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The Imperative

The Situation

The Opportunity

The Evidence

The Issues

The Buy-In

Exploring the Issuance of Project Bonds for PPPs

The Situation

PROJECT SIZE

ECAs/Multilaterals

Senior Project Bank Debt

Corporate Notes

PROJECT LIFE CYCLE

Corporate Bonds

Senior Loans

Project Bonds

Institutional Investors

Foreign Investors

PRE-PROJECT PARENT LEVEL

CONSTRUCTION

OPERATING – TO END OF CONCESSION

Private Investors Other QIBs

Foreign Investors

Private Investors Institutional Investors

Banks

Other QIBs Retail

Banks

ECAs/Multilaterals

Banks

The Opportunity

The Evidence Taking a page from earlier Philippine project bonds in the power sector…

Project Details

Project Bond Terms • Financial Close • Issue Size • Tenor • Repayment • Credit Rating

What worked

ENRON SUBIC

• 113 MW diesel-fired

• 1994 • US$105 million • 15 year • Equal • N/A

• 15 year take-or-pay contract guaranteed by NG • Minimal FX and fuel risk • Completion guarantee from sponsors • Turn-key and full wrap EPC

QUEZON POWER

• 460 MW coal-fired

• 1997 • US$215 million • 20 year • Sculpted • BB+/Ba1 (S&P/Moody’s)

• 25 year PPA from largest offtaker in the Phil. • Pass-through mechanism • Separate tranche for eximbank • Built-in contingency commitments

Latin America is an example of a well developed project bonds market:

The Evidence

Project Details

Terms • Financial Close • Issue Size • Tenor • Repayment • Credit Rating

What worked

OOG Odebrecht

• Two drill ships in Brazil

• 2010 • US$1.5 billion • 10-year • Sculpted w/ balloon • Baa3/BBB (Moody’s/Fitch)

• Minimal construction risk

Paita Termina Port

• US$293 million expansion of port in Peru • 30-year BOT from government

• 2012 • US$110 million • 25-year • Amortizing w/ 5Y grace • BB/BB- (S&P/Fitch)

• Brownfield bond but w/ CF from existing operations + min. guarantee from NG • Cash reserves for further expansion

Abengoa Transmision Sur

• Refinancing of 883km 500kV transmission line in Peru • 30-year BOT from government

• 2014 • US$432 million • 29-year • Fully amortizing • BBB- (Fitch)

• Loan life = concession agreement • Inflation index • No construction risk

The Issues

TENOR

REPAYMENT

CERTAINTY OF EXECUTION

GREENFIELD VS BROWNFIELD

DISCLOSURE & DUE DILIGENCE

FOR ISSUERS Broaden investor base and

manage SBL constraints Longer tenors and bullet

payments (lengthen debt maturity profile)

FOR INSTITUTIONAL INVESTORS Duration matching of long-term assets and liabilities Premium enhancement from regular corporate

bonds while retaining market liquidity Diversification opportunity from traditional

government and corporate bonds

FOR BANKS Refinancing via project bonds allows “recycling” of capital which can be re-invested in greenfield projects

The Reasons

The Buy-In

ISSUERS/PROJECT SPONSORS

o “Recycle” bank lines through refinancing of operating assets through project bonds

o Welcome multi-source financing combining traditional bank financing with project bonds

o Think of partnerships with “true equity” providers

o Discuss with bankers early to ensure financiability not only with traditional bank debt but also for project bonds

GOVERNMENT

o Provide certainty of government policy (e.g. milestone and capacity payments; tariff adjustments)

o Ensure concession terms are lender-friendly

o Encourage support from regulators (i.e. SEC, BSP and Insurance commission)

MULTILATERALS/ECAs

o Identify financing gaps that can bridge traditional bank financing and project bonds

o Coordinate with issuers and bankers in structuring large multi-source deals

The Imperative

PROJECT BONDS