Erste Group - A strong local partner for

Transcription

1 Erste Group - A strong local partner for realizing i infrastructure t projects in Romania Infrastructure and Public Sector Finance and Advisory Conferinta Internationala PARTENERIAT PUBLIC PRIVAT Bucharest 28. September 2010

2 Erste Group One of leading financial services groups in CEE We operate successfully in a region with high potential, aiming to provide our 17.5 million customers high standard of personal service and comprehensive range of financial products. Based in Austria, we are one of the leading financial services groups in Central Europe and are present in Czech Republic, Slovakia, Poland, Hungary, Slovenia, Croatia, Serbia, Romania, Moldova and Ukraine. Through cooperation with the Savings Banks we are also able to offer our services for Slovenia and Bosnia & Herzegovina. We provide banking, investment, loans and insurance services, and focus on consumers and SMEs to large corporate customers. We operate successfully in a region with high potential, aiming to provide 17.5 million clients high standard of personal service comprehensive range of financial products. Erste Holding is responsible for the following three main functions: Major steering functions of fthe group, such as strategy, marketing, performance management, strategic risk management, HR and talent development, etc. Operating businesses, in the form of the newly established Global Markets (GM) and Group Corporate and Investment Banking (GCIB) divisions. Provision and planning of infrastructure for Erste Holding as well as for local customer businesses. 2

3 Banca Comerciala Romania At present, BCR has: 668 retail branches 48 Corporate Commercial Centres 2,225 ATMs 17,331 POS subsidiaries: BCR Banca Pentru Locuinte BCR Pensii pension funds BCR Leasing BCR Asset Management BCR Securities The Anglo Romanian Bank Limited, with branches in Frankfurt and Bucharest BCR Chisinau Branch in Republic of Moldova 3

4 Group Corporate & Investment Banking Infrastructure Finance and Advisory and Public Sector Finance The Infrastructure and Public Sector business comprises of a large team of professional finance executives with a track record in Infrastructure Finance and Public Sector business in Vienna at Erste Bank Holding as well as in the region. Infrastructure Finance & Public Sector Financing i solutions to Public and Private Sector Clients in the following sectors: Sector Expertise Energy & Social Transport Project Finance Environment Infrastructure Renewable Energy Airports Hospitals Market Risks Water / Waste treatment Ports Public Buildings Complex Structuring Gas / Electricity Toll roads Schools, Universities e.g.: Power plants transmission i Railways Prisons and Courts Rolling Stock Car parks Sport Stadia Produc cts Long term infrastructure financing Financial advisory Financial engineering PPP advisory PPP financing Project Finance, Advisory EU Funding support 4

5 The importance of Infrastructure The importance of Infrastructure for an economy

6 Why Infrastructure? (1) Infrastructures Are Not An End In Themselves Investments in Infrastructure boost the productivity of an economy Infrastructures t are means for ensuring the delivery of goods and services thatt promote prosperity and growth especially the degree of costs of transport influences the development of productivity of an economy They contribute to the quality of life, including social well-being, health and safety of citizens and the quality of their environments The longer-term future performance of the an economy depends to an important extent on the availability of adequate infrastructures to sustain growth and social development A large share of investments will be undertaken in emerging countries, where nations will spend huge amounts on infrastructure to underpin their booming economies 6

7 Why Infrastructure? (2) The Role of Infrastructure For The Growth Process of an Economy Efficient Infrastructure generally provides a beneficial i framework for economic activities, iti supports the competitiveness of a country, makes locations independent from the existence of raw materials and energy, makes the economy independent from the (local) existence of work force, and diminishes regional disparities. Investments in Infrastructure Orders for Companies Increase in Wealth Positive Impact on Economy In an economy with poor infrastructure the macroeconomic impacts of investments in infrastructure are particularly high Source: OECD Infrastructure to 2030, WIFO White Paper Macroeconomic Aspects of Transport Infrastructure Investments 7

8 Why Infrastructure (3) Employment Effects Of Infrastructure Investments Investments in Infrastructure have a multiplicator effect they trigger short-termterm impulses for demand and have a positive impact on employment Effects on Employment of Investments in Transport Infrastructure Effect of Investments t of 72m Direct Effect (Construction sector) Indirect Effect (All sectors) High-speed road network National Roads Public Transport ,243 Rail Infrastructure Extension of Network ,233 Train Stations ,312 Through to 2030, annual infrastructure investment requirements for electricity, road and rail transport, telecommunication and water are likely to average around 3.5% of world gross GDP Total 8

9 Infrastructure Financing Alternatives Infrastructure Financing Alternatives Public Private Projects (PPP) Models

10 PPP Models What Is PPP? A new method of financing? Privatisation? An efficient means of procurement/realisation for public infrastructure 10

11 Affordability, Bankability and Managing Expectations Affordability Each PPP Project is a mortgage to be paid off over a long time period Each PPP must be added to all other annual commitments Even very good Value for Money must be affordable Bankability Projects must be financially attractive to the private sector They must have a revenue guarantee that will make them viable Managing Expectations ti Do not expect gold plated if only paying for plastic Accept risks have to be shared (some risks remain with the public sector) Accept the private sector has to make a profit 11

12 Advantages of PPP Models Public budgets are leveraged (reduced budgetary constrains) Acceleration of Infrastructure provision Project optimization (evaluation over the entire life-time of a project) Risk transfer to the private partner (e.g. construction-, availability- or demand risk) Better incentives to perform Know-how of the private partner (new technologies, management techniques) Public sector has still control over infrastructure 12

13 Key Government Issues in connection with PPP s Strong political will (to avoid confusing political situations) Appropriate and stable regulatory and legal framework (e.g. Public Procurement Acts, laws of concession etc.) Stable macro-economic environment Willingness of the public sector to contribute to the project (financially, risk sharing) Budgetary considerations Time and cost of the tendering phase Continuing ing necessity of governmental support Required know-how and experience of governmental agencies and experienced advisors 13

14 PPP - A Model of Risk Sharing Risks shall be allocated to the party best able to manage and influence the specific risk Government Land acquisition iti Claims (shared) Cultural inheritance Licences and permits (shared) Change in law Maybe subsidise cash flows or tolls thus bear (some) traffic risk Provide guarantees for debt facilities Private Partners (Concessionaire, i operator) Completion risk Most technical and operational risks Performance risk (Some) traffic risk Provide guarantees Subordinated standby-facilities Licences an permits (shared) Claims Ca s(shared) aed) Supra-national Institutions (EBRD, EIB, IFC etc.) Reducing political risk Providing access to local l currency Accepting longer tenors Filling a possible liquidity gap 14

15 PPP Models Infrastructure Project Life-cycle Policy and Planning Phase 1. Condition of infrastructure financial situation 2. Legislation/regulation 3. Leadership: policy and project management 4. Planning: environmental assessments and project opportunities 5. Communication: internal and external with major stakeholder groups Transaction Phase 1. Transaction process 2. Shortlist qualified bidders 3. Risk transfer and value for money 4. Payment mechanism/performance 5. Request for proposal 6. Finalize project agreement 7. Preferred bidder selection and negotiations 8. Financial close Construction and concession Phase 1. Transition to construction (e.g. design/build) 2. Construction and monitoring 3. Facility operation (contract and relationship management) 4. Evaluate whether promised benefits materialized 5. Maintenance: hard and soft service provision 6. Asset hand back Ke ey Activ vities Establish objectives Evaluate alternative financing structures Communicate the benefits Build market interest Establish a realistic time frame Secure the best value for money Establish performance standards Develop a draft project agreement Establish construction governance Monitor construction Monitor the concession Prepare staff Establish the concession governance model 15

16 PPP Structures Wrap up Main Characteristics of PPPs Risk-sharing i between public and private sectors Long-term relationship between parties Public service and ultimate regulatory responsibility remain in public sector Using Private Sector Skills for Public Sector Services Contracts for services, not procurement of assets Output, not input, specifications Payments related to service delivery Whole life approach to design, build and operation Criteria i for PPPs Economically viable for the public sector Financially viable for the private sector Appropriate risk and reward balance for public and private sector Public sector: Value for money 16

17 Financing Infrastructure Financing Infrastructure getting bankable PPP Projects

18 Financing Issues Bankability of Infrastructure PPP Projects strong revenue support e.g. through availability payment mechanisms projects should make economically sense Demand for Project very important especially for IFI s Environmental Aspects Secure and Stable Cash-Flows Optimal Risk Allocation Bankability Issues Risks shall be allocated to the party best able to manage and influence the specific risk Government Support Strong Political will / stable regulatory and legal framework Debt Service Reserve Liability of Sponsors Minimum DSCR requirements Solid Private Partner and adequate Equity contribution if too complex, banks are not able to evaluate the risks not tbankable bl at all or high h margins Technical Complexity Early- Termination Regulations e.g. Step-in Rights, compensation payments 18

19 The impact of the Financial Crisis Development of CDS rates of CEE countries 19

20 Financing of PPP`s in Current Times (1) The PPP financing world has changed & is likely to recover slowly: Crisis i of confidence is ongoing and fundamentals are deteriorating ti Bank Capital and Liquidity are still scarce and banks will seek to improve balance sheet portfolio credit. In PPP s the new developments are: Club Deals instead of syndicated structures Still long tenors but with a different structure (mini-perm structures mainly used) Risk premiums still on high level, clear step-up in margins visible Stronger involvement of IFIs and ECAs Better security packages requested Equity ratios remain at relative high levels Support by States often required (guarantees milestone payments) Moderate deal size Substantial ticket sizes are still rare Relationship or existing bank groups (the banks currently active in the PPP projects are mainly participating by either following core market or core client strategies) 20

21 Financing of PPPs in Current Times (2) Key Elements of the risk transfers from public to private sector are being revisited following credit crunch : Item Pre Current Termination provisions Element of guaranteed compensation for debt funders on larger projects Subject to NPV of a % of cash flows less rectification costs could lead to debt funders losing all debt Guarantees on debt repayment either through direct guarantees or termination provisions guaranteeing amounts Longstop dates to Generally 12 months Had gone as low as 1 12 months? more construction completion month important to ensure funders TA s accept as reasonable Change in Interest terms Generally accepted that Private sector (on several Public sector movement between Preferred Bidder announcement to FC private sector bares risk, although public sector did accept where reasonable occasions) Refinancing benefits Sometimes shared, Shared 50:50 Ratchet mechanism although earlier schemes towards up to 90% public 100% private sector 21

22 Financing of PPPs in Current Times (3) Key financing terms are being revisited following credit crunch : Item Pre Current Margins 100bps+ (150bps on larger projects) As low as 40bps bps Market flex Occasionally margin flex No Many clauses aimed at minimising pricing risk Cover ratios 1.25x As low as 1.10x Between 1,15 and 1.35x Tenor of debt years for bank Bank debt exceeded 30 years Cash sweep (soft or strong) Element of sweep post year 8 None Max years (though marketed as short-term) Many banks restricted to 10 years Typically 100% cash sweep post year 8/10 22

23 Financing of PPPs in Current Times (4) Club deals are now the norm as underwriting (syndication) is not available: Slow recovery of the syndications market Club deals are now required Larger banks can hold up to m, however, on average hold position 50m A 1bn project is likely to require more than 10 banks and is also subject to support by multilateral institutions!! Each bank requires seat at table and the result is often lowest common denominator terms also very time consuming during negotiations The more banks are required to finance a project the more complex the negotiation process is, but if the banking club succeeds in acting in concert their bargaining power rises and therefore the possibility to negotiate attractive funding terms may increase The problem can be intensified if multiple bidders eg 1bn project with 4 bidders requires 4bn of financing at bid stage. Can result in lack of competitive terms and even bidders withdrawing Bank 1-80m Bank 2-30m Bank 5-50m Bank 6-50m Bank 7-40m Bank 3-50m Bank 4-50m Bank 9-50m Bank 8-50m Bank 10-50m Collectively negotiate with Public Authority and SPV 23

24 Lessons learned and way forward

25 Lessons learned in unsuccessful PPP projects in CEE D1 Phase 1 Slovakia Cancelled by the newly elected Slovak Government after negotiations had nearly been finalised - political risk in CEE higher than in mature PPP markets A3 Motorway, Romania Project too large and complex for a pilot project, inexperienced Government, to some extend lack of professional advisers and lack of suitable PPP Law M3 Motorway, Hungary Cancelled by Public Sector one week prior to bid submission; Funds from Multilaterals traditional procurement Electronic Toll, Slovakia Intransparent tender process; Some sections of Project are still excluded and the whole Project is not running smooth Bar-Boljare Boljare Motorway, Montenegro Project size far too big, political risk high not bankable even for Multilaterals! No major international contractors chosen (realisation uncertain) CEE is still a promising i market for infrastructure t PPP but the Government commitment t must be increased and the available knowledge for a successful realisation used 25

26 Romanian Infrastructure Roads A clear strategy is not visible some envisaged PPP s planned seems to be too big and optimistic Airports There are a few initiatives for airports, terminal buildings and refurbishment but not all of them are feasible or bankable due to oversizing, missing financial data etc. Ports A market analysis on future port transactions is necessary (especially the development potential of the Danube river in connection with the EU Danube Region Strategy); Rail The most difficult sector for PPP s, but there is a huge demand for rail infrastructure Social Infrastructure Potential to become the future frontrunner for PPP`s on Municipality level EU Funding/Co-financing There is a huge EU co-financing potential in Romania but very often there is a lack of good projects and knowledge about the availability of such funds, especially on a county and municipal level; Regions / Municipalities Need more assistance, information, knowledge about PPP s, important are experienced adviser, Banks and Financial Institutions, securing EU funds will be the topic for the future. Huge potential, the question is how to realize it? 26

27 What can Erste Group/BCR offer?

28 What are we? A reliable local partner in Romania Banca Comerciala Romana A strong international support with deep local knowledge, from Erste Group Bank AG Financing with specialized teams (Energy, Social Infrastructure, Transport, Project Finance) Financial advisory from leading market experts Access to IFI s through a specialized desk 28

29 What can we offer? (1) Assist the Public Sector in the project selection Feasibility Studies, Sector knowledge Assist the Public Sector to structure the processes operational sequences Assist the Public sector to evaluate the bankability of a project structuring, exploration of additional funding sources (together with our people from IFI desk) Assist the Public sector during the tender process Advisory Financing Debt and Equity 29

30 Case Studies

31 Case Study Danube Bridge Braila Project: Potential (toll) bridge over the Danube in Braila initiated by the County of Braila with a volume of ~EUR 120 million which h was intended d to be structured t as PPP including traffic risk History: Origination in Aug of the project by Group Infrastructure and very early involvement of Public Sector team in BCR; The project was in a very early stage and we soon found out that there was only an idea existing but no project finance structuring capabilities and no knowledge about PPP s Group Infrastructure analyzed the project on its feasibility and bankability, the traffic potential, alternative routes which would require less investment costs and competing transportation routes. Furthermore we screened the market for investors who would be willing to invest in a toll bridge with traffic risk in Romania. The conclusion was that it would be extremely difficult to realize a project with that size under a traffic risk scheme and that alternative possibilities need to be found (EU co-funding, availability models, a smaller size bridge etc.) Project Status: Based on our advise the County of Braila agreed to the need of a comprehensive traffic study as a basis for the further structuring of the project, but they were not in the position to fund such a study and asked Erste Group for alternatives We explored the possibility of funding the traffic study through a program of EBRD for which the consultant has been chosen recently, kick-of meeting is planned for Oct Braila County had to commit that in case of a realization of the project EBRD will be involved in the financing 31

32 Case Study Airport International Brasov-Ghimbav Project: The County of Brasov together with Intelcan, a Canadian company providing technology systems for airports, form a consortium which h will jointly develop Brasov-Ghimbav Airport and operate it for a 20 year period. The proposed airport site is located approximately 7 km from the centre of the City of Brasov and will comprise one runway and one terminal building and ancillary facilities. The airport shall have an initial capacity to serve up to 1 million passengers. History: Since the contract had been awarded in 2007 the project has undergone several changes in the structure and size and also the financing partners Erste Group joined the transaction actively 2008 and was confronted with several open issues which needed to be resolved in order for Erste Group to be able to finance the project Project Status: Therefore Erste Group initiated discussions with the technical advisors and Intelcan about the traffic potential and a downsizing of the airport and asked for a 2nd opinion on the traffic studies which had already been conducted On the basis of the new traffic study conducted by Dornier Consulting all parties are now in the process of developing a new structure of the project which is bankable 32

33 Wrap up

34 Infrastructure Transactions Key Issues Construction Competition Operating/Technology Contractual Construction complexity/ Technology risk Well-known construction contractors Cost-overrun/completion guarantees Independent review of construction ction schedule and budget Tariff/Price Structure Regulatory risk on tariff/price i determination ti Inflationary risk and ability to increase prices with inflation Competing assets Future competition Nature of Concession and non-compete clauses in concession agreement Management plan and operating history Strength of operator Independent engineer review of operating costs Shareholders agreement EPC contracts Structure of contractual agreements Regulatory Government procurement Nature of supporting legislation Enforcement rules Precedents Demand Sovereign State support for concession Well defined concession laws Political environment GDP growth Currency risk Financial i Structuret Capital structure Covenants Intercreditor provisions Liquidity and financial flexibility Dividend policy Cash Flow Analysis/ Financial Analysis Cash flow predictability Debt service coverage Financial forecasts Interest rate/ currency risk Demand risk vs. availability payment vs. contracted cash flows Sensitivity of growth and revenue projections to - Competition - Price regimes - Changes in macro- & micro-economic i trends 34

35 Thank you for your attention!

36 Contacts Erich Mascheker Erste Group Executive Director, Transportation Finance 1020 Vienna, Obere Donaustraße Tel.: +43 (0) Fax: +43 (0) mobile: +43 (0) Ioana Anca Gheorghiade Banca Comerciala Romana Directia Project Finance Director executive Tel.: mobile: (0731) Marius Traian Bejan Banca Comerciala Romana Directia Project Finance Manager project finance Echipa Projct Finance GLC Tel.: mobile: (0732)