Post on 20-Jun-2015
Financing Future Infrastructure
CCF National Conference 2014
David Larocca
Partner – Head of Infrastructure Advisory
23 October 2014
Page 2
Agenda
1. State of the infrastructure market
2. Asset Recycling Initiative
3. Outlook for the financing of new projects
4. Concluding remarks
Page 3
Agenda
1. State of the infrastructure market
2. Asset Recycling Initiative
3. Outlook for the financing of new projects
4. Concluding remarks
Page 4
Buoyant global market –$235 billion in 2013, up 25% on 2012
0
50
100
150
200
250
300
0
20
40
60
80
100
120
2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013 2010 2011 2012 2013
Transport Renewables Social Infrastructure Mining
Deals$USbn
Global Project Finance Market (2010-2013)
Deal Value Debt Value Deal CountSource: IJ Global
Page 5
But there has been a dramatic change in Europe …
0
20
40
60
80
100
120
0
5
10
15
20
25
30
2008 2009 2010 2011 2012 2013
Number of Projects:
Value(Billion Euros)
Year
European PPP Market has shrunk by over 50% over the last 5 years :
Value: (Billion Euros)
Number of Projects:
European investors,
contractors and operators
looking to diversify –
Australia a focus
Source: European PPP Expertise Centre
Page 6
Unprecedented interest in Australia ….
► Contractors
► Operators
► Banks
► Investors
Active International Contractors
Page 7
Infrastructure a key focus of governments at Commonwealth and State levels ...
Government Infrastructure Landscape
► Need for new infrastructure – unlocking economic potential
► Need for improved service delivery
► Budget constraints across all State governments
Trends
► Unprecedented appetite for private sector involvement
► Federal/State co-funding arrangements
► Asset sales to fund infrastructure – “capital recycling”
Page 8
Financing market continues to improve …
► Continual improvement:
► 20-25 active banks
► Banks are prepared to lend more
► ECAs very active – following local suppliers
► $5B+ of capacity for greenfield
► Commercial terms:
► Tenors of 7-10 years
► Margins trending down
► Gearing trending up
► Unprecedented market interest
► Asset appetite:
► Brownfield economic infrastructure
(including patronage risk)
► Greenfield/PPP
► Brownfield PPP
► Main sources:
► Australian superannuation funds
► UK & European PPP investors
► Asian pension funds and trading houses
► North American pension funds
► Middle Eastern SWFs
► Equity pricing on downward trend
Debt Market Equity Market
Page 9
A resilient financing market – with a significant increase in transaction activity
c$10bn of PPPs forecast to close between
July 2013 and December 2014 – matching pre-GFC levels of activity
0
1
2
3
4
5
6
7
8
9
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (F)
Value of PPP Transactions ($Billions)
Page 10
Agenda
1. State of the infrastructure market
2. Asset Recycling Initiative
3. Outlook for the financing of new projects
4. Concluding remarks
Page 11
Market dynamics that have spurred asset sale activity
► Growing funding gap – public financing capacity and capital needed to build new
infrastructure and modernise existing infrastructure.
► Infrastructure Australia October 2012 report:
► advocated sale of commercially viable, publicly-owned infrastructure assets
► enable government to recycle capital and to fund new projects.
► “conservative estimate” of $100B of infrastructure assets
► Infrastructure Australia December 2013 paper:
► Asset sales could spur broader economic productivity benefits
► Introduction of private sector discipline, improving the ability to finance the
expansion of infrastructure as required, improved governance
► Market appetite for Australian brownfield infrastructure assets
Page 12
Superannuation sector is engaged, with an appetite to invest more …
The sector wants:
► Greater certainty of pipeline
► Incentives for governments to establish capital recycling processes
► Regulatory certainty over superannuation and taxation policy
► Early project consultation processes
This could further open up a
$1.75 trillion super industry to
Australian and NZ
infrastructure opportunities
Page 13
The concept of “asset recycling”
Government
owned
asset
Government
Controlled
fund
Greenfield
infrastructure
project
Greenfield
infrastructure
project
Greenfield
infrastructure
project
Greenfield
infrastructure
projects
Sale
proceedsProject
funding
Is the private
sector better
placed to
own/operate?
Robust business
case framework
for investment
decisions
Projects with strong
investment cases and align
with strategic plans
► NSW Government has implemented an asset recycling policy
► Asset sales – Port Botany/Port Kembla, Port of Newcastle, Sydney Desalination
► Greenfield allocations – WestConnex, Newcastle projects
Page 14
The Commonwealth Government’s Asset Recycling Initiative
► Incentives to States to sell assets and reinvest proceeds into new
productive economic infrastructure.
► 15% of sale proceeds, capped at $5b, closing in 2018-19.
► ARI can only go towards new infrastructure
► Funding (sale and spend) must be agreed by 30 June 2016.
► ARI will be funded by the Commonwealth’s plans to sell non-core
assets
Page 15
The ARI has further accelerated State Governments’ focus on divestment and investment planning
► Competitive tension among State Governments.
► States have brought forward:
► Sale plans, focusing on their largest assets
► Greenfield plans, focusing on larger transport projects
► ARI has the potential to spur over $90B of infrastructure
financing transactions – brownfield and greenfield
Page 16
A number of asset sale scoping studies/processes have been announced …
► Commonwealth – Medibank, Australian Hearing, Royal
Mint, Defence Housing, ASIC’s registry service
► NSW – electricity generation, electricity network
► Qld – electricity network, ports, water, electricity
generation
► Victoria – Port of Melbourne
► WA – ports, markets
Page 17
Election Dates Δ* = expected to be sold sequentially
Potential for over $50B of asset sales in the next 2-3 years
Page 18
Agenda
1. State of the infrastructure market
2. Asset Recycling Initiative
3. Outlook for the financing of new projects
4. Concluding remarks
Page 19
PPP PipelineTransport projects dominate the pipeline …
QEII Hospital Car Park
Mundaring Water Treatment Plant
Eastern Goldfields Prison
Perth Stadium
Schools PPP
Perth Light Rail
Airport Rail Link
Perth Freight Link
Darwin Prison
Convention Centre
Northern Beaches Hospital
NorthConnex
WestConnex
Sydney Light Rail
New Royal Adelaide Hospital
South Road Corridor
Bendigo Hospital
Ravenhall Prison
Victorian Comprehensive
Cancer Centre
Victorian Schools 2
East-West Link
Melbourne Rail Link
East West Link Stage 2
Defence Leap 2
Moorebank Intermodal
Capital Metro
ACT Courts Facility
University of Canberra
Public Hospital
Second Sydney Airport
Wiri Prison
Hobsonville Point School
Transmission Gully
Auckland East Prison
Auckland Harbour X
Auckland CRL
Legend
Recent deals closed
PPPs in procurement
Potential PPPs
Sunshine Coast Hospital
Gold Coast Light Rail
Gold Coast Light Rail Stage 2
QLD Schools Project
New Generation Rollingstock
Royal Children's Hospital
Redevelopment
Toowoomba Bypass
BaT Tunnel
Airport Link
Legacy Way
Clem 7
QML Sale
Queensland Correctional Centre
North-West Rail Link
Newcastle Light Rail
2nd Sydney Harbour X
Parramatta Light Rail
Page 20
Governments are developing mechanisms to address market related issues
Issue Example of Mechanism Examples
Contractor balance
sheet constraints
“Discipline based”
packaging
North-West Rail Link (NWRL)
Debt market capacity Capital contribution Gold Coast Rapid Transit, Sunshine
Coast Hospital, New Generation Trains,
NWRL, East-West Link, Queensland
Schools
Debt syndication guarantee Melbourne Desalination PPP
Optimising the
cost of capital
Debt Paydown (Conditional
on commissioning and
operations)
Darling Harbour Live, North-West Rail
Link, Sydney Light Rail
Market aversion to
greenfield traffic risk
‘Build and Sell’
models
Legacy Way, QML, WestConnex
Availability PPP with
retention of toll revenue
East-West Link
Page 21
Agenda
1. State of the infrastructure market
2. Asset Recycling Initiative
3. Outlook for the financing of new projects
4. Concluding remarks
Page 22
Concluding remarks
► International players heavily engaged in the Australian market
► Buoyant Australian infrastructure market
► Brownfield sale processes have the potential to accelerate
greenfield projects
► Pipeline may challenge the financing market