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PPP Americas 2010 Funding for PPPs Cassio Schmitt Santander Global Banking & Markets Confidential | May 2010.

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Presentation on theme: "PPP Americas 2010 Funding for PPPs Cassio Schmitt Santander Global Banking & Markets Confidential | May 2010."— Presentation transcript:

1 PPP Americas 2010 Funding for PPPs Cassio Schmitt Santander Global Banking & Markets
Confidential | May 2010

2 PPP Projects – Investment Opportunities
PPP Americas 2010 Agenda PPP Projects – Investment Opportunities Sources of Financing for PPPs in Brazil Risk Mitigation and Guarantees Case Study: Line 4 of the SP Metro Pg 2

3 Investment Opportunities
PPP Americas 2010 Investment Opportunities First phase - Investment in PPP Proyects The PPP Law was approved in Brazil at the end of 2004, officially instituting the public- private partnership program in Brazil. PPP interest has gone through different phases in the last years, from great expectations to difficult practical implementation issues. A few number of projects have been auctioned or structured until now: Metro - Line 4 of the São Paulo Metro (State level) Water & Sewage – Rio das Ostras (Municipality level) Road Concession – MG 050 (State level) “Prison” – Itaquitinga Integrate Ressocialization Center - PE (State level) Hospital – Hospital do Suburbio – BA (State level) Irrigation – Pontal/PE Irrigation Project (State level) What is the perception on PPPs as a “brand name”? General view is not positive. There is yet a lot do, and need to start presenting results. Pg 3

4 Investment Opportunities
PPP Americas 2010 Investment Opportunities A new phase for PPPs – World Cup and Olympics Source: Federal and State Governments and Municipalities (estimates) New wave of strong demand for investments in urban mobility (public transportation), tourism and neighborhood development and arenas has emerged. State governments and municipalities have listed a significant number of projects, which add up to approximately R$ 80 billion in investments, to prepare their cities for the World Cup and the Olympics (next 6 years). PPPs will be concentrated in arenas and transportation systems (metros, monorails, etc.) Pg 4

5 Investment Opportunities
PPP Americas 2010 Investment Opportunities São Paulo State Metro Expansion Line 2 – Vila Prudente to the City of Tiradentes through a monorail Implementation of sections of Line 4 Construction in Line 5 CPTM Airport Express train Connect Luz to Cumbica airport Extension - 28 Km Modernization of Lines 7 and 12 Airports Construction of Terminal 3 of Guarulhos Airport Additional landing runway at the International Viracopos Airport Road system - South tranche of Rodoanel toll road? Source: Portal da Copa 2014, CPTM Pg 5

6        Investment Opportunities PPP Challenges
PPP Americas 2010 Investment Opportunities PPP Challenges Time frame needed to present a sustainable PPP model. Guarantees that the contributions of the public sector will be paid - Guarantee Fund (ex. CPP - Companhia Paulista de Parcerias) Financial capacity of the Governments: public sector long term payment commitments. Public commitments limited to 3% of the Net Current Revenues Difficulties in structuring these projects: significant demand on governments. Risk sharing - ex. Traffic risks – Metro Line 4 Payments related to performance (QID) Pg 6

7 Sources of Financing for PPPs
PPP Americas 2010 Sources of Financing for PPPs Funding Alternatives – Short and Long Term Bridge loans – Fiscal advantages and guarantee analysis In local currency BNDES Commercial banks In US dollar Bridge loans have become a key instrument to improve infrastructure investment returns (such as PPPs), since structuring long term financing in Brazil requires time (at least 12 months). Long term financing – Cash flows and guarantee analysis BNDES (offers specific lines of financing for infrastructure) BNB, CEF Regional Development Funds (FNO / FDA / FNE / FCO) Multilaterals (IDB and IFC A/B loan) ECAs Capital Markets Pg 7

8 Sources of Financing for PPPs
PPP Americas 2010 Sources of Financing for PPPs Debt Structures in Brazil Commercial Bank Debt³ Sponsor Banks¹ Equity BNDES / BNB SPC Subordinated Debt4 Long-term Financing Multilateral B Lenders2 Project Onlending with BNDES Funding or guarantee BNB loans B Loans: under the umbrella of multilateral agencies (“MLA’s”), commercial banks can offer long term financing to projects. In the case of leverage restrictions at the SPC level from Senior Lenders, additional debt can be offered to the holding company. Subordinated Debt: To reduce equity contributions and increase returns to shareholders ECAs Debt Capital Markets Pg 8

9 Sources of Financing for PPPs
PPP Americas 2010 Sources of Financing for PPPs Long Term Sources of Funding in Brazil Long Term Alternatives Currency Index Tenor BNDES BRL / Currency Basket TJLP + Up to 25 years International Capital Markets USD Fixed Interest Up to 10 years Local Capital Markets BRL Inflation + Up to 5 years Multilateral Agencies Libor + ECA Facility (Exim) Up to 12 years Local Bank Market CDI + Up to 7 years * Subject to entity policies and market liquidity

10 Sources of Financing for PPPs
PPP Americas 2010 Sources of Financing for PPPs Local Debt Capital Markets Project financing through local debt capital markets is still under development in Brazil. If compared to other financing long term alternatives for projects, traditional debt through DCM is not yet competitive. Risk differentiation: construction x operation risks Mitigation factor: sponsor quality and rating of the transaction Market and demand concentration: low asset liquidity Target investors: Asset Managers / Pension Funds – have the capacity to better perform medium and long term credit analysis. Pension Funds (20 active): Prefer assets indexed to inflation and with longer tenor (5 – 7 years). Asset Managers (40 active):Prefer assets indexed to CDI (interbank rate) and with shorter tenure (2 – 4 years). Debentures – Average Tenor 2003 2.5 years 2004 5.0 years 2005 5.1 years 2006 5.2 years 2007 5.3 years 2008 2009 3.0 years

11 Risk Mitigation and Guarantees
PPP Americas 2010 Risk Mitigation and Guarantees Project Risk Management In PPPs, we still need to manage construction risks, the same as in common concessions which are financed through Project Finance structures Pg 11

12 Risk Mitigation and Guarantees
PPP Americas 2010 Risk Mitigation and Guarantees Risk Allocation Selected Risks Political / Legal Social Environmental Main Parties SPC EPC Contractor Government Who’s responsible? ____________________________________________________________ Delays in obtaining environmental licenses and agency authorizations due to the lack of documentation; Public Attorney’s civil actions which stop construction and cancel licenses due to social and environmental matters; Delays in the construction of toll plazas due to the lack of definition of the project area; Port workers strikes (delaying equipment delivery), etc. Pg 12

13 Risk Mitigation and Guarantees
PPP Americas 2010 Risk Mitigation and Guarantees Alternatives for Private Sector Participation Common Concession (ex. Federal Toll Roads) Concession (Law 8.987/95) well tested modality sectors: transportation and energy PPP (Law /04) few projects implemented sectors: water & sewage, transportation, prisons, hospitals and administrative centers. Revenue Tariff Tenor of up to 35 years Sponsored PPP (ex. PPP Metro Line 4) Administrative PPP (ex. PPP Alto Tietê) Public Contribution (up to 70%) Revenue Revenue Public Contribution Tariff Tenor of up to 35 years Tenor of up to 35 years Pg 13

14 Case Study: Line 4 of the SP Metro
PPP Americas 2010 Case Study: Line 4 of the SP Metro Project Highlights One of the first PPP projects in Brazil 30 year PPP concession of SP Subway – Line 4 Public Sector: civil construction works Private Sector: supply of rolling stock, communication and ticketing systems, O&M Phase I: 5 Stations (Butantã, Faria Lima, etc) and 14 trains – 700th pass/day Phase II: Morumbi, Vila Sônia, investments in line C and 15 trains (demand forecast) – 900th pass/day (after minimum 4 years from Phase I) Revenue model Ticket revenues (100% for exclusive passengers and 50% for integrated passengers) 48 monthly Government payments – defined auction winner Non fare revenues (advertisement, etc) Inflation adjusted (IGPM+IPC 15 y, then IPC) O&M quality parameters should be attained Pg 14

15 Case Study: Line 4 of the SP Metro
PPP Americas 2010 Case Study: Line 4 of the SP Metro Risks and Mitigation factors (1-2) Minimum Revenue Guarantee: downside protection to private investors, and government may share upside. Pg 15

16 Case Study: Line 4 of the SP Metro
PPP Americas 2010 Case Study: Line 4 of the SP Metro Risks and Mitigation factors (2-2) Risk Mitigation: Construction/rolling stock supply delays: state or private investor reimburse losses Buses and subway networks will be integrated, avoiding competition between them State EPC contract for civil works (both phases) and investments in rolling stock for line C (phase II) Centralized fare collection by independent company FX protection Early termination and step in rights Dispute resolution – 3 member mediation committee or binding arbitration (International Chamber of Commerce) State payments guaranteed by Cia Paulista de Parcerias (CPP) Financing Choice of equipment is also related to defining LT financial sources (multilaterals, BNDES, ECAs, available according to supplier) IDB A/B loan selected by Sponsors IDB is also a strategic lender for the Brazilian government Pg 16

17 Case Study: Line 4 of the SP Metro
PPP Americas 2010 Case Study: Line 4 of the SP Metro Financing Conditions LT IDB Financing Limited recourse A/B loan – 15 y USD 69 MM IDB A-loan and 12 y USD 240 MM B-loan, funded by 7 financial institutions (oversubscribed) USD 59,5 MM IDB A-loan for Phase II Amortization schedule accommodates eventual delays on civil works Guarantees: Sponsor support agreement until completion Project Guarantees: shares, rolling stock, rights, etc Financial hedge Collateral agent – Deutsche Bank Pg 17

18 Project & Acquisition Finance – Head
PPP Americas 2010 Contact Details Santander Global Banking & Markets Av. Juscelino Kubitscheck, 2235, 27th floor São Paulo, SP – Brazil Cassio Schmitt Project & Acquisition Finance – Head Todas as informações apresentadas neste documento são de natureza genérica e não têm por finalidade abordar as circunstâncias de nenhum indivíduo específico ou entidade. Embora tenhamos nos empenhado para prestar informações precisas e atualizadas, não há nenhuma garantia de sua exatidão na data em que forem recebidas nem de que tal exatidão permanecerá no futuro. Essas informações não devem servir de base para se empreender qualquer ação sem orientação profissional qualificada, precedida de um exame minucioso da situação em pauta.


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