CREATING VALUE THROUGH FINANCING

Size: px

Start display at page:

Download "CREATING VALUE THROUGH FINANCING"

Ross Ball
5 years ago
Views:

1 CREATING VALUE THROUGH FINANCING

2 This presentation may contain projections or other forward-looking statements related to ICA that reflect ICA s current expectations or beliefs concerning future events. Such forward-looking statements are subject to various risks and uncertainties and may differ materially from actual results or events due to important factors such as changes in general economic, business or political or other conditions in Mexico, Latin America or elsewhere, changes in capital markets in general that may affect policies or attitudes towards lending to Mexico or Mexican companies, changes in tax and other laws affecting ICA s businesses, increased costs, unanticipated increases in financing and other costs or the inability to obtain additional debt or equity financing on attractive terms and other factors set forth in ICA s most recent filing on Form 20-F and in any filing or submission ICA has made with the SEC subsequent to its most recent filing on Form 20-F. All forward-looking statements are based on information available to ICA on the date hereof, and ICA assumes no obligation to update such statements. 2

3 Samalayuca II Temascal Infiernillo Metro Deep Tunnel Huites TUCA Corredor Sur El Cajón IP IQ RCO Traditional Public Works Pidiregas Concessions PPPs FINFRA FONADIN Financed Public Works

(1959) and Infiernillo (1964) hydroelectric plants were carried out Financial Structure

4 Traditional mechanisms for infrastructure development In the 1960 s more than 50% of public investment went to infrastructure projects Major projects such as the Temascal (1959) and Infiernillo (1964) hydroelectric plants were carried out Financial Structure FEDERAL RESOURCES GOVERNMENT OF FRANCE LOAN BNP Credit Ministry of Water Resources INFIERNILLO

Traditional mechanisms for infrastructure development Metro Mass Transit System (1969)

setting execution: 1 km of subway line per month Financial Structure Advance for the start of

Monthly progress estimations in accordance with the Public Works Law Public Works Law FEDERAL

5 Traditional mechanisms for infrastructure development Metro Mass Transit System (1969) Project development ICA Inauguration of the Zaragoza-Chapultepec segment, Line 1 Record setting execution: 1 km of subway line per month Financial Structure Advance for the start of work (working capital) Unit price contracts, with inflation and exchange rate escalations Monthly progress estimations in accordance with the Public Works Law Public Works Law FEDERAL DISTRICT DEPARTMENT estimations and escalations unit price contract advances and progress payments CONTRACTOR

Infrastructure investment before 1988 Subject to

construction of new projects and maintenance of

6 Infrastructure investment before 1988 Subject to the availability of budget resources At the discretion of the Clients Absence of long-term strategic programs Budget was used for the construction of new projects and maintenance of existing projects Deep tunnel project (1975) Deep tunnel project

First Project Finance structures Huites hydroelectric project (1995)

Contract is the source of payment for debt and equity.

7 First Project Finance structures Huites hydroelectric project (1995) Sponsors: CNA and CFE Mechanism: Build, Lease, Transfer (BLT) The Lease Contract is the source of payment for debt and equity. The same contract is the counter-guarantee for Bancomext. Bond issued by ICA-led consortium. Counter-guarantee BANCOMEXT Guarantee CFE Lease Agreement Lease payments TRUST Capital+ return Debt service Debt service ECA s TRUST #2 MARKET Principal + interest CONSORTIUM

Samalayuca II Combined cycle plant 1996-1998

Mexico Sponsor: Mechanism: Capacity: Builders:

700 MW ICA Fluor, InterGen, GE, El Paso Energy

turbines, each with a generator and steam

440mm US$515mm 40% 20% 20% 20% GE Capital ICA

8 Samalayuca II Combined cycle plant First large private sector energy project in Mexico Sponsor: Mechanism: Capacity: Builders: CFE Build, Lease (20 years) and Transfer (BLT) 700 MW ICA Fluor, InterGen, GE, El Paso Energy Combined Cycle Generating Plant Three gas turbines, each with a generator and steam turbine debt equity IDB Others US$ 75mm US$ 440mm US$515mm 40% 20% 20% 20% GE Capital ICA InterGen El Paso Energy US$132mm Samalayuca II US$ 647 mm

9 Samalayuca II Financing structure Underwriters Construction Contract Compañía Samalayuca II Credit Agreement Trust Credit Guarantee IADB

Evolution of CFE contracts 1995-1998 Long-term financing structures (Huites / Samalayuca II)

refinanced the projects in stages Short-term financing structures Construction loans Relatively small

10 Evolution of CFE contracts Long-term financing structures (Huites / Samalayuca II) Construction loans based on long-term leases Refinancing costs increased the total project cost CFE refinanced the projects in stages Short-term financing structures Construction loans Relatively small impact on contractor balance sheets Short construction periods Credit support principally from corporate guarantees

pay the debt Approved by the Ministry of Finance Financial structure of a Financed Public Work (OPF): No client

11 PIDIREGAS Projects (Infrastructure Projects with Deferred Expense Recognition) 1995 Long-term Infrastructure projects Strategic or priority Involving the sale of goods or services The cash flow generated is sufficient to pay the debt Approved by the Ministry of Finance Financial structure of a Financed Public Work (OPF): No client advances No progress payments No obligation to pay until completion of the project and/or the early termination of the contract

12 Financed Public Works Contractor seeks to transfer the risk to the creditors pays for the project or completed milestone Client The risks that are transferred imply an increase in financial costs Mixed Financed Public Works Contract Guarantees to the agency The risks that are not transferred require guarantees from the Contractor constructs and guarantees construction (and additional risks) Contractor In addition, guarantees are required in accordance with the Law for Public Works and Related Services (LOPSR) construction financing Financing Agreements Guarantees to creditors Even when the government agency (CFE) has not made any disbursements or registered any debt GE Capital Creditors This has repercussions in the cost of the project

El Cajón hydroelecric project financial structure 144A Bond Private

Financial Agent approves the NB request Disbursement Account Bank Loan

certifies the NB request Financial Agent Independent Engineer 1.

4. Prorrata Funding 5. Disbursement Guarantee 6.

13 El Cajón hydroelecric project financial structure 144A Bond Private Placement Syndicated Loan Commercial banks 3. Financial Agent approves the NB request Disbursement Account Bank Loan Retention Fund 2. I.E. certifies the NB request Financial Agent Independent Engineer 1. Notice of Borrowing ( NB ) request Corporate Guarantee, joint and several 4. Prorrata Funding 5. Disbursement Guarantee 6. Sends the Progress Report ( PR ) Disbursement Guarantees Performance Guarantee Quality Guarantee Junior Guarantee 7. Monthly recognition by CFE of Milestones and Progress Reports Collection Rights

First highway concessions program (1990s) Government authorizes exploitation for a period of time, in exchange for the construction and maintenance of an asset The contractor charges the user for the

14 First highway concessions program (1990s) Government authorizes exploitation for a period of time, in exchange for the construction and maintenance of an asset The contractor charges the user for the service during the term of the concession Proposals had to follow project master plans established by the SCT Selection criterion: proposal with the fewest years of exploitation to pay for the work Evolution in the mid-1990s Tequila crisis (end of 1994) led to decline in toll collections Government carried out a bank rescue, and recovered the concessions The concessionnaires lost their invested capital An Infrastructure Investment Fund (FINFRA) was created in 1995 to promote private-sector participation in federal, state, and municipal investment projects Thereafter, the Government determined the concession term and the vehicle tolls Selection criterion: proposal that required the smallest subsidy

Infrastructure Investment Fund FINFRA (2005) A trust established by the federal government to provide financial assistance for investment projects in the highway, rail, water,

Infrastructure Fund FONADIN (2008) Promotes the participation of the private, public, and social sectors in the development of infrastructure in Mexico Provides recoverable and

15 Infrastructure Investment Fund FINFRA (2005) A trust established by the federal government to provide financial assistance for investment projects in the highway, rail, water, sewage, and solid waste sectors Authorized both recoverable and non-recoverable assistance Up to 49% of total investment Investor: 25% of the total investment as equity National Infrastructure Fund FONADIN (2008) Promotes the participation of the private, public, and social sectors in the development of infrastructure in Mexico Provides recoverable and non-recoverable assistance that improve the capacity of the projects to attract financing, including guarantees and subordinated loans Assists in the planning, design, and construction

Public-Private Partnership Projects PPP (2005) The investor-provider designs, builds, finances, and operates infrastructure that provides a service to government agencies, who themselves provide

the PPP will generate savings compared to a traditional public investment The Long-Term Services Contract assigns the risks among the public and private sector participants The government pays for

16 Public-Private Partnership Projects PPP (2005) The investor-provider designs, builds, finances, and operates infrastructure that provides a service to government agencies, who themselves provide public services Modelled after the English Private Finance Initiative (PFI) The responsibility for providing the public services lies with the government Cost-benefit analysis must demonstrate that the PPP will generate savings compared to a traditional public investment The Long-Term Services Contract assigns the risks among the public and private sector participants The government pays for the work and the services through a tariff: Fixed portion: delivery of the completed project Variable portion: compliance and quality of services Variable Fixed Tariff In this manner, the government ensures both the quality of the construction as well as the Service being provided

17 Irapuato La Piedad financial structure Syndication Assigns project a AA+ rating. Agent and Bank Underwriter Credit Agreement Ps. 580 mm Issues Letter of Credit that guarantees revenues during the construction period Service provider contract Tariff payment: fixed and variable Guarantees 22.5% of the debt

18 Millions of pesos PROJECT FINANCE IN MEXICO Irapuato La Piedad Sources and Uses of funds Major maintenance Operation and maintenance

19 Querétaro Aqueduct (2007) Pipeline to supply and treat potable water for Querétaro Concession for 20 years. Construction ICA and FCC: 26 months. Operation Proactiva Medio Ambiente Mexico: 214 months of operation. The Queretaro State Water Commission (CEAQ) pays a fixed tariff for 214 months plus a variable tariff for each m 3 of water delivered financial structure 1. A trust was established, to which was transferred the FINFRA support, the Guarantee for the equity commitment by the Consortium (LOC), and the proceeds of the bank credit. CONSORTIUM 25% CREDIT 45% FINFRA 30% CEAQ TRUST 2. Disbursements for construction were to be made pari-passu from the loan and FINFRA Construction could begin based on the equity contributions Disbursements from the credit and FINFRA could begin once the Equity Guarantee (LOC) was given and the credit contracted

26% FCC 26% MITSUI 11% PROACTIVA Amount: Tranche

20 Querétaro Aqueduct II Financing for construction and operation Borrower: SAQSA Consortium 37% ICA 26% FCC 26% MITSUI 11% PROACTIVA Amount: Tranche A: Ps. 1,450 mm Term: Tranche B: 17 years Ps. 100 mm

Financing of States and Municipalities Long-Term Financing Structures Through structured financings, long-term peso loans can be arranged through Mexican commercial banks.

Terms of up to 17 years Some states still require federal support to achieve longer terms for state and municipal governments.

21 Financing of States and Municipalities Long-Term Financing Structures Through structured financings, long-term peso loans can be arranged through Mexican commercial banks. These should cover the total cost of the Project, including financial costs during construction and financial costs during the amortization period. Terms of up to 17 years Some states still require federal support to achieve longer terms for state and municipal governments. Federal support to cover 6-9 months of debt service (depending on the credit rating of the state) This Federal support is possible through: 1. A contingent line from BANOBRAS 2. Maintaining an amount equivalent to 6-9 months of debt service in a Trust, in into which payments of the Federation flow directly, sending any excess to the state or municipality

22 Contract structure Financial Institutions Guarantee Structure State Government Long term credit agreement Contractor Construction Contract Trust Services Contract Operating Entity

23 CASE STUDIES

CASE STUDY: CONIPSA AND COVIQSA DURING THE CONSTRUCTION PHASE (GREENFIELD) CONIPSA: Irapuato- La Piedad highway PPP COVIQSA: Querétaro- Irapuato highway PPP Construction (CICASA) Infrastructure

24 CASE STUDY: CONIPSA AND COVIQSA DURING THE CONSTRUCTION PHASE (GREENFIELD) CONIPSA: Irapuato- La Piedad highway PPP COVIQSA: Querétaro- Irapuato highway PPP Construction (CICASA) Infrastructure (CONOISA) Ps. 3,111 mm Construction contract (backlog) Ps. 1,871 mm Equity invested Ps. 549 mm Financial and services costs (aprox. 15% of the investment) construction Ps. 1,789 mm Project financing Structure: 51% equity 49% debt Banks

25 CASE STUDY: CONIPSA AND COVIQSA DURING THE OPERATING PHASE (BROWNFIELD) Ps. 279 mm Gain on sale (assuming all conditions are met) Infrastructure (CONOISA) Ps. 493 mm Fair value adjustment (assuming all conditions are met) RCO (Red de Carreteras de Occidente) IRR = % Ps. 2,150 mm Purchase price

26 CASE STUDY: CONIPSA AND COVIQSA RCO AFTER THE PURCHASE By contributing the two PPP highways to RCO, ICA increased its shareholding in RCO and enhanced the value of the asset in the following ways: Provides opportunities for efficiency gains and economies of scale by enabling the PPPs to use the existing operations and marketing capabilities of RCO. The highways are in the same geographic region and all linked in terms of vehicle flows. The additional PPP revenue streams that don t depend on traffic improve RCO s risk profile and debt ratios. This is expected to make possible a refinancing of RCO s debt that will increase expected RCO shareholder returns and accelerate the generation of cash flow. The transaction is the start of a transformation of RCO to an infrastructure fund in which ICA has a significant shareholding, and may serve as a vehicle for future projects.

27 CASE STUDY: CONIPSA AND COVIQSA RCO: RED DE CARRETERAS DE OCCIDENTE

28 CASE STUDY: ACAPULCO TUNNEL CONCESSION IRR (2010)= 10% (for every peso invested in equity, the project has to date returned 10 centavos) infrastructure (CONOISA) Ps. 1,250 mm Certificado Bursátil project finance 2008 Ps. 800 mm Certificado Bursátil project finance 2005 Ps. 567 mm equity investment Ps. 91 mm additional subordinated Ps. 180 mm Project finance bond (Certificado Bursátil) debt Banks / Debt markets

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Millions of Pesos CASE STUDY: ACAPULCO TUNNEL CONCESSION 1994-2034 2,000 1,500 Ps.

29 Millions of Pesos CASE STUDY: ACAPULCO TUNNEL CONCESSION ,000 1,500 Ps. 1,250 TIIE+2.6% 1,000 Ps. 800 TIIE+2.9% Total investment Ps % equity Ps. 180 UDIS+9.6% Adicional Subordinado Ps. 91 TIIE+3.5% -500 Accumulated flow IRR 10% -1,000

30 CASE STUDY: CORREDOR SUR CONCESSION SOLD US$420 mm Sale of Corredor Sur 2011 IRR (2011) = 13% (for every peso invested in equity, the project has to date returned 13 centavos) ICATECH US$77 mm Subordinated debt 2010 US$20 mm Subordinated debt management fees 1-2% revenues Construction (ICA Panamá) US$117 mm equity US$75 mm Bank debt US$70 mm Project finance 1999 US$60 mm Subordinated debt 2008 US$150 mm Project finance 2005 Banks / Debt markets

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 US$ millions

500 US$420 Sale 400 300 200 100 0 Total investment US$200 100% equity US$70 Bank L+4 US$35 Bank L

31 US$ millions CASE STUDY: CORREDOR SUR CONCESSION SOLD US$420 Sale Total investment US$ % equity US$70 Bank L+4 US$35 Bank L + 4 US$ A- Note 6.95% US$60 Bank L L L US$20 Bank L + 6 US$77 Bank L Accumulated flow -200 IRR 13.5%

32 SERVICES PROVIDER CONTRACT (SPC) FOR SOCIAL INFRASTRUCTURE Type: Trust Bonds (Certificados Bursátiles) Amount: Ps. 7,100 mm Series A Term: 21 years Coupon: Pesos: 10.10% UDIs: 5.65%

33 CONCLUSIONS

CONCESSIONS CASH FLOW CYCLE REFINANCINGS AND SALE CREATE VALUE Phase Promotion Construction Growth Maturity End Activities Planning and conceptualization with authorities Evaluation

Not Participate Risk analysis Present Value Projects Project promotion Río Verde La Piedad Bypass N Necaxa Tihuatlán Mitla Tehuantepec Autovía Urbana Sur El Realito Aqueduct Agua

34 CONCESSIONS CASH FLOW CYCLE REFINANCINGS AND SALE CREATE VALUE Phase Promotion Construction Growth Maturity End Activities Planning and conceptualization with authorities Evaluation of potential partners Construction capabilities Construction loan Start of operations Structured financing Optimize operations Refinancing Cumulative Cash Flow Go / Get Participate / Not Participate Risk analysis Present Value Projects Project promotion Río Verde La Piedad Bypass N Necaxa Tihuatlán Mitla Tehuantepec Autovía Urbana Sur El Realito Aqueduct Agua Prieta WTP Atotonilco WTP SPC Pápagos SPC Sarre Aqueduct II RCO Del Mayab Río Remedios WTP = water treatment plant SPC = Services Provider Contract Acapulco Tunnel (Corredor Sur) Cd. Acuña WTP

Empresas ICA, S.A.B. de C.V. Company Overview. March, 2011

Empresas ICA, S.A.B. de C.V. Company Overview March, 2011 ICA at a Glance Construction Infrastructure Homebuilding Civil Industrial Airports Concessions 51% (1)(2) 54% (1) 100% (1) 100% (1) 100% (1) 50%