grant hodges, partner, transactions infrastructure advisory leader & david larocca, partner,...
DESCRIPTION
Grant Hodges and David Larocca delivered the presentation at the 2014 NEW ZEALAND INFRASTRUCTURE SUMMIT. The New Zealand Infrastructure Summit brings you the most up to date infrastructure news combining case studies and key presentations, addressing developments in the some of the main infrastructure hubs, such as Auckland and Christchurch. For more information about the event, please visit: http://www.informa.com.au/nzinfra14TRANSCRIPT
Developing Market Ready Projects
Grant Hodges and David Larocca
Infrastructure Advisory, EY
April 2014
Page 2
Agenda
1. Market context
2. Developing market-ready projects
3. Concluding remarks
Financing the delivery of light rail
Page 3
Agenda
1. Market context
2. Developing market-ready projects
3. Concluding remarks
Financing the delivery of light rail
Page 4
There has been a dramatic change in Europe
Financing the delivery of light rail
0
20
40
60
80
100
120
0
5
10
15
20
25
30
2008 2009 2010 2011 2012 2013
Number of Projects:
Value (Billion Euros)
Year
European PPP Market has shrunk by over 50% over the last 5 years :
Value: (Billion Euros)
Number of Projects:
European investors,
contractors and operators
looking to diversify –
Australia a focus
Source: European PPP Expertise Centre
Page 5
A resilient financing market – with a significant increase in transaction activity
Financing the delivery of light rail
c$10bn of PPPs forecast to close between
July 2013 and December 2014 – matching pre-GFC levels of activity
0
1
2
3
4
5
6
7
8
9
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (F)
Value of PPP Transactions ($Billions)
Page 6
What is driving the transaction activity?
► Infrastructure is front of mind at all levels of government
► Unprecedented appetite for private sector involvement
► New funding models emerging – asset sales
► Transport has historically lacked „new build‟ activity
Financing the delivery of light rail
Page 7
Financing market continues to improve
► Continual improvement:
► 20-25 active banks
► Each bank is prepared to lend more
► UK/European bank withdrawals replaced with
Asian and North American banks
► ECAs very active – following local suppliers
► $4B+ of capacity
► Commercial terms:
► Tenors of 7-10 years
► Margins trending down
► Gearing trending up – 85%-90%
► We expect to see more equity investors providing
debt products into transactions
► But still lack of long-term bank market and capital
market alternatives
► Unprecedented market interest
► Brownfield (including patronage risk) and
greenfield/PPP appetite
► Main sources:
► Australian superannuation funds
► UK & European PPP investors
► Asian pension funds and trading houses
► North American pension funds
► Middle Eastern SWFs
► Investors are assuming refinancing risk
► Equity returns on downward trend
Debt Market Equity Market
Financing the delivery of light rail
Page 8
Debt pricing continues to improve
0
50
100
150
200
250
300
350
400
450
Term
deb
t m
argi
ns
Pre-GFC Post-GFC
Financing the delivery of light rail
Page 9
Superannuation sector is engaged, with an appetite to invest more … but barriers remain
Financing the delivery of light rail
The sector wants:
► Greater certainty of pipeline
► Incentives for governments to establish capital recycling processes
► Regulatory certainty over superannuation and taxation policy
► Early project consultation processes
This could further open up a
$1.75 trillion super industry to
Australian and NZ
infrastructure opportunities
Page 10
Agenda
1. Market context
2. Developing market-ready projects
3. Concluding remarks
Financing the delivery of light rail
Page 11
Getting it right up-front
► Business case for the Project, including clear strategic context “is this a PPP looking for a Project”?
► Strong, consistent and visible political commitment
► Realistic affordability analysis
► Early focus on project governance
► Establishment of a project with appropriate experience
► Realistic timetable – then a relentless focus on meeting it
► Proactive, early, focused and international market engagement strategy
► Interactive tender strategy
Page 12
Market engagement enables the development of innovative solutions
Financing the delivery of light rail
Issue Example of Mechanism Examples
Contractor balance
sheet constraints
“Discipline based”
packaging
North-West Rail Link (NWRL)
Debt market capacity Capital contribution Gold Coast Rapid Transit, Sunshine
Coast Hospital, New Generation Trains,
NWRL, East-West Link, Queensland
Schools
Debt syndication guarantee
Melbourne Desalination PPP
Optimising the
cost of capital
Debt Paydown (Conditional
on commissioning and
operations)
Darling Harbour Live, North-West Rail
Link, Sydney Light Rail
Market aversion to
greenfield traffic risk
„Build and Sell‟
model
Legacy Way, QML, WestConnex
Availability PPP with
retention of toll revenue
East-West Link
Page 13
Agenda
1. Market context
2. Developing market-ready projects
3. Concluding remarks
Financing the delivery of light rail
Page 14
Concluding remarks
► Infrastructure, including PPP, has become a key asset class
► International players heavily engaged in the Australian/NZ market
► Buoyant infrastructure market
► A project‟s success is determined at the business case stage
Financing the delivery of light rail