Cassa depositi e prestiti spa

Transcription

1 Cassa Depositi e Prestiti s role in Financing Public Investments and the Mechanism used to Improve the Capacity of Municipalities to Access Funding for Infrastructure Projects. Michele Mascolo Ankara, March 4 th

2 Lending to local authorities. The Italian market The local authorities funding The local authorities funding. Cdp role Cassa depositi e prestiti key historical developments The instruments Status changes Last status change Cassa depositi e prestiti today Status & mission The regulatory framework The Functioning Model The separate account The Ordinary account Present and future CDP Activity in Third Party Funds Active Management of Public assets, a new opportunity Active management of public assets: real estate 2

3 Lending to local authorities. The Italian market

4 The local authorities funding in Italy Main features of the reference market As of November 2007 local authorities outstanding debt reached 113 bln. Stock of loans was 70 bln. while stock of bonds was 33 bln. Loans repayable from Central Government amounted to 58 bln. Market growth significantly slowed down in 2007, local authorities sector increasing only by 4,2% on 2006 data, when compared to 2006 over 2005 growth rate (+20%), and 2005 over 2004 growth rate (+17%) Albeit, CDP confirmed its market share in almost all segments Stock of debt and CDP market share Debt ( billion) CDP market share (%) nov-07 Local Authorities debt 53% 31% Central Govt. Loans CDP mkt share on Local Authorities debt CDP mkt share on Central Govt Loans 55% 50% 45% 40% 35% 30% 25% 20% Source: Bank of Italy. 4

5 The local authorities funding in Italy. Cdp role CDP market share CDP confirmed its market share on Local Authorities (enti territoriali) segment at 30,6% (29% in 2006); 52,5% (52% in 2006) on loans repayable by Central Government, 17,4% (16,6% in in 2006) for Regions and 45,5% for Local Entities (Comuni) (42,9% in 2006) Thus confirming its role and mission in the global scenario of the local authorities financing strategy CDP market share on outstanding loans to the public sector 60% 50% 40% 51,8% 52,5% 49,3% 50,5% 45,5% 42,9% 30% 20% 10% 29,2% 16,6% 30,6% 17,4% 0% 2006 I quarter 2007 II quarter 2007 III quarter 2008 november 2007 Regions Local Entities Local Authorities Central Gov. loans Total public sector loans Source: Bank of Italy. 5

6 6 Cassa depositi e prestiti key historical developments

7 7 Key historical developments of CDP 1850: the CDP is established in Turin to accept deposits as an institution of public trust 1857: the CDP grants loans through Royal Decrees on the condition that borrowers have sufficient means to make repayment 1863: the Piedmont-based CDP absorbs the other Casse of the Kingdom into a new institution, which is based first in Florence, then in Rome

8 8 Key historical developments of CDP: the instruments 1875: postal savings passbooks are introduced. The funds raised are used by the CDP to finance local authority investment in public works and repayment of past debts 1924: the introduction of interest-bearing postal savings bonds, whose small denominations, extensive distribution around the country, safe yields, high degree of liquidity and State guarantee make it easier to raise funds than with Treasury bills, whose issue is even suspended temporarily

9 9 Key historical developments of CDP: status changes 1898: the CDP is transformed into a Directorate General of the Treasury 1983: institutional reform of the CDP to grant it full organizational autonomy (Law 197/1983) 1993: the CDP is granted separate legal personality 1999: the status of the CDP as a state agency with separate legal personality and regulatory, organizational and financial independence acting in the general economic interest is confirmed. The CDP is not subject to all of the provisions of the 1993 Banking Law, while the European Community excludes the CDP from the scope of Community directives on credit. As far as economic and financial accounts are concerned in accordance with ESA 95 criteria, the CDP is classified under the general government sector

10 10 Key historical developments of CDP: last status change On December 12th, 2003 the Cassa depositi e prestiti was transformed into a limited liability company, in order to respond more effectively to the far-reaching changes that have occurred in the regulatory and institutional framework of its reference market. The transformation has increased its capacity for action and made operations more flexible and functional

11 11 Cassa depositi e prestiti today

12 12 Cassa depositi e prestiti today: Status & Mission Cassa depositi e prestiti S.p.a. ( CDP ) is a limited liability joint stock company established on December 2003 by transformation of CDP Public Company as of art. 5 of Law Decree 269 of 30 September 2003 The CDP s mission is to foster the development of public investment, local utility infrastructure works and major public works of national interest, ensuring an adequate return for its shareholders while preserving its long-term financial and economic balance The CDP intends to remain the key financial counterparty for local authorities and for the owners and operators of infrastructure.

13 13 Cassa depositi e prestiti today: the Regulatory Framework Ministerial Decree of 6 October 2004 (Part III) has defined guidelines for the organizational and accounting separation between CDP s activities in order to: Ensure the economic equilibrium of CDP Provide useful data for the MEF in order to exercise its power of establishing guidelines Ensure compliance with regulations governing State Aid, competition and transparency

14 14 Cassa depositi e prestiti today: the Regulatory Framework Despite not being classified as a financial intermediary according to Legislative Decree 385/93 (Italian Banking Act -Testo Unico Bancario), CDP S.p.A. falls under the supervision of Bank of Italy; supervision is applied, taking into account CDP S.p.A. s peculiarities and is harmonized with the specific regulations set for the management of the segregated account The MEF sets the strategic guidelines and supervises the activity of the segregated account. Moreover, the segregated account is audited by the Italian Court of Accounts (Corte dei Conti) 30 % of CDP S.p.A. share capital is owned by private investors with public interest mission: the banking Foundations ( Fondazioni Bancarie), while the MEF retains 70% majority

15 15 Cassa depositi e prestiti today: the Regulatory Framework On September 2006, CDP has been classified by the Bank of Italy as a credit institution (as defined in Article 4 of the Directive 2006/48/EC of the European Parliament and the Council of 14 June 2006) As a result, effective as of 30 September 2006 the company is due to undergo to some of the rules required by the European provisions on the European Central Bank System. In particular, CDP has become subject to: The miminum reserve requirements applicable to credit institutions in compliance with Regulation (EC) 1745/2003 of the European Central Bank of 12 September 2003 The statistical reporting requirements applicable to credit institutions and other financial monetary institutions in compliance with Regulation (EC) 2423/2001 of the European Central Bank of 22 November 2001

16 Cassa depositi e prestiti today: the Functioning Model Upon its transformation, CDP has established two operational areas within the same legal entity to manage public mandate and open-market activities separately for accounting and organisational purposes only, as requested by law: Postal Savings Separate Account (State Guarantee) Financing to P.A. + Local Authorities Economic Development Financing Participations Market funding CDP spa Ordinary Account (No State Guarantee) Financing to P.A. + Local Authorities Economic Development Financing Equity 16

17 Cassa depositi e prestiti today: the Functioning Model Current organization Board & General Director Accounting separation = Separated Account Corporate center Support units = Ordinary Account = Common Services Business Units Finance Public Investments Development Policies Management and Support Infrastructure and strategic projects Postal savings Market Funding ( EMTN & Covd. Bonds) 17

18 18 Cassa depositi e prestiti today: the Separate Account The first Area, known as the Separate Account, acts its general economic interest mission. It provides the funding at homogeneous conditions of investment of local authorities, public agencies and other public-law bodies, together with the other activities performed by CDP under its public interest role The Ministry for the Economy and Finance (MEF) issues guidelines and exercise its supervisory and regulatory powers, while the Parliamentary Supervisory Committee will continue to oversee the activities of this area Postal Savings CDP spa Separate Account (State Guarantee) Financing to P.A. + Local Authorities Economic Development Financing Participations

19 19 Cassa depositi e prestiti today: the Separate Account Lending Public sector lending remains CDP s main business. Loans of the Gestione Separata are a service of general economic interest and as such are governed in compliance with criteria that guarantee accessibility, uniform treatment, predetermination of rates and non-discrimination CDP then continues to grant specific-purpose loans to finance public investments, having ascertained the existence of the requirements provided for by law governing the borrowing of the loan applicant and the compliance with the conditions established by CDP for homogeneous categories; CDP may also provide financing on different terms and conditions from those of specific-purpose loans for public-interest projects; such financing shall be granted for homogeneous categories of entities or purposes and interest rates shall be determined by CDP on the basis of the purposes of the project, the characteristics of the investment and the characteristics of the borrower

20 20 Cassa depositi e prestiti today: the Separate Account Funding Lending to Local Authorities is funded through traditional State-guaranteed savings products placed by the Poste Italiane network (A1 stable/a+ negative by Moody s and S&P) with retail investors As per the Ministerial Decree of 6 October 2004: Postal savings are a service of general economic interest and as such are managed in compliance with criteria determined by the MEF Funding levels of Postal Bonds are set by in line with the cost of equivalent funding instruments of the Italian Government CDP (i) sets terms and conditions for all issuance of postal savings; (ii) may establish new postal savings instruments benefiting from the Republic of Italy guarantee; (iii) may suspend the issuance of Postal Bonds The above mentioned provisions enable CDP to manage postal savings instruments dynamically within MEF guidelines and to respond appropriately to market needs, both in terms of speed of adjustment and variety of products

21 Cassa depositi e prestiti today: the Separate Account The SEPARATE ACCOUNT Funding instruments: Passbooks & Postal Bonds Passbooks Passbooks are short-term, variablerate investment products issued by Cassa Depositi e Prestiti and distributed exclusively by Poste Italiane Passbooks are guaranteed by the Republic of Italy Interests are accrued from the deposit date until reimbursement. Interests are capitalised annually Passbooks are comparable to short term deposits distributed by retail banks Passbooks can be issued in the form of personal saving books or in a bearer form Bearer passbook balancecannot be larger than 12,500 Postal bonds Postal bonds are securities issued by Cassa Depositi e Prestiti and distributed exclusively through Poste Italiane S.p.A. network The main features are: Zero-coupon interest accruing at a compounded rate annually Guaranteed by the Republic of Italy and issued in dematerialised or materialised form Placed only to retail investors with a maximum ticket size of 5,000 and a minimum of 50 for materialised bonds and 250 for dematerialised bonds Postal bonds are puttable at any time by investors after the first year. Penalties apply to redemption of Buoni a termine series before any contractual maturity 21

22 Cdp today: the Separate Account - Funding data Recent performance of the stock Postal savings ( mln.) Postal savings Stock as of 31 december 2007 amounts to mln., +9% when compared to 2006 data +18% % Product breakdown: mln. postal bonds mln. passbooks Postal bonds performance in 2007 is +9% on Almost same data in year 2007 for the passbooks: +8% on dec 05 dec 06 dec 07 Postal bonds Passbooks 22

23 23 Cassa depositi e prestiti today: the Ordinary Account The second area ( Ordinary Account ) is devoted to the funding of works, plant, networks and equipment for the provision of local public utilities and infrastructure, as such utilities have been or are being spun-off from Local Authorities. Financing is made on an open market basis and CDP may raise funds through the issue of securities, borrowing and other financial operations without State guarantees Market funding CDP spa Ordinary Account (No State Guarantee) Financing to P.A. + Local Authorities Economic Development Financing Equity

24 24 Cassa depositi e prestiti today: the Ordinary Account The Ordinary account financing strategy The mission of the Ordinary Account is lending to public utilities and other private companies involved in infrastructure management at market conditions The new infrastructure lending activity is guided by economic principles and operates on market terms: loans are granted on the basis of credit worthiness criteria developed by CDP and funding is obtained through market instruments without government guarantees

25 Cassa depositi e prestiti today: the Ordinary Account Loans disboursed The amount of disbursed loans as of 31 December 2007 reached mln., with a significant (+23%) growth on year end 2006, more than doubled with respect to 2005, when the Ordinary Account started its activity +84% +23% At the same time ( end 2007) stock of loans granted has reached mln, with a strong ( +28,5%) increase when comparing to 31 December 2006 data dic-05 dic-06 dic-07 Finanziamenti corporate Project finance Altri 25

26 Cassa depositi e prestiti today: the Ordinary Account' Stock of loans granted At the same time (end 2007) stock of loans granted has reached mln, with a strong (+28,5%) increase when comparing to 31 December 2006 data, thus stabilizing the positive trend of first year +76% +28.5% dic-05 dic-06 dic-07 Stock of Ordinary account Loans 26

27 27 Cassa depositi e prestiti today: the Ordinary Account Funding Funding strategy for the Gestione Ordinaria provides for a direct correlation between the volume of funds raised and the amount of lending. Funding is currently based on the following instruments: Issues under the EMTN & Covered Bonds programmes Drawdowns on credit facility granted by EIB under framework agreement signed in July 2005

28 28 Present and future: CDP Activity in Third Party Funds The need of new infrastructures is widespread all over the world Even in market oriented economic systems a strong presence of public players acting close to and together with the private players is felt as necessary This partnership enables the promotion of innovative instruments An important example of this partnership is the growing market of third party infrastructure Funds

29 29 Present and future: CDP Activity in Third Party Funds In an uncertain scenario the demand for investment instruments with a risk/reward smooth profile is rapidly growing As a consequence the interest for financial instruments strictly linked to public infrastructures and real estate is very strong Because their return is long term and stable State guarantee and projected stable cash flows are the keys to issue long term securities that can match this kind of investment attitude PPP= Private Public Partnership can then represent a solution to infrastructure financing in this particular historical phase

30 30 Present and future: CDP Activity in Third Party Funds In Italy Local Authorities investment expenses amounts to 87% of the total General Government size This is mainly due to the huge set of responsibilities (including financial ones) transferred from Central Government to Local Authorities As a consequence, Local Authorities currently play a major and central role in infrastructure growth in Italy Along with the growth of investments, stock of local debt is also growing EU controls on public finance force to think about new ways to finance investments and debt Along with traditional sources (taxation, transfer from CG, loans) innovative ways are showing up, such as project finance and several financial instruments based on public assets

31 31 Present and future: CDP Activity in Third Party Funds Worldwide more than 60 Infrastructure Funds are active, with a total capitalization of about 52 bln. In Europe 18 funds are active with a capitalization of 16,5 bln. In Italy some of them are already active, with a capitalization of about 3 bln. They invest in public transportation, public utilities, power, distribution networks and other local projects CDP is a central player in this challenge CDP promoted Fund F2i, joined by Italian and international major players, took part to European initiatives like Fund Galaxy (partnership with French CDC and German KfW) and to other targeted initiatives like PPP Fund

32 32 Present and future: CDP Activity in Third Party Funds Large size Infrastructure Focus on Italy: F2i (Sponsor) Transport Infrastrucure, medium size asset, European and International Focus: Galaxy (Sponsor) PPP Projects + Greenfield, Focus on Italy Small size asset: Fondo PPP Italia (Subscriber) Social Connotation, Real Estate Sector, Regional relevance: Fondo Abitare Sociale 1 (Subscriber)

33 33 Present and future: CDP Activity in Third Party Funds Infrastructure private Equity Transport Infrastrucure, medium size asset, European and International Focus: Galaxy (Sponsor) In 2006, CDP s Ordinary Account started to invest in infrastructural funds such as: Galaxy, is a dedicated transportation infrastructure equity fund investing primarily in Europe and in OECD countries: Total size of the fund amounts to EUR 250 million, of which EUR 100 million committed by CDC and CDP each and the remaining EUR 50 million committed by KfW

34 34 Present and future: CDP Activity in Third Party Funds Infrastructure private Equity PPP Projects + Greenfield, Focus on Italy Small size asset: Fondo PPP Italia (Subscriber) On December 2006 the Fondo PPP Italia was launched: Main investment focus is on projects of public-private partnership (ppp) (investing on housing projects, public utilities, and greenfield, focused on Italy) Other partecipants: KfW, BEI, Compagnia San Paolo, Fin.Opi, Fondazione Cariplo, Fondazione Cariparo, Banco Espirito Santo de Investimento

35 Present and future: CDP Activity in Third Party Funds Infrastructure private Equity Large size Infrastructure Focus on Italy: F2i (Sponsor) On January 2007 CDP launched a new Infrastructure Fund: F2i partnering with some major banking groups such as Unicredit, Banca Intesa some of the main Banking Foundations and Pension Funds The size of the fund will be in the range of approx. EUR billion As of today CDP stakes is 31,4% of the SGR company capital.the to be size is planned to be around 14% Main investment focus will be on Italian infrastructure projects The fund will invest in a broad range of infrastructure assets, which will include: Transportation: motorways, toll bridges, tunnels, railways, airports and ports Utilities: electric and gas grids, water companies, renewable energy, waste management Public services: hospitals, parking, environment, etc. 35

36 36 Present and future: CDP Activity in Third Party Funds Infrastructure private Equity Social Connotation, Real Estate Sector, Regional relevance: Fondo Abitare Sociale 1 (Subscriber) CDP also invested in the Abitare Sociale 1 Fund whose main task is investing in projects of social housing Other investors are: Fondazione Cariplo, Regione Lombardia, Banca Intesa Sanpaolo, Banca Popolare di Milano, Cassa Geometri, Assicurazioni Generali, Gruppo Pirelli/Telecom Size of the Fund: 85 mln, of which 20 mln. as total commitment of CDP

37 37 Present and Future: Active Management of Public assets, a new opportunity Public assets management recently became an important source of funding for Central Government and for Local Authorities In the next future public, non instrumental, assets sale is set play a significant role to finance public investments in infrastructure This is higly predictable not only with reference to real estate, but also to other public assets like local networks, stakes in local corporate, and other rights Among local authorities assets a central role can be played by networks They can be an active element of the financing, as a substitute of guarantees, the value and the future revenues coming from the use of the network may be the key to repay the cost of financing the new infrastructure

38 38 Present and Future: Active Management of Public assets, the Real Estate assets A major role among public assets is played by non instrumental - real estate assets Local Authorities real estate assets are about 80% of total public assets Its value is valued at market value around bln. Most of it belong to Local Authorities and a conservative appraisal of the part immediately available for sale is between 3 5 % of the total As a projection, Local Authorities could be able to get resources from 2 to 5 bln. per year through sale of the assets or improving their value

39 39 Present and Future: Active Management of Public assets, the Real Estate assets The Real Estate Fund appears to be the most adequate instrument to extract value from sale and valorisation of public real estate The Fund: Is a flexible instrument with regard to the size and the typology of the assets to manage Gives the chance to create multi-originator Funds, with the opportunity to create a portfolio resulting from different owners Is compliant with a long term scenario to finalize the sale/valorisation, against a quick revenue Gives the opportunity to manage the deal in line with industrial policy plans agreed with Local Authorities and the market players, (i.e.: determining city plan and real estate destination) Is highly politically acceptable since Local Authorities can play an important role from the beginning of the transaction

40 40 Present and Future Role The infrastructure financing issue and the supporting role of CDP towards Local Authorities (accomplishing 87% of total public investments in Italy) is crucial for the development policy of the Country An active role for CDP must prefigure: Advisory, counselling activity Financial assistance Direct participation as stakeholder in different initiatives

41 41 Present and Future Role In an environment where there a strong need for capital adequacy must deal with rules & constraint of public balance sheets, a strong interaction among institutional players, the banking system and capital market must be pursued CDP can act as financial intermediary AND as relevant institutional investor, at the same time playing as advisor and stakeholder in innovative projects created with the Local Authorities, in an effort to actively manage public assets This can be a hint for a reference model where CDP, Local authorities and the banking system constitute the core of a reference model of publicprivate-partnership focused on the realization of infrastructure