Presentation to the 2014 Atlantic Conference Attendees: Bringing Creative Financing Structures to the Caribbean and Building Strategic Partners

Transcription

1 Presentation to the 2014 Atlantic Conference Attendees: Bringing Creative Financing Structures to the Caribbean and Building Strategic Partners ANTHONY S. RUST July 2014

2 Traditional Financing Structures Are traditional financing structures available to finance Caribbean public sector initiatives and capital expenditure projects? Public Finance Challenging for many Caribbean governments due to financial challenges and fiscal constraints as the underlying credit and distribution of bonds are key components for any public finance offerings Project Finance Challenging for many Caribbean nations as most project financing issuances are tied to specific revenue streams e.g. toll roads, specific tariffs, distinct taxes or special assessments 2

3 Development Finance in the Caribbean Development Financial Institutions Regional Multilateral Development Banks Inter-American Development Bank (1959) (IDB). Sub regional Multilateral Development Banks Caribbean Development Bank (1969) (CDB). National development Banks Development Bank of Jamaica Global Development Finance Institutions World Bank / International Finance Corporation, OPIC 3

4 Development Finance in the Caribbean What does development finance in the Caribbean do? Provides credit and loans to banks and corporations for financing foreign trade and working capital operations. Provides the financial sector with credits. Offer governments and quasi governmental entities special financing of infrastructure and related projects. Provides financing for projects to promote economic development and access to capital in economically challenged areas and regions. Provides liquidity and finance (both cyclical and countercyclical). 4

5 Public Private Partnerships (PPPs) Opportunity PPPs can facilitate the delivery of improved infrastructure - energy, water, transport, health and education PPPs can help address the infrastructure gap by mobilizing private sector investment and expertise Successful PPPs can have a net positive impact - reducing government expenditures and increasing revenues, and improving competitiveness thereby creating an environment conducive to private sector investments into growth sectors Challenging Intrinsic characteristics of Caribbean countries (small island economies, vulnerability to natural hazards, long standing regulatory issues, etc.) create a high cost of infrastructure delivery relative to other world regions Fiscal challenges with social infrastructure PPPs (schools, hospitals) or transactions where government retains demand risk (e.g. Limited/no fiscal revenue; government to make annual payments to private operator) 5

6 Public Private Partnerships (PPPs) Relative success in larger countries (Jamaica, Trinidad and Tobago); with limited success in others limited experience, lack of political will and limited government resources have challenged other projects Examples of Caribbean PPP Projects Sangster International Airport, Montego Bay, Jamaica IFC Investment ($52.5 million IFC loan, 52.5 million syndicated loan) Air Jamaica Privatisation, Jamaica IFC Advisory ($50m investment, $250m fiscal benefits, 900,000 people with improved access) Haiti Teleco IFC Advisory ($100m investment, $200m fiscal benefits, 1.5m people with improved access to services) Ongoing Caribbean PPP Projects Norman Manley International Airport (Jamaica), shortly to launch tender Grenada Hospital PPP (Grenada), ongoing tender process 6

7 Creative Financing Structures What creative financing structures might be currently available to the region and applicable in the Caribbean? Further, what types of strategic partnerships could be cultivated and developed for the region both across short and long term time horizons which could help alleviate financing gaps and increase access to capital for both the Caribbean public and private sectors. Diaspora Bonds Wall Street Sponsorship Bulge bracket or boutique investment banks target Caribbean American and Caribbean European diaspora communities for the sale and distribution of diaspora bonds, highlighting both the potential significant interest rate returns and the ancillary benefits of supporting the economies back in the Caribbean. IADB / China Joint Venture The Inter-American Development Bank (IDB) and the People's Bank of China (PBC) approved the China Cofinancing Fund for Latin America and the Caribbean to support public and private sector projects that promote sustainable economic growth in the region. First of its kind established by China and a multilateral development bank. The proposed $2 billion contribution by China will be used to co-finance a total of up to $500 million of IDB public sector loans and up to $1.5 billion for loans made by the Bank to private sector entities. 7

8 Traditional Financing Structures Have traditional financing structures worked for financing private sector businesses in the Caribbean? Conventional Debt Financing Scotiabank, CIBC First Caribbean Bank, Royal Bank of Canada Small and Mid-Size Business Enterprises Large Business Enterprises Caribbean Basin Capital Continuum Conventional / Traditional VOID Public Equity Markets / Regional Debt Financing and In-Country Stock Exchanges

9 Focus on Caribbean Private Sector Need for a more balanced approach in the Caribbean. There exists an imbalance. The historical financial model and emphasis in the Caribbean continues to focus on large scale public sector projects and infrastructure projects; and not the private sector. It is without question that there continues to be a need on public sector development projects and infrastructure; however the emphasis and financial model has been almost exclusively focused on this area. In addition, the financial vehicle has almost exclusively been on the use of debt capital with little emphasis or effort to bring in much needed equity at-risk capital to provide a much needed balance and financial options to the region. Equity invested in the Caribbean does provide a higher risk but also presents much greater return opportunities as well. 9

10 Creative Financing Structures What creative financing structures might be currently available to the region and applicable in the Caribbean? African Private Equity Model It s taken 30+ years for the continent of Africa to be recognized as an opportunity for institutional private capital but today Africa is one of the major focus areas for emerging private equity investments. In the past 4 years over $10.1 billion in private capital has been raised for planned investments in private African small, mid-market and large market private companies / enterprises. In the past 4 years over $6.5 billion has been invested in private African small, mid-market and large market private companies / enterprises. African PE investors include - Emerging Capital Partners, Actis Capital LLP, Abraaj Group, Helios Investment Partners, Ethos 10

11 What needs to be done Recommendations Global Pension Schemes / Sovereign Wealth Funds A concerted effort needs to be made by Caribbean leadership (both public and private sector leaders) to strategize, go after and attract large global pension schemes and sovereign wealth funds to invest equity not debt in the Caribbean with a higher risk premium but a higher return on investment profile. Wall Street / Private Sector Global Financial Institutions An organized effort needs to be made by Caribbean leadership (both public and private sector leaders) to market to Wall Street and global financial investors and investment firms to get institutional coverage of the in-country and regional Caribbean stock exchanges and investments into the corporations / business enterprises listed on the exchanges e.g. Frontier and Emerging Public Equity Markets within the Caribbean. Cross Boarder Partnerships / Leadership & The Diaspora Cross Boarder Partnerships with US and European s large corporations that have a vested interest in doing business in the Caribbean, with Caribbean consumers or businesses, Caribbean American businesses and consumers, Caribbean European businesses and/or consumers or other Caribbean diaspora around the globe. 11

12 Contact Information Caribbean Private Equity Partners Caribbean Basin Office: 250 Ponce de Leon Avenue Suite 1003, City Towers San Juan, PR US Continental Office: 1818 Market Street Suite 3205 Philadelphia, PA

13 Disclaimer This presentation is for information purposes only, is confidential and may not be reproduced or distributed. The information in this presentation has been prepared from a variety of sources and is believed to be reliable and current as of the date hereof. Although reasonable care has been taken to ensure that the facts and opinions given in these presentation are fair and accurate, they have not been independently verified and no representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information, opinions or estimates and projections contained in this presentation. No responsibility or liability, whether direct or indirect, express or implied, contractual, statutory or otherwise, will be accepted by the presenter for the contents or accuracy of this presentation or any errors therein or any omissions thereto or any other written or oral information made available to this presentation. Sources: Caribbean Private Equity Partners Daniel Titelman, Chief, Development Studies Section, ECLAC Naciones Unidas CEPAL IADB / IDB Inter-American Development Bank World Bank / IFC International Finance Corporation IMF Joint Caribbean Growth Conference Prequin EMPEA AVCA 13