Infrastructure Debt Syndication in Russia

Transcription

1 Infrastructure Debt Syndication in Russia 1

2 Russian Infrastructure Overview Post USSR lack of investment > Soviet infrastructure inheritance was substantial, although reflected needs of command economy > In 1990 s, investment in core infrastructure sectors was minimal due to lack of funding and government priorities. > Vast majority of infrastructure investment since 1991 concentrated in oil and gas sector > Core infrastructure spending only picked up in post 1998 period, although backlog has remained Inadequate spending to support economic growth Infrastructure spending > Russian spending on infrastructure has increased from $7 b in 1999 to $111 b in 2010 (3.5% of GDP to 7.4% of GDP ) > Most spending through federal budget and state owned corporations > Morgan Stanley base case forecast that Russia will require additional $28 b of spending in per annum until 2015 > However, election year promises and impending fiscal pressures make additional budgetary financing unlikely Infrastructure Financing Sources Sources: Morgan Stanley, PMR Consulting, Boston Consulting Group, Bank of Finland 2

3 Limited Market Players Russian State owned Banks > Russian state owned banks dominate infrastructure debt issuance market > Sberbank > Flagship Russian state bank recipient of government pension payments > Russia s largest bank > EUR b gross loans outstanding Q32011 > Vneshekonombank > Russian state development bank > Manager of Russia s government pension funds > Plays active role in infrastructure finance in Russia > VTB Group > 75% state owned > Russia s second largest bank after Sberbank > EUR 10.9 b gross loans outstanding Q32011 International Financial Institutions > International financial institutions also active in infrastructure financing > Major players are: > European Bank for Reconstruction and Development (EBRD) > Active in Russia since 1991 > Financed 685 projects in all sectors, including many in infrastructure > International Finance Corporation (IFC) > Active in Russia since 1993 > Financed 217 projects in all sectors > Regionally focused IFIs also play role: > Eurasian Development Bank (EDB) > Black Sea Trade and Development Bank > Nordic Investment Bank 3

4 Projects Financed Major projects > Market characterized by limited transactions that are landmark in scale > Pulkovo Airport PPP 2010 > Russia s first PPP in airport sector, EUR 1 b capex > 30 year concession of St. Petersburg aiport, including terminal reconstruction > Moscow St. Petersburg Highway 2010 > First stage of toll road linking Moscow and St. Petersburg > EUR 1.2 b project cost > M1 Odinstovo Bypass 2010 > 19.5 km road connecting Moscow ring road to M 1 highway > EUR 1.2 b project cost > Western High Speed Diameter 2011 > 11.4km section of toll road being constructed in St. Petersburg > EUR 2.2 b cost Debt Type M1 Odintsovo Bypass Moscow-St. Petersburg Highway Pulkovo Airport Western High- Speed Diameter State-guaranteed bond Bond w/o guarantee 150 IFI loans VEB loan - Commercial bank loan - VEB and Sberbank to provide up to EUR ~750 m EBRD - up to EUR 200m Gazprombank / VTB Total 360 1, Sources: Ernst and Young 4

5 Hurdles in Debt Financing Traditional infrastructure debt financing characteristics > Long amortization periods > Maturities between 5 and 40 years > Meant to match the construction period and useful life of the asset > Bullet repayment > Long interest grace period to reflect long construction period > Lower yields than other debt instruments > Loan securitization to spread risk Difficult debt financing structures > Russian infrastructure debt characteristic similar to commercial lending: > Short amortization periods do not match project maturity periods > High interest rates > Commercial Banks Mosprime + (5% 8%) > VEB Mosprime + (4% 6%) > Volatile exchange rate complicates lending in EUR or USD Which financing sources will fill gap? > Sberbank > One of few Russian banks of enough scale to finance large projects > Infrastructure bonds floated by governmental and nongovernmental pension funds > Chinese state banks and sovereign wealth funds Opportunity for additional infrastructure lending > Need for additional infrastructure financing could exceed $30 billion/year until 2015 > Competition in Russian infrastructure debt financing market is low > Higher rates than in Western Europe make Russia a potentially attractive opportunity 5

6 Potential Sources of Further Financing Infrastructure bonds pension funds > Russian public and private pension funds have nearly RUB 2 trillion in assets > Despite potential for financing infrastructure, almost no funds are invested > State corporations, in particular RZhD, have lobbied for pension funds to issue infrastructure bonds > Resistance from Ministry of Finance, which argued that infrastructure bonds would worsen Russia s debt position > Private pension funds are also strongly encouraged by government rules not to invest in infrastructure > Potential breakthrough: > In January 2012, Prime Minister Vladimir Putin announced that pension funds should be used as a financial source for railroad projects > Requested that ministries develop a program by which bonds could be issued using pension funds Potential partnering with EBRD/IFC through syndication > A/B lending structures provide means for foreign lenders to access the Russian infrastructure market > A loan portion will be lent by EBRD, while B loan portion is lent by commercial banks > Preferred creditor status mitigates country risks that may concern potential lenders > In 2010, EBRD co financed 22 projects, attracting a total of EUR 1.5 b, including Pulkovo Airport project Sources: EBRD, Expert.ru 6