment activity is equally important in order to support a sustainable return to eco36


nomic growth. However, growth is difficult when public spending is limited and liquidity so scarce.

The role of PPPs The first issue that was in need of addressing was evidence of a relative stabilisation in the economic system and a restoration of confidence among consumers and businesses. To this end, the fiscal consolidation progress, labour and product market reforms, the banks’ recapitalisation along with the public debt re-profiling and re-pricing – to be discussed later this year – together make for a promising state of affairs. Against this background, a number of private investments in the M&A, privatisation, real estate and infrastructure sectors have hit the market, with the successful restructuring of the Greek motorway PPP projects being one strong example. In this new era, PPPs, along with innovative financing tools and the EIBs support, can play an important role in promoting investment activ-

ity, while at the same time boosting public expenditure and improving quality of public services. This can be seen in the case of the Attika Schools PPP project, which reached financial close in Q2 2014, effectively overcoming all possible difficulties that a project of this nature might face. Tendered under the auspices of Law 3389/2005 in July 2010, the project is only the second to reach financial close in Greece and the first one to follow the onset of the sovereign crisis. It is also the first ever PPP project to utilise the innovative tool of Joint European Support for Sustainable Investment in City Areas (JESSICA), which is an


initiative developed by the European Commission in cooperation with the European Investment Bank (EIB) and the Council of Europe Development Bank (CEDB). Attika Schools PPP Project refers to two PPP contracts, involving the design-build-finance-operation and maintenance of 24 school units located in Attika, Greece. The two projects, one for 14 school units and the second for 10 (known as OSK 14 and OSK 10 respectively), were tendered individually in order to mitigate concentration risks, address size considerations and promote competition, and were financed on the basis of the same funding structure and debt providers. The total budget for the project amounted to €110m, including VAT, and the contracts were awarded to ATESE and J&P Avax as the preferred bidders in December 2010 and January 2011. The contractual framework and risk allocation followed international best practices, reflecting the experience gained in the UK from the Building Schools


for the Future PPP programme, after the necessary adaptations to fit the requirements of the local environment. The 14 schools project almost reached a close in 2012 when, at the peak of the Greek crisis, the availability of commercial bank financing collapsed. At that point in time, the crucial question was how to revive the project without the need to retender, so as to secure the quantum of availability payments offered during the tendering process. Tendering for both projects was very competitive and resulted in an affordable price, lower than the original public budget. However, financing assumptions underpinning the preferred bids were at precrisis levels and no longer attainable. Therefore, all involved parties worked extensively for over a year in order to find the best possible solution, which eventually appeared with JESSICA Urban Development Fund’s involvement in providing debt financing.


Left and below An artist’s interpretation of the Attika Schools PPP Project in Greece, which reached financial close in Q2 2014

Project Title

Attika Schools PPP Project Total Project Cost

€110m Contract Duration

27 years Total Long Term Debt Facility

€71.6m Total VAT Facility

€18.4m Total Equity

€20m Type of finance

Project finance Transaction Type

Primary financing Concerned Population

6,000 students Long Term Lenders

EIB – €35.8m National Bank of Greece (JESSICA) – €35.8m OSK 14 VAT Lender

Alpha Bank – €9.7m OSK 10 VAT Lender

Alpha Bank – €8.7m

JESSICA funding

OSK 14 Equity

€10.1m osk 14 SPV / Sponsors

Attika Schools (50 percent ATESE SA – 50 percent Domiki Kritis) OSK 10 Equity

€9.9m osk 10 SPV/Sponsors

JPA Attika Schools Construction and Management (100 percent J&P Avax) Coordinating Bank

Alpha Bank Financial Modelling Party

Alpha Bank (OSK 14) J&P Avax (OSK10) Facility / Security Agent

Alpha Bank Account Banks

Alpha Bank (OSK 14 & OSK 10), UniCredit (OSK 14), HSBC (OSK 10) Lenders Legal Advisors

Kyriakides Georgopoulos Law Firm, Norton Rose Fulbright Sponsors Legal Advisor

Your Legal Partners Lenders Technical Advisors

McBains Cooper (OSK 14),Turner & Townsend (OSK 10) SOURCE: ATTIkA SCHOOLS PPP PROJECT

JESSICA supports sustainable urban development and regeneration through financial engineering mechanisms. EU countries can choose to invest some of their EU structural fund allocations in revolving funds to help recycle financial resources and to accelerate investment in Europe’s urban areas. Owing to the revolving nature of the instruments, returns from investments are reinvested in new urban development projects, thereby recycling public funds and promoting the sustainability and impact of EU and national public money, compared to the traditional provision of grants. As per the EU’s regulations, structural funds and national match funding are transferred to a JESSICA holding fund and later to Urban Development Funds (UDFs), which in turn invest these public resources in urban projects together with private investors. The management of the respective UDFs is awarded to competent parties – usually banks – through a tender. JESSICA aims to restore market failures by investing in sub-commercial terms to support viable urban projects that have not attracted sufficient private investment, due to an internal rate of return that is not sufficient on a purely commercial basis.


Education Deal of the Year

Lenders Insurance Advisor

Marsh Model Auditor

Ernst & Young Independent Engineer

McBains Cooper (OSK 14), SALFO and Associates (OSK 10)

The structuring and financial closing of the transaction presented the usual complexities of PPP project financing while at the same time JESSICA funding should become part of the funding mix to ensure full compliance with respective procedures, requirements and criteria applicable to this product. Of paramount importance to the package was an effort to formulate terms and conditions in such a manner so as to obtain the necessary EU State Aid clearance, since JESSICA – by investing public resources in subcommercial terms – is essentially an aid scheme. Another important parameter was to restore economics of the project but only up to the minimum required level necessary to mobilise other debt and equity providers within the boundaries of the precrisis tender outcome. The transaction reached financial closing in Q2 2014, as a result of the coordinated efforts of the funding consortium (comprising of the EIB, the National Bank of Greece being the manager of JESSICA Urban Development Fund for Attika and Alpha Bank), the sponsors, the external advisors, the Contracting Authority (Building Infrastructure, formerly OSK) and the Ministry of Development/ Special PPP Secretariat. The transaction reinforced the ability of Alpha Bank and the National Bank of Greece to structure, underwrite and manage complex transactions. Also on show was the EIB’s unrivalled capacity to provide finance and expertise for sound and sustainable investment projects that contribute to furthering EU policy objectives. The constructive ap-

proach of the PPP secretariat and the contracting authority, the ability of the advisory community to offer quality services, and the sponsors’ continuous commitment to support the project, honour their bid and accept the same unitary charge as per the 2010 bid. Above all, the project represents a lesson in the value of team effort and cooperation.

Lessons for the future The experience gained from this process is valuable in light of the steady PPP pipeline that the Greek government is attempting to bring to the market. Throughout the course of Greece’s recovery process, two things have been important: the support of the Greek State; and second, the mobilisation of innovative financial engineering instruments like JESSICA in utilising state and EU funds through a structured procedure, along with the promotion of funding and guarantee mechanisms offered by multilateral organisations. At the moment there is a strong pipeline of PPP projects in Greece, and of the 13 tenders for waste PPP projects, preferred bidders have already been selected for five of them. There are also six ICT PPP projects in the tendering process, including Attika Urban Transportation Telematics PPP project (signed in June 2014), Electronic Ticketing PPP Project for Attika Urban Transportation, and three Rural Broadband PPP Projects, for which the preferred bidders have been selected. With a string of impressive projects to come, the benefits for the Greek economy are clear for all involved, and the country will continue to promote PPPs in bringing high priority projects to fruition. n PROJECT FINANCE |




exports Export Credit Agencies are just one way of fuelling international project finance. Tied up in government support, they attempt to eradicate globalisation issues, and can help stablilise cross-border relations



Occasionally used as punch bags by politicians for their own cynical ends, and sometimes derided by others for being ‘anti-development’, Export Credit Agencies (ECAs) nonetheless continue to figure prominently on the global lending finance stage. Exporters can go to their bank – or similar financial organisation – for finance and to credit insurers to obtain the necessary cover against the risk of not being paid. If some exporters are unable to get help from these private sources the ECA can step in, depending on the mandate provided by its own government. Typically, ECAs use three methods to provide funds to an importing entity: direct lending where the loan is conditional upon the purchase of goods or services from businesses in the organising country; financial intermediary loans where the ECA provides funds to an ‘agent’, such as a commercial bank, which in turn loans funds to the importing entity; and finally via interest rate equalisation. In this scenario a commercial

lender provides a loan to the importing entity at below market interest rates, in turn receiving compensation from the export–import bank for the difference between the belowmarket rate and the commercial rate.

Agency impact From a practical standpoint, an exporter providing credit to overseas customers in order to boost exports from the home country faces two potential problems. The first and most obvious being that it has to wait for its money, which can negatively impact a company’s cash flow. Similarly, it is exposed to the risk the buyer eventually can’t or won’t pay for the exports. For example, the customer – between the time the exporter ships the goods and the time those goods arrive at the buyer’s premises – may have gone bankrupt, potentially leading to the exporter itself becoming insolvent if a large sum of money is involved. Unsurprisingly, ECAs are de facto cheerleaders acting on behalf of the

political masters who oversee them – the overriding objective being to promote domestic jobs growth and further national interests overseas through the expansion of exports. Inevitably, this leads to fierce competition globally and potential economic conflict, given the aims of the Japan Bank for International Cooperation (Japan’s ECA), for example, may be counter to those of the US’ Export-Import Bank (ExIM Bank). Indeed, in many ways it can often be a zero sum game where ensuring that jobs stay in Japan (by expanding exports) effectively means those jobs not going to other places, such as the US. As the US’ ECA, the Ex-Im Bank noted in its June 2014 report to Congress that total trade-related financing reached $286bn in 2013, down from $311bn in 2012 (see Fig. 1). And yet OECD-governed export credit support accounted for just 34 percent of total official trade-related support (down from more than 40 percent in each of the previous two


at fostering a level playing field for official support based on the quality and price of goods and services being exported, rather than simply on the most favourable officially supported financial terms and conditions. The rules, which are applicable to any official government support for exports of goods and/or services that have a repayment period of two years or more, are part of a global legal framework for export credit provision, which also includes the WTO’s Agreement on Subsidies and Countervailing Measures (ASCM). Of particular note in the Ex-Im Bank report was that three Asian countries – Japan, Korea, and China – accounted for well over half of the $286bn total official trade-related support, or $168bn. China, in particular, has also begun to move away from exporting mainly consumer goods and is moving into the realm of ‘upstream’ exports, such as aircraft, power, and technology. Being a non-member of the OECD, moves are underway to bring Beijing within the international framework. While ECA-backed financing historically has been little more than a direct long-term financing arrangement between banks and a buyer, more complex and innovative structures have emerged more recently. Of particular note have years), meaning that about twothirds of official support provided in 2013 was exempt from the OECD rules ($186bn).

USD, billions

Regulated OECD Member Arrangement 2011 2012 2013

Unregulated OECD Member Activity 2011 2012 2013

Non-OECD Member (BRIC) Activity 2011 2012 2013

Total ECA Financing Activity 2011 2012 2013 0







other day, its current remit has only been extended through June 30 2015 after the US Congress passed a more restrictive measure, which had been tucked away in a larger spending bill and included Barack Obama’s financial response to the unfolding Ebola crisis.

Political agenda been deals incorporating a fixed bond placement in the capital markets where borrowers can lock-in a long-term interest rate, as opposed to a floating rate note that may be tied to a benchmark such as Libor and subject to more volatility, which may not always work in favour of the borrower. Greater rate visibility also makes it more attractive for wouldbe investors such as pension funds and insurance companies. In addition, pre-funding structures are now becoming more frequent. These allow borrowers to exploit capital markets, assuming the ECA gives its approval, before goods and services have even been delivered. They are simply held in an escrow account, prior to delivery. Obvious competition pressures aside from the ECAs can also run the risk of coming under political pressure at home as the recent travails of the US Ex-Im Bank have shown. While the bank has lived to fight an-

Fig. 1 Global ECA activity, 2011-13

Setting the rules This is an important point because until the late 1970s competition had led governments, through their ECAs, to offer increasingly subsidised financing to their exporters in order to assist them in competing with exporters from other countries. Inevitably this led to complaints from the private sector that ECAs were causing distortions in markets. However, since no individual country felt able to unilaterally halt the subsidies, fearing its own exporters would lose out; multilateral agreements were negotiated by countries instead. In 1978, international negotiations resulted in the first regulatory instrument: the Arrangement on Guidelines for Officially Supported Export Credits (OECD Arrangement) – in effect a f lexible, nonlegally-binding instrument aimed

Unsurprisingly, ECAs are de facto cheerleaders acting on behalf of the political masters who oversee them



Tea Party Republicans argued the Ex-Im Bank had a long history of financing politically favoured companies – a charge rejected by Democrats who continue to insist that against a continuing backdrop of stiff global competition. Despite OECD ‘rules’, institutions such as the ExIm Bank are needed to promote and preserve US jobs through exports. Matters weren’t helped by revelations from Ex-Im Bank’s internal watchdog that at least 40 active investigations into allegations of fraud – by employees or agency beneficiaries – were underway, according to the chairman of a congressional investigating panel. A sub-text (but an important one nonetheless) to this narrative is the


Total ECA financing activity, 2013 growing importance of Ex-Im Bank in President Obama’s Power Africa initiative, which aims to double energy output across sub-Saharan Africa by 2018. Indeed, of the $7bn pledged over five years, up to $5bn will be financed by the Ex-Im Bank. Going forward it’s unlikely the role of ECAs will diminish, indeed the reverse will likely prove true as conventional banks not only continue repairing their balance sheets in response to the 2008-2009 financial meltdown, but also ensure their capital buffers are beefed up as required under Basel III. Much work needs to be done though – not least by bringing China in from the cold in order to create a level playing field globally. Failure to do so runs the risk of fostering a new form of mercantilism globally where countries boost their industries by cheap finance to the detriment of the wider community at large. While this could work in the short term the long-term prognosis, if left unchecked, is far more problematic. n PROJECT FINANCE |






Upping Nigeria’s oil production Lagos-based Oando has capitalised on emerging opportunities as foreign players divest from the Nigerian energy market

Already among Africa’s leading energy providers and enjoying a newfound status as one of the region’s premier oil and gas producers, Nigeria’s Oando now has even loftier ambitions, beginning with a recent $1.5bn acquisition of ConocoPhillips’ hydrocarbons assets. At a time when many in Western markets are wary of what exposure to emerging markets could mean for their margins, local players are doing what they can to claw back a much-needed share of the domestic market. The landmark acquisition has transformed Oando into Nigeria’s leading indigenous exploration and production company, with a total hydrocarbon production capacity of approximately 45,000 boe/d (barrels of oil equivalents), 2P reserves of 230.64 MMboe (millions of barrels of oil equivalents) and 2C resources of 547 MMboe. What’s more, the transaction is immediately cash generative, with expected annual revenues of over $600m and 50 percent earnings before interest, taxes, with depreciation and amortisation margin to boot.

Challenging the odds Having a pre-acquisition production rate at approximately 5,000 bpd, the deal has upped Oando’s capacity eight-fold, and quickly 40


cemented its stature as a leading name in the West African oil and gas business. Although the country’s overall production rate is far short of what it once was – owing principally to theft and sabotage – the company expects the production rate to climb by another 600,000 bpd over the next five years, on top of two million barrels produced daily already. Made up of six entities, Oando is listed on the Nigerian, Johannesburg, and Toronto stock exchanges, and has headed operating in exploration and production, energy services, gas and power, and downstream activities, and has headed a number of path breaking advances in the Nigerian energy sector. With an ambition to produce 100,000 bpd before the 2019, Oando’s position in the African energy market looks only to increase in strength and stature. The ConocoPhillips deal, if nothing else, serves to illustrate just how far the Nigerian oil and gas sector has come in terms of growth and development, and the increasing measures taken by home-grown companies to put their stamp on the domestic market. “We believe in the significant potential that the Nigerian oil and gas industry holds and are privileged to play a pivotal role in its consolida-


tion, growth and development,” said Wale Tinubu, Group Chief Executive of Oando. “We will continue to seek strategic opportunities that provide a platform for enhanced growth and value creation for our stakeholders,” he added. After offloading its Algerian oil business last year for $1.75bn, ConocoPhillips – America’s third-largest integrated energy company – has again opted to reduce its emerging market operations and hone in on home-grown shale riches, principally in North Dakota and Texas. The development has, however, afforded local players a greater say in the domestic energy market, not least in the case of Oanda, which has recently emerged as a key constituent of the region’s ever-evolving hydrocarbons sector and an attractive investment partner. Originally signing on to a sales and purchase agreement (SPA) with ConocoPhillips in December of 2012, the transaction was concluded in July 2014, and is heralded as a landmark oil and gas acquisition on a regional and global basis. “This transaction represents a transformational leap forward for our company and is in keeping with our overall strategy to grow our portfolio of Nigerian-based assets, by focusing on those opportunities that deliver high quality



growth in reserves and production,” said Upstream Head, Pade Durotoye, CEO, Oando Energy Resources, shortly after the deal was closed. “Our management team is familiar with these assets and possess the managerial experience and technical expertise necessary to unlock their value for our shareholders.” The net cash consideration for the transaction was approximately $1.5bn, after customary and working capital adjustments, plus a deferred consideration of $33m. A deposit of $550m was paid to ConocoPhillips to underpin the closing commitment from the date of signing the sale and purchase agreement in December 2012, to closing in July 2014.

Deciphering the financials The financial structure of the acquisition was funded with a 50/50 debt/ equity mix, made up of proceeds from a $450m senior secured facility, $350m for a corporate loan facility, $100m from a subordinated loan facility, $50m from a private placement offering of Oando shares, and balance proceeds from a $1.2bn shareholder loan facility agreement with Oando PLC – converted to equity. Oando’s key financial partners included BNP Paribas, Standard Chartered Bank, Standard Bank, African Export-Import Bank, FBN Capital

02 A man is seen reading about the Oando deal in a local Nigerian newspaper

and FCMB Capital, all of which contributed vital funds and expertise in ensuring the deal ran smoothly. Having now seen the acquisition through to completion, Oando believes the deal represents an opportunity for the company to expand upon its presence in the global energy market and, in turn, create value for its shareholders. For one, the total reserves and resources tied to the transaction amount to probable reserves of 211.6 MMboe, best estimate contingent resources of 509.1 MMboe and unrisked best prospective resources of 669.7 MMboe, representing a sizeable increase on reserves prior to the acquisition. The deal will also see the company acquire a 20 percent working interest in Nigerian Agip Oil Company’s (NAOC) operations, who currently oversees forty discovered oil and gas fields, 24 of which are well into the production phase. The joint venture, comprising Nigerian National Petroleum Corporation, Eni, and now Oando via OER, also boasts an impressive portfolio of 40 identified prospects and leads, 12 production stations, three gas processing plants, and close to 1500km of pipelines. Prior to the transaction, Nigeria’s production stemming from its ConocoPhillip onshore assets


Upstream Oil and Gas Deal of the Year Financial structure

The acquisition was funded with 50/50 debt/equity mix. The breakdown is as follows: Proceeds from $450m senior secured facility Proceeds from $350m corporate loan facility Proceeds from $100m subordinated loan facility Proceeds from $50m private placement offering of OER Balance proceeds from $1.2bn facility agreement with Oando (converted to equity) start AND END date

Oando Energy signed an SPA with ConocoPhillips in December 2012. The transaction reached final closure in July 2014 Location

Nigeria Objectives

The purpose of the transaction is to transform Oando Energy Resources into Nigeria’s largest indigenous E&P player with a total hydrocarbon production of circa 45,000boepd, 2P Reserves of 230MMboe and 2C Resources of 547MMboe. The transaction is immediately cash generative with expected annual revenues of over $600m and a 50 percent EBITDA margin Key partners


01 An Oando oil rig is seen in Nigeria, where the ConocoPhillips deal has been implemented



BNP Paribas Standard Chartered Bank Standard Bank African Export-Import Bank FBN Capital FCMB Capital

averaged at 36,494 boe/d through 2013, and in the first half of 2014 came to 39,266 boe/d. In addition to the company’s production capacity, OER onshore assets include a further 211.6 MMboe of proved and probable reserves, 217 MMboe of best estimate contingent resources and 333.6 MMboe of unrisked best prospective resources. The company’s offshore assets, meanwhile, are drawn from shares in six fields and eight prospects, which together contain a total of 292.1 MMboe of best estimate contingent resources and 336.1 MMboe of unrisked best prospective resources. However, Oando’s end of 2013 proved plus probable reserves of 230.6 MMboe, best estimate contingent resources of 547.3 MMboe, unrisked best prospective resources of 2,064.6 MMboe and a half year, 2014 production of 44,512 boe/d. With half of the deferred consideration of $33m due six months after closing the deal and the remainder due by 12 months, OER looks set to increase its cash flow in the immediate term. The increasing arrival of international financiers on Nigeria’s shores should give those in the industry cause to feel optimistic about what lies ahead for the domestic energy market, as local and global names alike look to take significant advantage of existing opportunities in the hydrocarbons sector. With Oando at the helm, likeminded market players will be looking to see what M&A opportunities present themselves as foreign parties withdraw and local ones grow in stature. n PROJECT FINANCE |






Driving Peruvian competitiveness The Rutas de Lima concession forms a key component of Peru’s bid to boost competitiveness and realise its grand infrastructure ambitions

Peru’s newfound political stability has boosted trade and economic growth in a country with a huge infrastructure gap that threatens to curtail its competitiveness. And without a concerted effort to address what problems remain for Peru’s roadways, social and economic growth will likely fall short of its potential. Rutas de Lima, one of the companies of the Odebrecht Latinvest organisation, is in charge of developing an ambitious project to create an urban road concession in the country. Odebrecht Latinvest consolidates assets in Latin America allocated to projects of urban mobility, roads, railways, ports, airports, pipelines, and logistics integrated systems. The Rutas de Lima project is one of the first urban road concessions to encompass the capital’s three main highways, which play host to an average of 200,000 vehicles per day. The project will contribute to the sustainable growth of the Peruvian economy by responding to and anticipating further growth and travel demand. With more than nine million inhabitants, the local govern42


ment has identified road infrastructure as a priority spending target for the nation’s capital, and the purpose of the Rutas de Lima project, therefore, is to enhance connectivity and efficiency on this front. The project also includes several interchange schemes that seek to improve and streamline connections between community infrastructure and the existing highway segments.

Power of three Rutas de Lima and the Municipality of Lima signed the 30-year concession contract in January 2013, relating to 115km of the three main highways that provide access to Lima from the north, east, and centre of the country (Panamericana Norte, Panamericana Sur and Ramiro Prialé). As an infrastructure development project, the scope covers the execution of activities relating to the construction, betterment, expansion and conservation of these three existing highways. What’s more, the contract extends to the construction of road interchanges, pedestrian bridges, auxiliary roads and 19km of the Ramiro

Prialé highway. The operation and maintenance of the three highways is also considered, including free 24hour emergency support services for pedestrians and vehicles throughout the whole concession. This project is only one part of a far larger plan to address the traffic infrastructure requirements of Lima. Covering 23 districts of the nations’ capital, some of which have the highest populations and densities in the region, the roads must facilitate private and public, as well as cargo and industrial transportation. Lima represents more than 50 percent of the national gross added value, far and above second place Arequipa with five percent. The distribution of the project components directly correlates with the urban form and population settlements, as well as


the traffic volumes and distribution. Since this is one of the first road urban concessions in the country, there is a huge opportunity to develop, together with the authorities, a strong and stable regulatory framework to pave the way for better practices in future public-private partnerships (PPPs) urban road concessions.

Setting the bar Rutas de Lima’s primary objective is to be seen as a benchmark for similarly minded road concessions aiming to improve upon road safety, traffic flow and quality of service in Peru. In order to increase safety on the country’s roads, public and private parties must take decisive action to bolster the country’s failing infrastructure. However, at the same time, there must be greater compliance with traffic regulations, not to mention relevant social responsibility programmes, and cooperation with authorities to identify traffic risk situations that could jeopardise either people’s lives or the road infrastructure. Therefore, since the first year of concession, the project sponsor has

developed a social responsibility programme to promote the compliance of the traffic regulation within the population. Rutas de Lima works directly with pedestrians on the roads to promote the use of pedestrian bridges, with children in schools, as well as with drivers. And, to date, the programme has reached more than 50,000 people. One of the goals is to organise traffic flow – especially public transportation – and to develop a safer infrastructure for pedestrians. Bus stops and pedestrian bridges will be built throughout the roads, and a technical evaluation for every bridge’s structure has been made in order to identify the works that are most in need of safer infrastructure. This concession’s view of ‘road users’ is that they constitute all types of vehicles as well as pedestrians, and so the benefits of this concession are intended for all users. Design decisions are made based on the mobility and access needs of nearby communities. Several design alternatives for the highways and interchanges have been evaluated using the latest traffic flow data and

Private investment

$720m Financial structure

Start date

January 9, 2013 Concessionaire

Rutas de Lima Concession period

30 years Project type

Public-private partnership that grants the concession for 30 years of 115km of the three main highways that provide access to Lima from the north, east, and centre of the country: Panamericana Norte, Panamericana Sur y Ramiro Prialé location

Lima, Perú Objectives

› The excution of activities that

relate to the construction, betterment, expansion and conservation of existing highways, with an average of 200,000 vehicles per year › The construction of road interchanges, pedestrian bridges, auxiliary roads and the extension by 19km of the Ramiro Prialé highway › Operation and maintenance of the three highways, including free emergency support services for pedestrians and vehicles throughout the whole concession, 24 hours a day

The road ahead The financing and structuring team for the concession was selected for its experience and capacity, its ability to commit local currency resources to the bank loan financing,


PPP Deal of the Year

The transaction is expected to serve as a benchmark for subsequent financial projects, not only by merit of the size of the financing, but also due to the fact that there was a specific financing structure for each of the stages of the project. This ensures a more efficient and less onerous financing structure. › Fixed PEN-denominated bond tranche will finance immediate capex and investments at financial closing › Inflation-linked PEN bond tranche will be disbursed as per capex and investments chronogram › Bank loan tranche will cover obligations that begin more than 1.5 years after financial closing

Key partners

Municipality of Lima / Odebrecht SOURCE: ODEBRECHT

Left Punta Negra Toll Plaza in Panamericana Sur Highway

prepared to improve pedestrian mobility and access to public transportation. When completed, the roads should bridge communication and access between communities, and make commute times between Lima and important production centres more reasonable. Proposed engineering for every intervention is coordinated and approved by the Municipality of Lima and the Ministry of Transportation and Communications. In addition, all permits and authorisations needed to develop the construction, operation and maintenance activities, such as Environmental Impact Study, Construction Authorisation and Traffic Detour Plans, are coordinated, approved and supervised by these same public institutions. Engineering designs are developed and tested using specialised software for traffic flow simulation, and the whole road, with future interventions included, is tested to ensure that the engineering projects are expertly managed. Since all interventions are financed with private investment, mandatory works in areas where major traffic flow is concentrated are going to be finished in two years for each highway, which is significantly less time than public sector is usually capable of managing for this kind of project. The shortened construction period means that the population and the city will enjoy the benefits of the project sooner rather than later. Given that the concessionaire manages the toll collections, there is a guarantee that the resources will be used for the betterment of users and the conservation of the roads. Rutas de Lima is building the first sustainable toll plaza with LEED Certification in Latin America, where the Villa Toll Management Centre is located currently. Further technology, such as intelligent traffic system (ITS), has been implemented to optimise operational and maintenance costs, to improve decision making over the traffic flow, and exercise greater control over accidents that might occur on the roads.



Key executives

Jorge Barata, Executive Director of Odebrecht Latinvest and Raul Pereira, CEO

and expertise leading international 144a / Reg. S bond issuances (Joint Bookrunners and Placement Agents: BBVA, Credicorp Capital, Goldman Sachs/ Co-Manager: Interbank). The chosen financing structure consists of a bank loan tranche (Structuring Team: BBVA, Credicorp Capital/ Lenders: BBVA, BCP, Interbank), which will be used to finance capex following expropriations in Ramiro Prialé Road, and later complemented by an international multi-tranche bond financing to fund immediate and mandatory capex. Additionally, the company closed a two-stage PEN-denominated $27m bridge facility, which was used to finance initial works (i.e. Alipio Ponce), as well as important investments relating to operational aspects of the project, such as toll plaza remodelling, road improvements and ITS. In July 2014, 12 months after the closing date of the aforementioned bridge facility, the company reached financial closing by placing the largest local currency denominated bond issuance in the history of Peruvian capital markets at a total of PEN2.02bn – equivalent to $720m. Following the transaction’s success, this model is expected to serve as a benchmark for subsequent financial projects, not only due to the size of the financing, but also due to the fact that there was a specific financing structure for each stage of the project, making for an efficient financing structure. In April 2013, Rutas de Lima was the first road concession to be licensed by the Peruvian Government to use the Marca País, a national trademark awarded to those with an outstanding reputation and brand image in the country. And in less than one year of concession, Rutas de Lima also obtained three international certifications granted by Bureau Veritas: ISO 9001, ISO 14001 and OHSAS 18001. The acknowledgment shows just how important the project is for the country’s continued development, and how highly regarded Rutas de Lima is by those in power. For Peru to realise its government’s vision to boost competitiveness by way of infrastructural improvements, likeminded parties must take heed of Rutas de Lima and look to mirror its many successes. n PROJECT FINANCE |






Optimising Chile’s sustainability SunEdison’s ambition to become Chile’s leading supplier of solar energy is close to being realised following a succession of key business developments

With an objective to one day become Chile’s leading supplier of solar energy, SunEdison has embarked upon a number of ambitious infrastructure projects, and in doing so has cemented its status as a key player in the domestic energy market and a major contributor to matters of environmental and social wellbeing. By bringing a much greater measure of sustainability to the country’s energy mix, and playing a key role in introducing a plentiful, renewable and socially responsible energy source to market, SunEdison represents a vitally important part of the country’s energy sector. Since arriving in Chile in 2011, the company has commenced development on over 150MW of installed solar capacity and built up a vast portfolio of projects, each in various phases of development and backed by all manner of complex, though no less successful, financial structures. With an impressive number of facilities already to its name, SunEdison 44


intends to develop another 142MW of installed capacity through 2014, thus reducing the cost for consumers, while also boosting the diversity and cleanliness of Chile’s energy mix. In 2013, SunEdison commenced construction on its two first largescale projects, both in the Atacama region, which together boast a combined installed capacity of 150MW. Fast-forward to today, however, and the Amanecer Solar CAP and San Andrés plants have each been completed and were connected to the country’s Central Interconnected System (SIC) in Q1 2014, as a string of similarly impressive projects await in the wings.

Amanecer Solar CAP Situated in Copiapó, the Amanecer Solar CAP plant is a 100MW facility developed under a contract for difference (CFD) agreement with the mining and steel firm Grupo CAP, the largest producer of iron minerals and steel in Chile and the lead-

ing steel processor in the Southern Cone. What began in August 2013 now generates approximately 15 percent of the mining group’s total energy requirements and reduces the region’s dependence on fossil fuels by a considerable margin. On its inauguration in June 2014, the plant was declared the largest solar photovoltaic facility in Latin America and cited the world over as a major breakthrough for renewable energy in emerging markets. “This project has changed the course of non-conventional renewable energy development not only in Chile and Latin America, but throughout the world,” says Ahmad Chatila, president and CEO of SunEdison. In only its first year, the facility is forecast to generate some 270GWh of clean energy, equivalent to the removal of over 30,000 cars from the roads and enough to power 125,000 homes each year. Owing to an investment of $250m, the plant consists of 310,000 photovoltaic

modules spanning 280 hectares of land, and was completed in only six months. “This plant demonstrates that photovoltaic solar energy is an ideal way of diversifying the energy matrix in Chile, reducing costs and contributing towards meeting the demand for clean and sustainable energy,” said José Pérez, President of SunEdison for Europe, Africa and Latin America. “The 150MW plus interconnected by SunEdison in Chile is the starting point of our firm commitment to the future of energy consumption and the development of the energy industry in this country.”

San Andrés plant The San Andrés plant, meanwhile, was born of a more complicated financing structure, although the facility clocks in at a lesser 50.7MW, as compared with the Amanecer Solar CAP plant. Situated in the municipality of Copiapó, the 50.7MW San Andrés plant was developed under a




Renewable Deal of the Year Start Date

August 2013 End Date

January 2014 Designers

SunEdison Concession Period

25 years Project Type

Photovoltaic Solar Merchant Plant location

Copiapó, Atacama Region Objectives

The San Andrés Solar Project is to generate electricity from solar energy using photovoltaic technology. San Andrés is currently the biggest solar photovoltaic merchant plant in Latin America. The plant is connected to the SIC (Central Interconnected System) and sells all the energy it produces on the spot market demonstrating the competitive advantage of photovoltaic solar energy over other traditional sources of energy

plants are developed under PPA contracts. Lauded by respected industry names as a landmark achievement in the project finance space, the finished facility is well equipped to capitalise on the country’s rich solar energy potential, expand upon its energy mix, and add a number of much-needed jobs for those living in the vicinity.

Maria Elena project With the intention of upping installed capacity by another 200MW through this year alone, SunEdison has a vast portfolio of projects still to be completed in the coming year, not least

renewable energy in a country with solar power deployment that’s growing at an impressive pace,” said Elizabeth Littlefield, OPIC’s President and CEO. “SunEdison is a global partner of OPIC’s, and with the closing of this loan, we are proud to continue supporting this global leader in clean energy while helping Chile expand its own renewable power capacity.” OPIC is fronting $48.9m of debt, whereas the IDB is providing $50.3m of debt directly, as well as administering $16m of debt from the CTF, while CorpBanca is providing a parallel loan of $39.8m alongside a local


Key Partners

Overseas Private Investment Corporation (OPIC) and International Finance Corporation (IFC) as Senior Lenders. Rabobank as VAT Lender Operations Director

Fabían Gonzalez

$100.4m non-recourse debt financing deal with the Overseas Private Investment Corporation (OPIC), the financial development institution of the US government, and the IFC, the private sector lending arm of the World Bank Group. Backed by a total of 35 investors, the San Andrés plant is expected to create additional jobs in the area and keep on producing energy at the same rate for 25 years. The project should, therefore, stand as an example of what can be achieved in Chile, in terms of renewable energy and in terms of project finance in the years to come. One of the chief innovations of the plant is that it feeds energy directly into the SIC, selling its entire output on the spot market (merchant solar). What’s more, San Andrés represents the first fully merchant solar photovoltaic energy plant in Latin America and one of the most important projects of its kind worldwide, given that the vast majority of solar

of which being the Crucero project, a 72MW plant in the municipality of María Elena. Having only recently received authorisation from the Environmental Evaluation Service, the project is on track to become one of the firm’s most formidable to date. It’s funded by a $155m non-recourse debt financing deal, together with the OPIC, the financial development institution of the US government, the Inter-American Development Bank (IDB), the Clean Technology Fund (CTF) and CorpBanca. “This is an exciting and important project that will advance the field of

Chilean Peso VAT facility equivalent to a further $35m. The bank’s participation in the deal is particularly significant, in that it marks the first instance of a local bank partaking in the senior debt facility of a merchant solar project in Chile. Once the project is ready, the facility will stand fast as one of the largest of its kind not only in Latin America but in the world, representing a major step in the shift to a low-carbon economy and an important component of Chile’s energy sector. Not excluded to renewable energy, however, the project is just one part of SunEdison’s broader commitment to matters of environmental and social wellbeing.

Social commitments

The finished facility is well equipped to capitalise on the country’s rich solar energy potential

The company’s mission promises to more broadly safeguard the communities in which it operates, as evidenced by its energy production operations and the various ways in which each facility is optimised so as to minimise damages on the sur-

rounding environment. With regard to the Atacama Desert, one of the company’s primary objectives is to ensure that its plants do not infringe upon the natural environment in any discernible way. By taking pains to protect the local environment, SunEdison manages to more effectively align its processes with the wider environmental gains for the communities in which it operates. In addition to the company’s commitment to environmental protection, social care – in particular educational development – also ranks high up in SunEdison’s list of priorities. Among other initiatives, it has committed to the Atacama Secretariat for Social Developments’ ‘I Study in my Neighbourhood’ education project across two towns in the municipality of Copiapó. Here the company has made a donation towards providing healthy meals for children, as well as transport, study and psychological support materials for 84 pupils. By committing to matters quite apart from the company’s primary focus, SunEdison aims to further social and economic development in the region. This September SunEdison and Los Pelambres mine announced an agreement for the long-term sale of power to Los Pelambres Mine, owned by Antofagasta Minerals-the largest private mining group in Chile and one of the nine largest copper-producers in the world. Under the agreement SunEdison will supply the power produced by the Javiera solar photovoltaic project, with a capacity of 69.5MW DC, for operations at the mine. The Javiera power plant, located in the Atacama Region, is already under construction and is expected to be connected to the grid in the first few months of 2015. The project will deliver all its electricity to the Central Interconnected System (SIC) and will supply Los Pelambres, a copper concentrate and molybdenum mine located in the Coquimbo region. The term of the contract between the two companies is 20 years. With an impressive portfolio of projects to its name and a proven history of developing strong relationships with investors in bringing projects to fruition, SunEdison is well equipped to play an increasingly important role in bringing a greater means of sustainability to Chile’s energy market. n PROJECT FINANCE |






Portugal’s high insurance stakes Portugal’s state-owned insurer reached a landmark when it was recently privatised by the Chinese conglomerate Fosun, marking the country’s largest ever insurance acquisition

Fidelidade’s headquarters, Portugal

Major developments The conglomerate was selected as the acquirer of 85 percent of the share capital and voting rights of Fidelidade, and 80 percent of the share capital and voting rights of Multicare and Cares (the remaining five percent share of the employee public offering will be subsequently acquired by Fosun, which may increase their stake in Fidelidade to 85 percent). The €1.6bn ($2.06bn) deal marks the largest insurance acquisition in Southern Europe over the past three years and the largest ever in Portugal. The figure includes an initial €1bn ($1.3bn) combined with €38m ($48m) in price adjustment, a distribution of €209m ($268.6m) in 2013, a pre-closing dividend of €327m ($420m) in 2014 and the estimated proceeds from the five percent Fidelidade public offering sale. It is estimated that Fosun’s takeover will result in an increase of 169 ba-


Privatisation Deal of the Year Cost

€1.6bn Start to Date

June 2013 to May 2014 Designers

Fosun / Portuguese government Project Type

Privatisation of insurance company Location


Fosun International, one of China’s largest private conglomerates, recently bought the insurance operations of Portugal’s largest financial institution, state-owned CGD. The move marked an effort to streamline the group and focus its core banking business while strengthening its capital base, which was part of the commitment envisaged in the Financial and Economic Assistance Programme signed between the Portuguese government, the European Commission, the ECB and the IMF. The deal signified Fosun’s largest overseas investment to date, and saw the Chinese company stepping up its efforts to establish a more prominent position in the insurance market as part of its international strategy. With an overall market share of approximately 30 percent, multichannel financial institution CGD has been building its brand equity for over two centuries. It’s a key player in the insurance industry and the privatisation of its insurance operations – Fidelidade and Multicare and Cares – marks a milestone in its history. Fosun, which is listed on the Hong Kong stock exchange with a market capitalisation of more than €6bn ($7.7bn), has partnered with some of the world’s most renowned financial institutions in the past, including BHF Bank and French holiday company Club Med. The latest move will add a further string to its already strong bow.




Privatisation of insurance company Key Partners

Fosun Project Manager

Manuel Rodrigues

sis points in CGD’s Common Equity Tier 1 capital (Basel III). The group said that forecasts were strong and compared favourably with those of other European insurers when the deal was announced. Fosun was chosen as the buyer after a lengthy and complex sale process. CGD struggled in the face of challenging market conditions and regulatory constraints to which Southern European financial institutions – in particular insurance companies with significant exposure to sovereign debt – are subject. Further obstacles added to the complexities of the acquisition; Portuguese sovereign yields, for example, were substantially higher and more volatile during the transaction than at its closing. The direct reference sale, which came under the Portuguese framework law for privatisation, was aimed at investors and other financial and industry stakeholders with a longterm and stable investment perspective. The transaction structure was designed to maximise the potential of suitable bidders in light of the specific assets, and investor demand was assessed through a preliminary market test. Based on that test, the Portuguese government and CGD decided to consider proposals for stakes in the companies themselves as well as stakes in one or more of three specific sectors within them. The segregation and transfer of those sectors would only occur at closing and if required. Preparation for the launch was extensive and included gathering detailed information while deciding how to position the companies, as well as preparing business plans for alternative transaction struc-

tures. The sale entailed two separate phases: the preliminary seven-week long stage, referred to as Phase I, began with in-depth market analysis, during which a wide range of potential strategic and financial investors were considered. Initially 25 of 66 potential investors were identified and eventually chosen to submit non-binding offers, which resulted in CGD receiving five offers. Two investors were then chosen to participate in the second phase of the sale and to submit binding offers within an overall time-frame of 12 weeks. During this period, selected bidders carried out due diligence reports on the two companies (including financial, tax, actuarial and legal). They also had access to a detailed virtual data room providing financial, actuarial, commercial, operational, legal, tax and IT information as well as details on separation issues. The process didn’t end there; it involved management presentations and technical sessions, strategic partnership meetings with CGD and discussions over various transaction contracts (including direct reference sale, shareholders, bancassurance and transition services agreements). At the end of Phase II, the two parties finally submitted their binding offers in the form of a financial proposal, a technical proposal and various other pieces of documentation.

Portugal’s economic gains The winning proposal was selected based on criteria set out in CGD’s Terms of Reference and on how aligned Fosun’s own plans were with the overall objectives of the privatisation. The key goals of the move included strengthening CGD’s core capital, mitigating execution risk and establishing a solid long-term relationship. Fosun’s plans promised to maximise CGD’s core capital with no contingent payments and took into account all perimeters of the transaction. The plans included offering a large portfolio of sovereign debt without demanding any material restructuring within the company. Secretary of State for Finance Manuel Rodrigues explained the decision in his debrief, stating that: “The Council of Ministers selected the proposal based on their greater merit, in particular with respect to the financial terms, strategic design, minimisation of legal constraints

and contribution to the preservation of strategic unity of the insurance group, provided its superiority in six of the nine valuation criteria and equivalence in the remaining three”. Rodrigues added: “The winning proposal is aligned with the unanimous recommendations of the advisors of the privatisation process, Caixa Geral de Depósitos and of the Special Committee appointed to oversee the operation, which provided assurance that the transaction was performed with impartiality and transparency”. He took the offers as a promising sign for the country’s economic future, stating: “The existence of two good offers shows the confidence that investors have in the Portuguese economy”. According to Rodrigues, the insurance operations will “[retain] CGD as a shareholder of reference and [keep] the access to its distribution network and know-how”. The hope is that they will simultaneously gain a solid long-term shareholder who is committed to maintaining CGD’s leading position in Portugal’s insurance market, while accelerating international expansion. Fosun hopes to utilise its expertise in several areas – including asset management and reinsurance – while offering access to regions such as mainland China, Macau, Hong Kong and Europe. The Chinese company plans on working in partnership with CGD while strengthening its strategic links with the group and ensuring minority protection. A 25-year bancassurance agreement is due to be established in areas outside of insurance – including trade finance and project finance – in Europe, Asia and Africa. The implications of the agreement are therefore quite far-reaching, and are set to go beyond the borders of the insurance industry. The transaction appears an important and strategic move for Fosun, providing an opportunity for the Chinese conglomerate to jump on the bandwagon of Portugal’s leading banking group while growing its presence in Europe and reaping the benefits from its investments in insurance and other industries. But the privatisation is also a milestone for CGD’s insurance operations, enabling them to grow, develop and remain competitive on a long-term basis as they look to move forward. n PROJECT FINANCE |



Project bonds and the future of infrastructure Global funding for project finance has got back on track, with public initiatives and private funding plans instigating greater fervour and ramping up deliverables Like other major sectors, the European infrastructure market didn’t escape the cold winds of change blowing through the economic system after Lehman Brothers went bankrupt. Indeed, a perfect storm of rising public debt necessitating spending cuts, in turn undermining tax receipt volumes as unemployment rose, came against a backdrop of major banks having to scale back their lending in order to meet tougher capital adequacy requirements under Basel III. The portents certainly weren’t looking good then. In the longer term, there’s light at the end of the proverbial tunnel, assuming project bonds become as important over the coming years as their adherents hope.

Europe 2020 The European Commission estimates as much as €1trn of infrastructure investment will be needed in the transport, energy and IT sectors if the objectives of its Europe 2020 plan – a 10-year strategy for the economic advancement of the EU, first announced in March 2010 – are to be properly met. Part of this strategy – adopted in 2012 – is the ‘Europe 2020 Project Bond Initiative’ (PBI), which is aimed at mobilising needed funding for project financing of infra48


structure, which, with the help of the European Investment Bank, is intended to help address the need for investment in large-scale EU infrastructure projects. It is designed to enable eligible infrastructure project promoters, usually public-private partnerships (PPPs, see Fig. 1), to attract additional private finance from institutional investors, such as insurance companies and pension funds, by providing credit enhancement to those promoters whose debt will effectively be divided into two tranches: senior and subordinated. The subordinated debt – or ‘Project Bond Credit Enhancement (PBCE)’ in commission-speak – can take the form of a loan from the EIB, with the support of the EC, and is given to the promoter at the outset (see Fig. 2). It may also take the form of a contingent credit line, which can be drawn upon if the revenues generated by the project aren’t sufficient to ensure senior debt service. The PBCE underlies the senior debt and thus improves its credit quality, offering peace of mind to institutional investors. The bonds themselves are being issued by the promoters, not the bank or the member state in question, with support being made available during the lifetime of a specific project, including the construction phase.

Fig. 1 European PPP market 35

n Value in H1 n Value in H2 n Number of projects


Number of projects

160 140






80 15




5 0

20 2004












The bank selects and appraises projects according to its own standards; structures and prices the credit enhancement instrument for the selected project; and then carries out the monitoring. It will not act as a credit controller. Subsequent decision making for projects will be formulated on a case-by-case basis by the parties involved. Ordinarily, in their portfolio management mandates, investors will demand a minimum-A rating requirement – a target the PBI is aiming for. Similarly, for ALM (Asset Liability Management) purposes, insurers are also interested in long maturity high quality assets (>BBB). Currently in its pilot phase until the end of 2014, the initiative will

undergo an evaluation by EU institutions prior to being rolled-out until 2020. Projects approved by the EIB before end-2014 must reach financial close by December 31, 2016.

Regaining momentum The scale of the work needing to be done can be seen in the European Commissions’ Interim Report on the Pilot Phase of the Europe 2020 Project Bond Initiative, issued in December 2013. What’s unsurprising, is the private sector’s financing of infrastructure in the EU, using project finance for PPP projects as a proxy, has yet to recover to precrisis levels of €25-30bn – in part due to the reduction in activity of monoline insurers.


The European Commission estimates as much as €1trn of infrastructure investment will be needed if the objectives of its Europe 2020 plan are to be met

Fig. 2 Project Bond Initiative Company 1

Company 2


Senior debt in form of project bonds

Project Bond Guarantee Facility

Subordinated debt

Company 3

Investors buy or underwrite



Risk sharing



In fact, after a partial recovery in 2010 and 2011, the value of PPP transactions reaching financial close in Europe in 2012 totalled €11.7bn, a 35 percent drop compared to 2011 (€17.9bn) and the lowest value since 2003. On the positive side, the report noted that banks have continued to review their business models, with some even willing to lend to projects again, albeit at shorter maturities than before the crisis. Others have been developing capacities to originate and place project finance deals, in response to the increased role expected to be played by institutional investors – in particular insurance companies and infrastructure debt funds that have emerged and are able to invest in senior or subordinated debt in primary and secondary transactions. Some insurance companies, meanwhile, have set up in-house teams dedicated to infrastructure financing to strengthen their presence in the market, while others act through managed accounts.

Projects underway Major projects sanctioned so far have included a large offshore submarine gas storage facility in Spain – the first in Europe to issue ‘project bonds’ – for a total of €1.4bn. However, that project, named Castor, was halted in November 2013 after more than 200

minor earthquakes were detected near the area. The Spanish Government was later forced to take responsibility away from the project’s developer for repaying Castor’s financing. Other ongoing projects include three motorways in Belgium, Germany and Slovakia, a wind farm in the UK and a recently announced digital infrastructure project in France. Critics have been quick to suggest, however, that the PBI, given its commercial remit, is unlikely to be of much help to poorer regions in the EU where commercially feasible infrastructure projects tend to be fewer (see Fig. 3). In addition, as the Castor project – which had a clause in the contract potentially obliging the Spanish Government to take over from the developer – has highlighted, losses

are eventually carried by taxpayers since project bonds operate as PPPs.

Concentration of risk Longer term, it will be critical to build-up a significant and reliable pipeline of potential projects to be financed by project bonds, given this would also mitigate the concentration of risk that institutional investors may perceive for their portfolios. PBI cheerleaders have argued, going forward, that the same bonds could finance a number of projects, not just one. The risk diversification under this scenario may improve their ratings and potentially reduce the cost of the credit enhancement for the European authorities. Evidently, controls must be put into place to ensure each loan in the bundle continues to receive the

Fig. 3 Infrastructure projects by region, 1990-2013 East Asia & Pacific

Europe Latin America & Central Asia & Caribbean

Middle East & North Africa South Asia

Sub-Saharan Africa

Projects reaching final closure







Sector with largest share in investment

Energy (40%)

Telecoms (54%)

Telecoms (42%)

Telecoms (64%)

Energy (42%)

Telecoms (73%)

Projects cancelled or under duress

89 (9% of total 40 (2% of total 145 (6% of total 7 (1% of total investment) investment) investment) investment)


21 (3% of total 57 (4% of total investment) investment)

necessary oversight and administration. What is clear, more generally, is that until economic recovery across the continent becomes sustained, post-financial crisis spending on infrastructure as a means of delivering future growth and jobs will continue be undermined, unless alternative sources of funding can be developed, including the PBI. While traditional bank financing will continue to be important, there is the potential for new market actors to emerge to promote private sector financing of infrastructure projects via debt capital markets. This remains a key objective of the PBI. Further tweaking may yet be required if the success of project bonds is to be assured – not least when it comes to Solvency II, due to come into effect in January 2016. Solvency II not only codifies and harmonises EU insurance regulation, it also requires insurers to hold a minimum amount of capital in order to reduce the risk of insolvency. EU backing and the involvement of an organisation such as the EIB may not be sufficient to offset the negative implications (for insurers) of Solvency II. Indeed, Solvency II runs counter to encouraging insurers to invest in project bonds. Regulators and their political masters have more work to do regarding resolution of this crucial issue. n PROJECT FINANCE |



Index 10 Siervo de la Naci贸n Highway Project, Mexico

18 Various ventures sponsored by ICTSI, various countries

06 Saltillo-Monterrey

08 Guarulhos International

14 Metro de Sevilla,

16 Wessal Casa Port,

Toll Road, Mexico


20 Smart Hospital Cantabria, Spain

Airport, Brazil


22 Gigawatt Natural Gas Power Plant, Mozambique

Group Managing Editor:

Michael McCaw Head of Production:

Martin Roberts Features Editors:

Willemyn Barker-Benfield Matt Sanders Online Editor:

Charlotte Gill Senior Assignment Editor:

Eleni Chalkidou

24 Magdalena River

Waterway, Colombia

30 Calabar Specialist Hospital, Nigeria

32 Moatize IPP, Mozambique; Noor 1

Concentrated Solar Plant, Morocco

production coordinator:

Mariya Bheekhun production Assistants:

Michael Mills Editorial:

Laura French, Aaran Fronda, Jules Gray, Sandra Kilhof, Matt Timms Art Director:

Sam Millard designer:

Daniel Miller

34 Divin贸polis Wastewater System, Brazil

42 Rutas de Lima, Peru

36 Attika Schools

PPP Project, Greece

44 SunEdison Solar Power, Chile

40 Conchophillips

Hydrocarbons Deal, Nigeria

46 Privatisation of Caixa Seguros, Portugal

Studio Manager:

Robin Sloan The information contained in this publication has been obtained from sources the proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be reproduced without the prior consent of the Publisher. 漏 World News Media Ltd, 2014 Printed in the UK World News Media Ltd 40 Compton Street London EC1V 0BD United Kingdom Tel: +44 (0)20 7014 0330 Fax: +44 (0)20 7014 0331 Web:




Project Finance Deals of the Year 2014  

World Finance presents the Project Finance Deals of the Year 2014 - a compilation of the most impressive infrastructure projects and deals f...

Project Finance Deals of the Year 2014  

World Finance presents the Project Finance Deals of the Year 2014 - a compilation of the most impressive infrastructure projects and deals f...