The Role of the European Investment Bank: Funded Case Studies

Transcription

1 The Role of the European Investment Bank: Funded Case Studies Harald Gruber European Investment Bank Contribution to Workshop Building the European Digital Infrastructure Brussels, 20 June 2012

2 EIB Broadband Financing: direct loans for broadband infrastructure Average annual lending for broadband projects for the last five years was EUR 1.4bn With respect to key technologies, mobile 3rd generation (3G) broadband networks account for 44% and fixed line fibre (FTTx) accounts for 30%. The lending instruments were, depending on the borrower, a mix of corporate loans, intermediated loans as well as project financing, and included the use of the RSFF. Current pipeline is estimated to reach up to EUR 2.0 billion per year, which represents a potentially significant increase The number of projects would also increase accordingly. For an updated list of projects visit: 2

3 Recent project examples Reggefiber The roll out of a very high speed optical fibre-to-the-home networks in 33 towns and citiesin the Netherlands. Promoter is JV of Reggeborgh and KPN EUR m loan for project of EUR 290m Cofinancing with five commercial banks. Breitband Schleswig Holstein Roll-out of new passive optical fibre telecommunication access networks in 5 rural areas in Schleswig Holstein. EUR 125 m loan for project of EUR 250m Different promoters depending on finally chosen projects in cooperation with the financial intermediary, the Investitionsbank Schleswig Holstein, Schleswig Holstein s public promotional bank. MAGYAR TELEKOM LTE & NGN Roll-out of the LTE network in Hungary and fixed broadband will enable very high speed (up to 100 Mbit/s) services for over 1 million Hungarian households. EUR 150 m corporate loan 3

4 European Investment Bank Financing Models and Concepts: Addressable Market Segments Estimated total investments EUR bn until 2020* - on c. 50% of the total market cap for the sector! Grey + White EUR bn White & Certain Grey Areas New risk-sharing instruments or modified existing ones may be needed Black areas EUR 80-90bn** Certain Grey Areas Black Areas EIB Existing Instruments Projects must be: Technically sound Financially viable In compliance with regulation Show acceptable economic return * Band based on various studies and assumptions ** Black areas estimates based on industry forecasts 4

5 Public Sector Financing & Other Activities to support broadband EIB extends credit facilities to local governments under framework agreements EIB proposes to collaborate with third parties such as national agencies in joint programmes Other special activities that may be relevant to broadband investments include: RSFF Facility EIB equity participations in infrastructure funds Other special operations such as JESSICA, JASPERS, JEREMIE (EIF) Advisory services such as EPEC (European PPP Expertise Centre) New Risk Sharing Schemes (2014 onwards) incl. Connecting Europe Facility 5

6 Conclusions for financing of Digital Agenda Investment requirements in excess of EUR 200 bn; Though economically justified, a substantial part of the investments has questionable financial profitability, especially in non-urban areas; Challenges for local communities in aggregating demand Scope for public sector in generating critical demand (e.g. e-government, e-health) and new instruments for procurement (pre-commercial procurement); Role of new financial instruments, in particular joint activities with Commission such as Project Bonds under CEF, widening of RSFF, but also PPP and equity instruments. 6

7 Appendix: memo items 7

8 European Investment Bank Broadband Financing: FTTx examples ( ) Iliad SA Iliad SA (France) (France) Fastweb S.p.A. Fastweb S.p.A. (Italy) (Italy) Portugal Telecom Portugal Telecom (Portugal) (Portugal) ZON Multimedia ZON Multimedia (Portugal) (Portugal) EUR 150m EUR 150m Project: EUR 800m Project: EUR 800m (FTTH & xdsl) (FTTH & xdsl) EUR 350m EUR 350m Project: EUR 850m Project: EUR 850m (ADSL & FTTH) (ADSL & FTTH) EUR 200m EUR 200m Project: EUR 750m Project: EUR 750m EUR 100m EUR 100m Project:EUR 307m Project:EUR 307m (i.a. FTTH) (i.a. FTTH) M-Net Breitband Munchen M-Net Breitband Munchen (Germany) (Germany) SONAECOM SONAECOM (Portugal) (Portugal) Türk Telekom Türk Telekom (Turkey) (Turkey) Reggefiber Group B.V. Reggefiber Group B.V. (The Netherlands) (The Netherlands) EUR100m EUR100m EUR 75m EUR 75m EUR 250m RSFF EUR 250m RSFF EUR 130m RSFF EUR 130m RSFF Project: EUR 205m Project: EUR 205m Project: EUR 152m Project: EUR 152m Project: EUR 661m Project: EUR 661m (FTTC & FTTB) (FTTC & FTTB) Project: EUR 290m Project: EUR 290m For an updated list of projects visit: 8

9 European Investment Bank Corporate Financing Concepts: Example Financing Models 2 1 Guarantee +/or Refinancing EIB (RSFF) EIB Loan Agreement Financing Partners Financing Agreement(s) Debt Senior Secured Second Lien Senior Unsecured Junior Unsecured PIK loans Mezzanine, etc. Company Equity Bilateral Lending: EIB can participate in transactions usually through an EIB direct loan agreement. However, EIB typically prefers to co-finance with other financing partners (e.g. commercial banks, investors) In the case of co-financing EIB can provide a loan in parallel to the financing partners directly with the final beneficiary (with key contractual terms aligned) OR can provide a guarantee to the financing partners and thereby share the credit risk and enable capital relief. The guarantee can also be complemented by EIB funding (in order to generate additional Financial Value Added) Syndicated Lending: EIB can participate in syndicates, though some limiting factors can apply (i.e. EIB cannot extend funding to HoldCos in acquisition structures, only to OpCos; EIB still needs a side agreement that the company will execute the defined project, etc.) 9

10 European Investment Bank Pricing Advantage bps Funded structure bps Risk & RoC Refinancing costs Commercial Banks Guarantee structure Refinancing costs EIB EIB Pricing Advantage Additional risk pricing Risk pricing: expected & unexpected loss Administrative mark-up EIB refinancing costs (i.e. EURIBOR x bps) EIB Funding Advantage Administrative mark-up EIB refinancing costs (i.e. EURIBOR x bps) A B EIB generates price advantages based on its: AAA rating (below Libor funding) non-for-profit status EIB could potentially transfer the pricing advantages in two ways (see charts): Funded structure (A): EIB pricing advantage generated from our funding advantage and the lack of profit margin requirement can be transferred directly to the company by way of lower pricing Unfunded structure (B): Although the potential pricing advantage is usually smaller in this case, EIB could provide guarantees to existing lenders, thus lowering the pricing they offer to the company Commercial Banks EIB 10

11 European Investment Bank Financing Models and Concepts Corporates Project Finance Public Sector Other Broadband project is defined and EIB is financing up to 50% of the eligible project costs (more information on this is provided in the next slides) but on the balance sheet of the promoter, i.e. the ability of the company as a whole to service debt is the main driving factor in the process along with the proposed structure of the facility. EIB also finances corporates indirectly usually via third-party financing institutions. Broadband project is structured as a ring-fenced operation with limited or no recourse to the promoters. The quality of the assets and their ability to generate cash are vital for such type of operations. PF operations could be fullrisk, guaranteed (banks, corporates monolines, governments), secured, PPPs Broadband project may be supported indirectly via EIB facilities extended to member state and local governments Infrastructure funds Advisory services Other initiatives 11

12 Layer 1 Layer 2 Layer 3 European Investment Bank Project Finance: Broadband Concepts Service Company Company Network Operator Company Passive Infrastructure Company End Users equity Service Company equity debt Company Promoter A Promoter B Promoter C equity Layer 1 is structured as a ring-fenced operation, an SPV, owned by promoters (e.g. operators, utilities, public sector, etc.). The SPV is the owner of the passive infrastructure which is managed by an operating company. The latter sells capacity to service companies which develop and sell services to the end customers. EIB financing in such a model can be envisaged at the SPV level under certain conditions. Quality of the assets owned by the SPV, i.e. their ability to generate cash and service debt, is crucial. In general, a variety of risks are assessed during due diligence features of the structure, risks related to financing (interest rates, refinancing, liquidity, etc.), implementation/construction and management, documentation, regulation, collateral, technology, credit standing of the promoters, etc. Some form of credit enhancement may be expected. This may take the form of, but it is not limited to: recourse to the promoters e.g. credit guarantees, performance guarantees, etc. security over assets third parties guarantees acceptable banks, corporates, governments, etc. 12

13 European Investment Bank Financing Models and Concepts: What we can offer to broadband projects? Corporates Project Finance Public Sector Other Broadband project is defined and EIB is financing up to 50% of the eligible project costs (more information on this is provided in the next slides) but on the balance sheet of the promoter, i.e. the ability of the company as a whole to service debt is the main driving factor in the process along with the proposed structure of the facility. EIB also finances corporates indirectly usually via third-party financing institutions. Broadband project is structured as a ring-fenced operation with limited or no recourse to the promoters. The quality of the assets and their ability to generate cash are vital for such type of operations. PF operations could be fullrisk, guaranteed (banks, corporates monolines, governments), secured, PPPs Broadband project may be supported indirectly via EIB facilities extended to member state and local governments Infrastructure funds Advisory services Other initiatives 13