ppp americas 2010 funding for ppps cassio schmitt santander global banking & markets...
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PPP Americas 2010Funding for PPPsCassio SchmittSantander Global Banking & Markets
Confidential | May 2010
SANTANDERPRESENTE EM MAIS DE 40 PAÍSES
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AgendaPPP Americas 2010
PPP Projects – Investment Opportunities
Sources of Financing for PPPs in Brazil
Risk Mitigation and Guarantees
Case Study: Line 4 of the SP Metro
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Investment OpportunitiesPPP Americas 2010
First phase - Investment in PPP Proyects
The PPP Law was approved in Brazil at the end of 2004, officially instituting the public-private partnership program in Brazil.
PPP interest has gone through different phases in the last years, from great expectations to difficult practical implementation issues.
A few number of projects have been auctioned or structured until now:
Metro - Line 4 of the São Paulo Metro (State level)
Water & Sewage – Rio das Ostras (Municipality level)
Road Concession – MG 050 (State level)
“Prison” – Itaquitinga Integrate Ressocialization Center - PE (State level)
Hospital – Hospital do Suburbio – BA (State level)
Irrigation – Pontal/PE Irrigation Project (State level)
What is the perception on PPPs as a “brand name”? General view is not positive. There is yet a lot do, and need to start presenting results.
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Investment OpportunitiesPPP Americas 2010
A new phase for PPPs – World Cup and Olympics
New wave of strong demand for investments in urban mobility (public transportation), tourism and neighborhood development and arenas has emerged.
State governments and municipalities have listed a significant number of projects, which add up to approximately R$ 80 billion in investments, to prepare their cities for the World Cup and the Olympics (next 6 years).
PPPs will be concentrated in arenas and transportation systems (metros, monorails, etc.)
Source: Federal and State Governments and Municipalities (estimates)
Investment by Sector (R$ billion)
36 7
12
44
Tourism Other SportsInfrastructure
Airports andPorts
Urban Mobility
Infrastructure Investments (R$ billion)
5,0 5,9 6,09,4
36,4
15,7
Salvador Rio deJaneiro
PortoAlegre
Fortaleza São Paulo Other
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Investment OpportunitiesPPP Americas 2010
Metro- Expansion Line 2 – Vila Prudente to the
City of Tiradentes through a monorail- Implementation of sections of Line 4- Construction in Line 5
CPTM- Airport Express train
- Connect Luz to Cumbica airport- Extension - 28 Km
- Modernization of Lines 7 and 12
São Paulo State
Source: Portal da Copa 2014, CPTM
Airports- Construction of Terminal 3 of
Guarulhos Airport- Additional landing runway at the
International Viracopos Airport
Road system
- South tranche of Rodoanel toll road?
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PPP Americas 2010
Investment Opportunities
PPP Challenges
Time frame needed to present a sustainable PPP model.
Risk sharing - ex. Traffic risks – Metro Line 4Payments related to performance (QID)
Guarantees that the contributions of the public sector will be paid - Guarantee Fund (ex. CPP - Companhia Paulista de Parcerias)Financial capacity of the Governments: public sector long term payment commitments.Public commitments limited to 3% of the Net Current RevenuesDifficulties in structuring these projects: significant demand on governments.
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Sources of Financing for PPPsPPP Americas 2010
In local currency
BNDES Commercial banks
In US dollar Commercial banks
Bridge loans – Fiscal advantages and guarantee analysis
BNDES (offers specific lines of financing for infrastructure) BNB, CEF Regional Development Funds (FNO / FDA / FNE / FCO) Multilaterals (IDB and IFC A/B loan) ECAs Capital Markets
Long term financing – Cash flows and guarantee analysis
Funding Alternatives – Short and Long Term
Bridge loans have become a key instrument to improve infrastructure investment returns (such as PPPs), since structuring long term financing in Brazil requires time (at least 12 months).
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Sources of Financing for PPPsPPP Americas 2010
Debt Structures in Brazil
1) Onlending with BNDES Funding or guarantee BNB loans
2) B Loans: under the umbrella of multilateral agencies (“MLA’s”), commercial banks can offer
long term financing to projects.
3) In the case of leverage restrictions at the SPC level from Senior Lenders, additional debt can be offered to the holding company.
4) Subordinated Debt: To reduce equity contributions and increase returns to shareholders
Sponsor
SPC
BNDES / BNB
Banks¹
Multilateral
ECAs
B Lenders2
Equity
ProjectL
on
g-t
erm
Fin
an
cin
g
Debt Capital Markets
CommercialBank
Debt³
Subordinated
Debt4
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Sources of Financing for PPPsPPP Americas 2010
Long Term Alternatives Currency Index Tenor
BNDES BRL / Currency Basket TJLP + Up to 25 years
International Capital Markets USD Fixed Interest Up to 10 years
Local Capital Markets BRL Inflation + Up to 5 years
Multilateral Agencies USD Libor + Up to 10 years
ECA Facility (Exim) USD Libor + Up to 12 years
Local Bank Market BRL CDI + Up to 7 years
* Subject to entity policies and market liquidity
Long Term Sources of Funding in Brazil
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Sources of Financing for PPPs
Project financing through local debt capital markets is still under development in Brazil.
If compared to other financing long term alternatives for projects, traditional debt through DCM is not yet competitive.
Risk differentiation: construction x operation risks
Mitigation factor: sponsor quality and rating of the transaction
Market and demand concentration: low asset liquidity
PPP Americas 2010
Local Debt Capital Markets
Target investors: Asset Managers / Pension Funds – have the capacity to better perform medium and long term credit analysis.
Pension Funds (20 active): Prefer assets indexed to inflation and with longer tenor (5 – 7 years).
Asset Managers (40 active):Prefer assets indexed to CDI (interbank rate) and with shorter tenure (2 – 4 years).
Debentures – Average Tenor
2003 2.5 years
2004 5.0 years
2005 5.1 years
2006 5.2 years
2007 5.3 years
2008 5.0 years
2009 3.0 years
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Risk Mitigation and GuaranteesPPP Americas 2010
Project Risk Management
In PPPs, we still need to manage construction risks, the same as in common concessions which are financed through Project Finance structures
Risk management strategy
Current risk mitigants
New risk controls
Insurance
Contractor SPC Others
Performancebond
Contingency margin Contingency fund
Equity
Risk financing
Government indemnity
LDs
Risk prevention & minimisation
Equity support
guarantee
Completion bond
Bank risk
Stand-by loan
Pass-through costs
Risk management strategy
Current risk mitigants
New risk controls
InsuranceInsurance
Contractor SPC Others
Performancebond
Contingency margin Contingency fund
Equity
Risk financing
Government indemnity
LDs
Risk prevention & minimisation
Equity support
guarantee
Completion bond
Bank risk
Stand-by loan
Pass-through costs
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Risk Mitigation and GuaranteesPPP Americas 2010
Risk Allocation
Main Parties
SPC
EPC Contractor
Government
Selected Risks
Political / Legal
Social
Environmental
Who’s
responsible?
____________________________________________________________
Delays in obtaining environmental licenses and agency authorizations due to the lack of documentation;
Public Attorney’s civil actions which stop construction and cancel licenses due to social and environmental matters;
Delays in the construction of toll plazas due to the lack of definition of the project area;
Port workers strikes (delaying equipment delivery), etc.
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Risk Mitigation and GuaranteesPPP Americas 2010
Alternatives for Private Sector Participation
Tenor of up to 35 years
Reven
ue
Tariff
Reven
ue
Tenor of up to 35 years
Public Contribution
Common Concession(ex. Federal Toll Roads)
Administrative PPP(ex. PPP Alto Tietê)
Tenor of up to 35 years
Reven
ue
Public Contribution
(up to 70%)
Tariff
Sponsored PPP (ex. PPP Metro Line 4)
Concession (Law 8.987/95)
- well tested modality
- sectors: transportation and energy
PPP (Law 11.079/04)
- few projects implemented
- sectors: water & sewage, transportation, prisons, hospitals and administrative centers.
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Case Study: Line 4 of the SP MetroPPP Americas 2010
Project Highlights
One of the first PPP projects in Brazil
30 year PPP concession of SP Subway – Line 4
Public Sector: civil construction works
Private Sector: supply of rolling stock, communication and ticketing systems, O&M
Phase I: 5 Stations (Butantã, Faria Lima, etc) and 14 trains – 700th pass/day
Phase II: Morumbi, Vila Sônia, investments in line C and 15 trains (demand forecast) – 900th pass/day (after minimum 4 years from Phase I)
Revenue model
Ticket revenues (100% for exclusive passengers and 50% for integrated passengers)
48 monthly Government payments – defined auction winner
Non fare revenues (advertisement, etc)
Inflation adjusted (IGPM+IPC 15 y, then IPC)
O&M quality parameters should be attained
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Case Study: Line 4 of the SP MetroPPP Americas 2010
Risks and Mitigation factors (1-2)
Minimum Revenue Guarantee: downside protection to private investors, and government may share upside.
Real Demand vs. GoSP
Demand (in %)
Adjusted in Favor of:
Demand Risk Sharing
90% to 110% of GoSp Demand No adjustment applicable Demand Risk Mechanism is not triggered
Between 90% and 80% of GoSP Demand
ViaQuatro Granting Authority shall compensate 60% of the difference within this range.
Between 80% and 60% of GoSP Demand
ViaQuatro Granting Authority shall compensate 90% of the difference within this range.
Between 110% and 120% of GoSP Demand
Granting Authority ViaQuatro shall compensate 60% of the exceeding demand within this range.
Between 120% and 140% of GoSP Demand
Granting Authority ViaQuatro shall compensate 90% of the exceeding difference in this range
Below 60% of GoSP Demand ViaQuatro Economic-financial Balance Recovery is triggered
Above 140% of GoSP Demand Granting Authority Economic-financial Balance Recovery is triggered
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Case Study: Line 4 of the SP MetroPPP Americas 2010
Risks and Mitigation factors (2-2)
Risk Mitigation:
Construction/rolling stock supply delays: state or private investor reimburse losses
Buses and subway networks will be integrated, avoiding competition between them
State EPC contract for civil works (both phases) and investments in rolling stock for line C (phase II)
Centralized fare collection by independent company
FX protection
Early termination and step in rights
Dispute resolution – 3 member mediation committee or binding arbitration (International Chamber of Commerce)
State payments guaranteed by Cia Paulista de Parcerias (CPP)
Financing
Choice of equipment is also related to defining LT financial sources (multilaterals, BNDES, ECAs, available according to supplier)
IDB A/B loan selected by Sponsors
IDB is also a strategic lender for the Brazilian government
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Case Study: Line 4 of the SP MetroPPP Americas 2010
Financing Conditions
LT IDB Financing
Limited recourse A/B loan – 15 y USD 69 MM IDB A-loan and 12 y USD 240 MM B-loan, funded by 7 financial institutions (oversubscribed)
USD 59,5 MM IDB A-loan for Phase II
Amortization schedule accommodates eventual delays on civil works
Guarantees:
Sponsor support agreement until completion
Project Guarantees: shares, rolling stock, rights, etc
Financial hedge
Collateral agent – Deutsche Bank
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Contact DetailsPPP Americas 2010
Todas as informações apresentadas neste documento são de natureza genérica e não têm por finalidade abordar as circunstâncias de nenhum indivíduo específico ou entidade. Embora tenhamos nos empenhado para prestar informações precisas e atualizadas, não há nenhuma garantia de sua exatidão na data em que forem recebidas nem de que tal exatidão permanecerá no futuro. Essas informações não devem servir de base para se empreender qualquer ação sem orientação profissional qualificada, precedida de um exame minucioso da situação em pauta.
Cassio Schmitt
Project & Acquisition Finance – Head
Santander Global Banking & MarketsAv. Juscelino Kubitscheck, 2235, 27th floor04543-011 - São Paulo, SP – Brazil