2009 Ghana PPP Conference

Transcription

1 2009 Ghana PPP Conference Public-Private Partnership for Social Services and Infrastructure 10 September 2009 An Authorised Financial Services Provider

2 Agenda: Introduction to Rand Merchant Bank Debt & Equity Funding of PPP s Debt Versus Equity Funding Awards for excellence Best M&A house in Africa Awards for excellence Best investment bank in South Africa Sources of Debt and Equity Funding The PPP Framework Summary & Conclusion 2

3 Rand Merchant Bank ( RMB ) RMB is a diversified financial services brand encompassing investment banking, fund management, private wealth management and advisory services. All businesses in the RMB brand stable form part of the wider FirstRand Group. RMB was voted the most successful bank by its peers in the PwC 2009 South African Banking survey Peer Group rankings M & A BEE Deals Listings Structured Finance Pvt Equity Not rated Forex Bonds & Deriv. Money Mkt 1 st 1 st 1 st 1 st 2 nd 3 rd 3 rd Not rated 1 st 1 st 3 rd 1 st 4 th 6 th 3 rd st * 1 st 1 st 1 st 1 st * 2 nd 2 nd 3 rd st * n/a 7 th 1 st 1 st 2 nd 2 nd 2 nd nd n/a 1 st 1 st 1 st 4 th 2 nd 2 nd 2009 Ghana PPP Conference 3

4 A Consistent Track Record in Excellence Africa Refinancing Deal of the Year: N3 Toll Road (2009) Project Finance Deal of the Year: Lekki-Epe Toll Road (2009) Best Deals of 2008: ADONES (2008) Privatisation International Deal of the Year Telecomms: V-Mobile (2005) Africa Health/PPP Deal of the Year: Inkosi Albert Luthuli Central Hospital (2002) Africa Privatisation Deal of the Year: Louis Trichard Prison (2000) Deal of the Year: Gautrain (2007) African Transport Deal of the Year: N3 Toll Road (1999) South Africa Number of deals Led by RMB RMB participation Toll roads Power stations Hospitals Prisons Accommodation Rail Water Total Ghana PPP Conference 4

5 Debt & Equity Funding of PPP s The financing of long-term infrastructure and industrial projects is typically based on project finance principles (as opposed to corporate finance principles) wherein project debt and equity are used to finance the project Definition: Project finance is finance for a particular project, such as a toll road, railway, pipeline, power station, ship, hospital or prison, which is repaid from the cash-flow of that project. Project financing PPP s: 1. PPP s have many stakeholders (incl., government, users, equity investors, debt providers). 2. The ability to generate cash-flows tend to be derived exclusively from the project agreements. The key to successfully funding PPP s is, identifying, understanding & allocating project risks to the various project parties so as to minimize cash flow volatility in the project company Ghana PPP Conference 5

6 Debt & Equity Funding of PPP s Direct Agreement Sponsors/Equity Providers DFI s / ECA s PRI / Co financing Equity Concession Government Lenders Loan Agreement User Insurers Insurance Project Co Supply Contract Supplier Legal/Technical/ Environmental/ Insurance Advisors Turnkey Construction Contract Construction Contractor O&M Contract Operations & Maintenance Contractor 2009 Ghana PPP Conference 6

7 Debt Versus Equity Funding DEBT EQUITY Cheaper Source of Funding. More Expensive Source of Funding. Secondary Risk Taker: Seeks significant pass through of project risks. Undertakes extensive due diligence. There is clear alignment of interest with the conceding authority who typically relies on lenders to control the project and deal with problems. Step -in philosophy. Primary PPP Funder: Typically, 60%-90% of capital costs. Gearing driven by extent of risk allocation. Primary Risk Taker: Plays the lead role in taking on, allocating and managing risks. Very important for debt providers because they absorb project risk. Secondary PPP Funder: Typically, 10%-40% of capital costs. Mezzanine debt lies somewhere between senior debt and equity in terms of risk appetite. It is priced accordingly Ghana PPP Conference 7

8 Sources of Debt & Equity Funding Equity Sponsors Equity Investors Contractors/Infrastructure Equity Investors. Take project development risk. Typically have sub-contractor roles in the PPP. Infrastructure Equity Investors. Return on equity based solely on project performance. Local Commercial Banks Ready access to local currency. Better understanding of local dynamics. Capacity constraints (limited experience, quantum, tenor). Debt International Commercial Banks Development Financing Institutions Pension Funds/Insurance Co s. Strong track record in limited recourse funding. Flexible source of funding. Size constraints for longer tenors. Higher appetite for risk than commercial banks. Longer average life. Intended d to be additional to commercial banks. Process intensive. Large pool of funds (SSNIT). Able to offer long tenors (matching assets & liabilities). Limited risk appetite (construction risk?) Ghana PPP Conference 8

9 Sources of Debt & Equity Funding Credit Enhancing Agencies Export Credit Agencies Insurance/Guarantee Providers Role is to encourage exports. Insure certain project risks for investors (political & commercial). May lend directly to project. Only support exports from a specific country. Provide insurance products to investors. Intentions ti may be developmental l (World Bank) or commercial (AIG). Other Bonds Grants Disintermediates banks and depositors. Longer average life. Less flexible terms (construction risk?). Needs to be independently rated Rarely used in Africa Development focused - project enabler. Limited availability. Is it really free money? Government Ultimate beneficiary of the project Development focussed project enabler Intention of a PPP is to shift risk to the private sector 2009 Ghana PPP Conference 9

10 The PPP Framework Key Objectives for Government A well structured PPP (roads, rail, ports, hospitals, power, ) Retaining strategic control Specific service obligations / risk transfer Building local l capability Attracting private sector capital 10

11 The PPP Framework Key considerations for Third Party Asset versus Contract Regulatory Framework Investors and Debt Providers Useful Life of Asset / Tenor Sponsors 11

12 The PPP Framework Key considerations for Third Party Investors and Debt Providers Public and Private Sector Champions Lender Remedies : Step In / Substitution Government Support : Value for Money In Conclusion: - 20 years is a long time! - Partnership 12

13 Summary & Conclusion Various elements to successfully attracting debt & equity funding: Properly defined project scope Stable and transparent regulatory environment Appropriate risk transfer Political will Impact of current economic crisis on debt & equity funding: Risk allocation more important than ever Funding availability is limited and credit margins/return expectations have increased Increased reliance on credit enhancing agencies/development funding institutions/governments Short-term view: Re-assess the relative importance of value for money against the social, fiscal and macroeconomic benefits of PPP s. Long-term view: Focus on building institutional capacity and pipe-line for PPP s in anticipation of a return to normal conditions. 13

14 Contact Details Werner van Oudenhove RMB Infrastructure Finance Ato Gyasi RMB Infrastructure Finance