INVESTMENT OPPORTUNITIES IN CHINA-RUSSIA-EUROPE ROUTE 2018
Presentation to UNECE PPP Conference Geneva, May 2018
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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
PROPOSITION
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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
Moscow
TRACECA
One Belt One Road
ST Petersbourg
TRACECA II
Sea
Bottlenecks
EWC (auto)
Built rail
Planned rail completed
construction
project preparation
Year of completion 2018 Source: Avtodor
GLOBAL CONTEXT OF THE REGIONAL FOCUS
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RUSSIAN INFRASTRUCTURE GROWTH IS IN LINE WITH KEY GLOBAL INFRASTRUCTURE INITIATIVES IN THE MAJOR MARKETS
Trump’ USD 1T infrastructure plan
Russia USD 300B infrastructure growth plan for 2018-2025
Japan USD 100B infrastructure
export support plan
China USD 200B OBOR plan for Asia
Juncker’ EUR 315B infrastructure plan
RUSSIAN INFRASTRUCTURE MARKET SIZE
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RUSSIA INFRASTRUCTURE INVESTMENT RISK IS COMPARABLE TO OTHER NON-OECD COUNTRIES AND IT IS CONCENTRATED IN DEVELOPMENT PHASE
Source: Moody’s, Central Bank of Russia, National Agency for Financial Research, InfraKAP analysis
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
INFRASTRUCTURE-RELATED INDUSTRIES
Transport and telecom
infrastructure and services
Construction
Utilities
Current share of loss making commercial bank loans, Russia, May 2017 (% of the loans to an industry)
RISKS OF INVESTING RUSSIAN INFRASTRUCTURE
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PRIVATE CAPITAL PENETRATED ALL MAJOR RUSSIA INFRASTRUCTURE SECTORS. INFRASRTUCTURE INVESTMENT MARKET IN 2017-19 OFFERS MULTIPLE EARLY STAGE INVESTMENT OPPORTUNITIES INCLUDING EWC ROUTE
Transfer of municipal water and district heating utilities to concessions “en masse»
Launch of concessions to build Moscow to Orenbourg sections of Europe to China route and respective regional approaches
Increase in data center capacity for reserve and security storage
Building infrastructure for telemedicine
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.
Completion of construction on Moscow-St-Petersburg highway (concessions)
Pilot green tarif based incinerator projects in Moscow region and Tatarstan (USD10B program)
Tenders to select regional waste management operators (all regions by 2018)
Pilot concessions to build regional waste management infrastructure (up to USD500M accumulated investment)
Federal concession to build nationwide collection system of heavy truck road usage levy (USD300M investment)
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PPP/concessions/private development of hospitals, policlinics, and entry level healthcare infrastructure
Leasing of municipal water and district heating (over 30M people served)
Private healthcare operators
Pilot federal and regional concessions and PPPs
Emergence of private airport operators/ completion of PPPs for major regional airports
Completion of privatization and corporatization of power generation and transmission
Restructuring and asset optimization of heat and electricity generating companies
Pilot concession for distribution network
Completion of corporatization and spin offs in railways
Concessions for sections of high speed train network Pilot railway concession
PPP/concessions for schools, kindergartens, elderly houses
Mature private telecom sector
EWC route
Source: IKAP Analysis
INFRASTRUCTURE SPECIFIC INVESTMENT POLICY
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REGIONAL FOCUS
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
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
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
11. Vologda region
21. Kirov region 22. Chelyabinsk region 23. Sverdlovsk region 24. Perm region 25. Saratov region
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
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EWC–ADJACENT REGIONS CONTRIBUTE MORE THAN 70% TO THE RUSSIA GDP
Source: Russian Federal State Statistics Service, Avtodor
Macroeconomic statistics on key regions adjacent to EWC route
Nizhn. Novgorod reg.
Bashkotostan
GDP 2030, RUR T, % of the total in EWC area
Population 2013, 2020, 2030 гг., M people
Chelyabinsk Reg.
Other Regions
Orenbourg Reg.
Nizh Novgorod Reg.
Samara Reg.
Bashkortostan
Tatarstan
St.Petersburg and Leningrad Reg.
Moscow and Moscow reg.
6,53,2
12,7 8,5%
8,2
6,87,4
хх хх хх GDP CAGR, % хх
St-Petersburg and Leningrad reg.
2,91,60,9
7,0%
3,23,33,3
Tatarstan
5,22,7
1,5
7,4% 4,14,0
3,8
49,9 26,0
14,2
7,7% 22,0
20,4 19,0
Moscow and Moscow reg.
4,32,21,3
7,5% 4,14,14,1
3,11,71,0
6,7% 3,23,23,2
2,21,20,7
6,8%
Samara reg.
хх хх хх Regional GDP 2013, 2020, 2030 гг.,
RUR T
Orenbourg reg.
1,92,02,0
Chelyabinsk reg.
2,31,30,9
3,62 3,56
3,49
5,7%
2,3 (2%)
12,1 (13%)
2,2 (2%)
2,9 (3%)
3,1 (3%)
4,3 (5%)
5,2 (6%)
12,7 (13%)
49,9 (53%)
MARKET DOMINANCE OF THE REGIONS IN FOCUS
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● 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
● Project driven non correlated non traded assets
INFRASTRUCTURE FOCUS
THE FUND WILL INVEST IN DISTRICT HEATING, TOLL ROADS AND HEALTHCARE INFRASTRUCTURE
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THE FUND WILL FOCUS ON INFRASTRUCTURE PROJECTS, COMPANIES AND INFRASTRUCTURE INNOVATIONS IN THE SELECTED INDUSTRIES
INFRASTRUCTURE ASSETS (PROJECT DRIVEN DEVELOPMENT)
INFRASTRUCTURE OPERATORS AND CONSTRUCTION COMPANIES (PRIVATE EQUITY TARGETS)
INFRASTRUCTURE SERVICE PROVIDERS (VENTURE 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
● 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
● 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)
ELIGIBLE INVESTMENT TARGETS
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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
INVESTMENT PRIORITIES
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THE FUND PROPOSITION MEETS SPECIFIC REQUIREMENTS OF NEW INTERNATIONAL DEVELOPMENT BANKS ON FINANCING PURPOSE 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
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
LEVERAGE FOR PRIVATE CAPITAL
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
Expected IRR of the Fund is within target range of global infrastructure funds
BUSINESS GROWTH
Investment in the Fund will expand investor’s equity and loan investments sourcing pipeline
FIT FOR INTERNATIONAL DEVELOPMENT BANKS