INVESTMENT OPPORTUNITIES IN CHINA-RUSSIA-EUROPE ROUTE Presentation to UNECE PPP Conference Geneva, May 2018

Transcription

1 INVESTMENT OPPORTUNITIES IN CHINA-RUSSIA-EUROPE ROUTE 2018 Presentation to UNECE PPP Conference Geneva, May 2018

2 PROPOSITION INFRAKAP HAS LAUNCHED THE EURASIAN INFRASTRUCTURE VALUE FUND FOR SOPHISTICATED INVESTORS TO TAP INTO LUCRATIVE INVESTMENT OPPORTUNITIES IN RUSSIAN NATIONAL AND REGIONAL INFRASTRUCTURE PROJECTS WITH TOTAL TARGET SIZE OF RUR 20 BILLION (USD 350 MILLION) Purpose of the Fund is to invest in the national and regional infrastructure projects, companies and ventures along the area of Western China-Kazakhstan-Russia-Europe international transportation route being developed under Intergovernmental Agreement between China, Kazakhstan and Russia in 2009: Regions adjacent to the international transportation route from Europe to Western China (EWC) Core infrastructure with focus on roads, district heating and healthcare Blending private equity, project finance and venture capital investments in the selected infrastructure industries to enhance portfolio returns Priority given to early private equity investments into infrastructure operators to access HR, expertise and pipeline 2

3 GLOBAL CONTEXT OF THE REGIONAL FOCUS EWC THE TRANSCONTINENTAL AUTOMOTIVE ROUTE DEVELOPED UNDER THE AGREEMENT BETWEEN CHINA, KAZAKHSTAN AND RUSSIA SIGNED IN 2009 REMAINS AMONG TOP-2 RUSSIA-CHINA PRIORITIES DECLARED AT MAY 2017 OBOR SUMMIT ST Petersbourg Moscow TRACECA II TRACECA One Belt One Road completed Sea Bottlenecks EWC (auto) Built rail Planned rail construction project preparation 2018 Year of completion Source: Avtodor 3

4 RUSSIAN INFRASTRUCTURE GROWTH IS IN LINE WITH KEY GLOBAL INFRASTRUCTURE INITIATIVES IN THE MAJOR MARKETS Trump USD 1T infrastructure plan RUSSIAN INFRASTRUCTURE MARKET SIZE Russia USD 300B infrastructure growth plan for Juncker EUR 315B infrastructure plan Japan USD 100B infrastructure export support plan China USD 200B OBOR plan for Asia 4

5 RISKS OF INVESTING RUSSIAN INFRASTRUCTURE RUSSIA INFRASTRUCTURE INVESTMENT RISK IS COMPARABLE TO OTHER NON-OECD COUNTRIES AND IT IS CONCENTRATED IN DEVELOPMENT PHASE KEY PERCEIVED INFRASTRUCTURE INVESTMENT RISKS RANKED BY RUSSIAN INSTITUTIONAL INVESTORS, % of surveyed: Project finance loans Infrastructure PPPs Regional/municipal political risk Construction completion risk Complexity of infrastructure analysis Long contracting procedures Long term demand risk Design risk Tariff regulation risk Public performance risk Service quality risk Construction cost management risk Operation cost management risk Limited offer of investment opportunities Quality of contractors and operators 88% 71% 65% 65% 65% 65% 65% 59% 59% 59% 59% 59% 47% Default (BII) 10- year frequency rate, non-oecd countries, 2014 Current share of loss making commercial bank loans, Russia, May 2017 (% of the loans to an industry) INFRASTRUCTURE-RELATED INDUSTRIES Transport and telecom infrastructure and services Construction Utilities Source: Moody s, Central Bank of Russia, National Agency for Financial Research, InfraKAP analysis 5

6 PRIVATE CAPITAL PENETRATED ALL MAJOR RUSSIA INFRASTRUCTURE SECTORS. INFRASRTUCTURE INVESTMENT MARKET IN OFFERS MULTIPLE EARLY STAGE INVESTMENT OPPORTUNITIES INCLUDING EWC ROUTE Private healthcare operators INFRASTRUCTURE SPECIFIC INVESTMENT POLICY PPP/concessions/private development of hospitals, policlinics, and entry level healthcare infrastructure PPP/concessions for schools, kindergartens, elderly houses Building infrastructure for telemedicine Mature private telecom sector Pilot concessions to build regional waste management infrastructure (up to USD500M accumulated investment) Leasing of municipal water and district heating (over 30M people served) Completion of privatization and corporatization of power generation and transmission Tenders to select regional waste management operators (all regions by 2018) Increase in data center capacity for reserve and security storage Pilot green tarif based incinerator projects in Moscow region and Tatarstan (USD10B program) Transfer of municipal water and district heating utilities to concessions en masse» Pilot concession for distribution network Restructuring and asset optimization of heat and electricity generating companies Completion of corporatization and spin offs in railways Emergence of private airport operators/ completion of PPPs for major regional airports Pilot federal and regional concessions and PPPs Pilot railway concession Federal concession to build nationwide collection system of heavy truck road usage levy (USD300M investment) Concessions for sections of high speed train network Concession projects to build logistic and storage facilities of the Ministry of Defense (USD 1B investment) Regional and municipal concessions to build and maintain their road network, develop LRT/trams etc. EWC route Completion of construction on Moscow-St-Petersburg highway (concessions) Launch of concessions to build Moscow to Orenbourg sections of Europe to China route and respective regional approaches Source: IKAP Analysis

7 REGIONAL FOCUS THE FUND WILL INVEST MAINLY IN RUSSIAN REGIONS DIRECTLY ADJACENT TO EWC ROUTE. IT MAY CONSIDER OTHER REGIONS IN THE VICINITY, ALSO KAZAKHSTAN AND KIRGYZSTAN 1. St-Petersburg and Leningrad region 2. Novgorod region 3. Tver region 4. Moscow and Moscow region 5. Vladimir region 6. Nizh Novgorod region 7. Rep of Chuvashia 8. Rep of Tatarstan 9. Rep of Bashkortostan 10. Orenburg region 11. Vologda region 12. Yaroslavl region 13. Ivanovo region 14. Kostroma region 15. Rep of Mary El 16. Samara region 17. Ryazan region 18. Ulianovsk region 19. Rep of Udmurtia 20. Rep of Mordovia 21. Kirov region 22. Chelyabinsk region 23. Sverdlovsk region 24. Perm region 25. Saratov region Regions of the Fund possible investments do not contain international waterways and disputed areas. Neither they are ruled by de facto governments, nor are they placed under the United Nations Security Council measures 7

8 MARKET DOMINANCE OF THE REGIONS IN FOCUS EWC ADJACENT REGIONS CONTRIBUTE MORE THAN 70% TO THE RUSSIA GDP Macroeconomic statistics on key regions adjacent to EWC route St-Petersburg and Leningrad reg. Moscow and Moscow reg. 7,7% 49,9 26,0 14,2 20,4 19,0 1,0 22,0 3,2 Nizhn. Novgorod reg. 6,7% 3,1 1,7 0,7 3,2 6,8% 2,2 1,2 8,5% 12,7 6,5 6,8 7,0% 2,9 1,6 0,9 Tatarstan Samara reg. 3,2 2,0 3,2 7,4 Orenbourg reg. 2,0 1,9 3,3 8,2 3,3 3,2 7,4% 4,1 5,2 4,0 3,8 2,7 1,5 1,3 0,9 7,5% 2,2 5,7% 1,3 Bashkotostan 4,3 4,1 4,1 4,1 Chelyabinsk reg. 2,3 3,56 3,49 3,62 GDP 2030, RUR T, % of the total in EWC area Moscow and Moscow reg. St.Petersburg and Leningrad Reg. Tatarstan Bashkortostan Samara Reg. Nizh Novgorod Reg. Chelyabinsk Reg. Orenbourg Reg. Other Regions 5,2 (6%) 4,3 (5%) 3,1 (3%) 2,9 (3%) 2,3 (2%) 2,2 (2%) 12,7 (13%) 12,1 (13%) 49,9 (53%) Source: хх хх хх хх хх Population 2013, 2020, 2030 гг., хх Regional GDP 2013, 2020, 2030 гг., хх GDP CAGR, % M people RUR T Russian Federal State Statistics Service, Avtodor 8

9 INFRASTRUCTURE FOCUS THE FUND WILL INVEST IN DISTRICT HEATING, TOLL ROADS AND HEALTHCARE INFRASTRUCTURE These industries generate wide range of projects at the federal and/or regional and/or municipal level as well as private projects. Investment portfolio of the fund could be balanced by terms of regulation. Each of the industry in focus has completed major regulatory reforms aimed to increase private investment: Disbundling and deregulation of the energy market, operating wholesale electricity market, power capacity sale agreements, possibility of private ownership and concessions in district heating Introduction of availability payment concession and capital grants for federal and regional toll roads Opening up healthcare infrastructure to private sector through private development or PPP/concession with services covered by public healthcare insurance fund These industries have already demonstrated experience of private sector participation. They are open for entry and growth Good mix of greenfield and brownfield provides space for efficiency gains, management and technical innovations 9

10 ELIGIBLE INVESTMENT TARGETS THE FUND WILL FOCUS ON INFRASTRUCTURE PROJECTS, COMPANIES AND INFRASTRUCTURE INNOVATIONS IN THE SELECTED INDUSTRIES INFRASTRUCTURE ASSETS (PROJECT DRIVEN DEVELOPMENT) Highways, bridges, parkings Airports Ports Rail, high speed trains LRT, tramways Water and waste water network District heating network Power generation Electricity transmission and distribution Hospitals and polyclinics Lab and diagnostic networks Fiber optics, towers Data centers Tourism attractions and hotels INFRASTRUCTURE OPERATORS AND CONSTRUCTION COMPANIES (PRIVATE EQUITY TARGETS) Telecom operators and companies Energy companies Utility operators Airport operators Healthcare operators Transport construction companies Metering and billing operators Energy service companies Parking operators Water technology companies INFRASTRUCTURE SERVICE PROVIDERS (VENTURE DRIVEN DEVELOPMENT) Urban mobility (taxi integrators, traffic management, delivery, etc.) Healthcare and well being (P4, etc.) Media projects Infrastructure financial services (leasing, monoline insurance, risk management facilities, related fintech companies) 10

11 INVESTMENT PRIORITIES PPRIVATE EQUITY STYLE INVESTMENTS INTO OPERATORS WILL ENHANCE CAPACITY TO ACCESS MARKET OPPORTUNITIES AND CREATE VALUE, FORMING PLATFORMS FOR FURTHER INVESTMENTS DIRECT INVESTMENTS VENTURE INVESTMENTS PROJECT INVESTMENTS Instant access to a current pipeline of projects Access to human resources and technical knowhow Value driven restructuring to reflect long term value of the existing project portfolio Value creation achieved through fast growing businesses Project finance approach Value creation through financial leverage, managing construction risks and growing sales 11

12 THE FUND PROPOSITION MEETS SPECIFIC REQUIREMENTS OF NEW INTERNATIONAL DEVELOPMENT BANKS ON FINANCING PURPOSE FIT FOR INTERNATIONAL DEVELOPMENT BANKS It supports major cross-border transportation project with clear development effects for Asia MIX OF PRIVATE AND SOVEREIGN RISK Investments in the Fund are on non-sovereign basis. However, the Fund infrastructure projects are preferably to be structured as availability payment concession with sovereign and sub-sovereign entities PROFESSIONAL AND INDEPENDENT LEVERAGE FOR PRIVATE CAPITAL Investing via the Fund will represent a unique equity investment opportunity carried out by the local team of professionals with international experience, totally private and independent Participation in projects through the Fund will provide clear leverage to engage local capital markets for infrastructure finance, providing private sector and regulator with additional global expertise, assurance and implied risk reduction EXPECTED RETURNS BUSINESS GROWTH Expected IRR of the Fund is within target range of global infrastructure funds Investment in the Fund will expand investor s equity and loan investments sourcing pipeline 12