Project Bonds: financing infrastructure projects and · 2018-08-06 · 4 Project Bonds: financing...

Project Bonds:

financing

infrastructure

projects and

promoting growth

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3

Index

Project Bonds

Executive Summary

Global Picture

Credit Enhancement

Selected Examples

B

C

D

E

F

Introduction A

Project Bond Challenges G

Opportunities for Portugal H

Annex I

4

Project Bonds: financing infrastructure projects and promoting growth

• This report was produced by Nova Finance Center, run by Nova School of Business and

Economics (Nova SBE), with the support of Euronext Lisbon

• Nova SBE, one of the top 10 institutions for research in Finance in Europe, pursuing its

objective of balancing cutting-edge knowledge and research with practical experience,

considers it useful to do a broad characterization of the project bonds status

• Therefore, this work aims at spotlighting Project Bonds as a financing tool, by gathering

information regarding the concept as well as the recent market developments on this

financial instrument; so it has not the depth or rigor of a scientific research analysis

• Euronext Lisbon has decided to support this initiative, as project bonds, mostly a listed

financial instrument, may develop as a solution to finance or refinance infrastructure

projects in Portugal or in other Euronext markets

• This report is being publicly made available for the Conference “Project Bonds: financing

infrastructure and promoting growth”, organized by Euronext Lisbon and Nova Finance

Center, occurring on 17th June 2014

Introduction A

5

Project Bonds

Executive Summary

Global Picture

Credit Enhancement

Selected Examples

B

C

D

E

F

Introduction A



Annexes I

6

Over the last few years several events took place affecting the market as a

whole • Banks were strongly impacted by the Basel III and

Solvency II Act which created several constraints on

bank lending (particularly medium to long term debt).

This meant alternative sources of funding became

essential

• National infrastructures needs remained high both in

terms of refinancing, maintenance and to keep up

with the growing innovation and development needs

• Europe has enormous infrastructure investment

needs (estimated at €1.5-2trn)*

• Investors increasingly shifted their allocations into

bonds. Government and corporate bonds’ yields

progressively narrowed and investors started looking

for attractive alternatives to these asset classes

• Long term investors (pension funds and insurance

companies) have long term liabilities and need long

dated assets for a better maturity match

Economic recession 1

Post-financial crisis

regulation 2

Continuous funding

needs 3

Institutional

investors shift

towards bonds 4

*Source: European Commission

Executive Summary B

7

Project Finance

Constrains 5

Government

Budgets Tightening 6

Infrastructure

risk/return profile 7

Funding Gap 8

The funding of large-scale infrastructure has faced several challenges and

remains demanding • Several monoline* insurance collapsed and infrastructure

projects failed

• Bank liquidity narrowed and the cost of capital for banks

which hold longer dated exposures (typically in public-

private partnership financing) gradually increased

• Many countries have faced large government budget

deficits which boosted the sovereign risk concerns and

made it more difficult to access government funds for

infrastructure developments

• Project bonds present the possibility of gathering new

investors from capital markets, mainly pension funds,

insurance companies, asset managers and specialized

funds

• Infrastructure projects are particularly attractive for

pension funds and insurance companies due to their

attractive risk/return profiles, long tenures (that match

their liabilities), stable cash flows, solid credit

fundamentals, higher recovery rates (vs. corporate

bonds) and diversification opportunities

*A monoline insurance company provides guarantees to issuers, often in the form of credit wraps (cover not all debts of the borrower, but a specific loan, debt

issuance or other financial transaction), that enhance the credit of the issuer

Executive Summary B

8

Credit Enhancement 9

Positive Trend 10

Institutional

Investors on board 11

Opportunities for

Portugal 12

Long term investors need opportunities with better risk/return profiles and long

term maturities • Both the Europe 2020 Project Bond Initiative, by the EIB

and the EC, and the UK Guarantee Scheme provide

credit enhancement mechanisms aimed at reviving and

expanding capital markets to finance large infrastructure

projects

• Project bond issuance, globally, more than doubled in

2013 vs. 2012, reaching $54.7bn at the end of

November*, which shows a clear trend towards project

bond issuance in project finance structures

• European project bond volume stood at $8.7bn at the

beginning of December 2013. This was up five times over

the same period in 2012 ($1.8bn) and up 61% on the

previous YTD record high set in 2011 ($5.4bn)

• Most of the investors looking into the infrastructure asset

class plan to increase their allocations over the medium

to long term**

• As macroeconomic conditions improve in Portugal, there

is a number of projects in pipeline, as well as refinancing

needs in existing infrastructures, that could benefit from

project bond markets access *Source: Dialogic

**Source: The 2013 Preqin Investor Network Global Alternatives Report and PWC 2013: Capital Markets: The Rise of Non-Bank Infrastructure Project Finance

Executive Summary B

9

Project Bonds

Executive Summary

Global Picture

Credit Enhancement

Selected Examples

B

C

D

E

F

Introduction A



Annexes I

10

Project Bonds are debt instruments used to finance infrastructure projects

Common characteristics

Issuer /

Borrower

• Usually Public-Private Partnerships (PPPs) project companies issue bonds

via a special purpose vehicle*

Investors • Institutional investors (e.g. Pension funds, insurance companies)

Trade • Sometimes tradable on secondary markets

Purpose

• Project bonds are used to finance single-asset, limited-recourse, greenfield

projects, but also to refinance greenfield projects originally financed by

bank debt, following completion of construction, i.e., brownfield projects

*A special purpose vehicle (SPV) is a legal entity (usually a limited company of some type or, sometimes, a limited partnership) created to fulfil narrow, specific or

temporary objectives. SPVs are typically used by companies to isolate the firm from financial risk

Time Frame • Typical concession periods associated with infrastructure projects are 25-

30 years

Project Bonds C

11

Project Bonds are used to finance either Greenfield or Brownfield projects or as

a refinancing instrument

Greenfield Projects

• A project that lacks any constraints

imposed by prior work, meaning there is

no need to work within the limitations

posed by existing buildings or

infrastructures

• Often referred to as Primary Projects

• Usually involve:

– Construction risk

– Administrative burden and technical

demand

– Cash management

– Low rating

Brownfield Projects

• A project that provides incremental

capacity and therefore starts based on

prior work

• Often referred to as Secondary Projects

• These projects are frequently developed

on a quasi-monopoly basis due to all the

requirements attached to them

• Usually involve:

– Little or no construction risk

– Regulated revenues or asset base

– Reasonable rating

Project Bonds C

12

Infrastructure investments present several characteristics that are attractive to

bond investors

• Essential services for the majority of the population and businesses (i.e. transport, energy,

broadband, education, healthcare)

• Government either as a direct client (via fixed term concession) or highly proximate to

the transaction (through economic regulation)

• Long term in nature

• Natural monopolies - either due to network characteristics/capital intensity or government

policy – and generally with low technological risk

• Stable cash flows (charges may be linked fully or partially to inflation; lowest level of loan

default of all industrial sectors)

0%

5%

10%

15%

20%

Infrastructure debt default rate since 1990*

*Source: Moody’s

Project Bonds C

13

Even though similar, project bonds and bank loans provided via project finance

present different characteristics

In more recent years the distinctions between project bonds and project loans have been

blurred as the loan and bond markets have converged. Now sponsors can, with a few structural

modifications, incorporate project bonds into a traditional project finance structure

Nonetheless, there still exist differences between project bonds and bank loans

Project Bonds Advantages Project Finance Challenges

• Longer term of repayment

• Bonds have a fixed rate

• Contribute to maximize the amount of

debt raised

• Easier to add new debt and agreed in

advance

• Generally banks do not offer long term

maturities

• Loans attached to a floating rate

• Credit lines are limited by the exposure

that a bank can have to a client/group

• Banks tightly control addition of new debt

Project Bonds C

14


present different characteristics (cont.)

Project Bonds Challenges

• Proceeds received in full at once - bonds

must be issued for significant sums, without

the company necessarily having immediate

cash needs

• More affected by short term sentiment in

restructuring context

• Terms of bond and market appetite only

known at pricing stage

• Consents/waivers harder to obtain from

unidentifiable bondholders

• Bondholders only control matters that

significantly affect their cash flows, security

or covenants

• Difficult to have a direct dialogue with

bondholders

• Negotiations may be publicized

• High penalties for prepayment

• Contracts may have to be disclosed

Project Finance Advantages

• Loans only drawn when needed - more

customized to projects’ cash needs

• Banks have a long term policy and are less

affected by short term sentiment in

restructuring context

• Banks are more likely to stand by the loan

terms at early stage

• Consents/waivers easier to obtain (one or

limited identifiable counterparty)

• Banks exercise controls over project

contracts and project company

• Easier to negotiate with banks in case of

project difficulty

• Negotiations can be private

• Low penalties for prepayment

• Can obtain confidentiality

Project Bonds C

15

Senior

Debt in

form of

Project

Bonds

Sp

on

sor(

s)

Sp

ecia

l E

ntity

Loans

Equity

Ba

nk(s

)

Company

1

Sp

ecia

l P

urp

ose

Ve

hic

le

Investors

buy or

underwrite

via banks

Company

2

Company

3

Equity

Subordina

ted Debt*

Project

Bond

Guarantee

Facility*

*Boxes in red may or may not exist in the Project Bond structure depending on the type of project bond issued


present different characteristics (cont.)

Standard Project Financing Model Project Bond Model

Project Bonds C

16

The covenants used within Project Bonds are aligned with the ones applied

within project finance

• Debt Service Coverage Ratio (DSCR): the amount of cash flow available to meet annual

interest and principal payments on debt (can be based in historical or projected data);

usually a minimum and an average target are defined; a higher DSCR provides better

financing conditions as well as a higher rating for the project; e.g. a DSCR of 1.10x means

that the project revenues cover its annual debt expenses at 110%

– Historical: calculations based on the prior 12 months of the project

– Projected: calculations are based on the next 12 months expectations provided by the

financial model developed to evaluate the project

• Loan or Project Life Coverage Ratio (LLCR or PLCR): the net present value of the cash

flow available for debt service over the remaining full life of the project to the outstanding

debt balance during the reference period

• Dividend/Distribution Lock-up ratio: the financial ratios at which the borrower is allowed

to make equity distributions; it ensures the project is not compromised by dividend

distribution; whereas sponsors would rather have frequent and early dividend distributions

this may not be the most efficient decision for the project

Project Bonds C

17

Project Bonds may be issued as public or via private placements

Publicly issued project bonds are quoted on a regulated stock exchange

– In Europe, public issuances need to be compliant with the Prospectus Directive

– In the US, public issuances must be registered with United States Securities and

Exchange Commission (SEC) and follow the relevant disclosure requirements

• Usually structured as a traditional capital markets offering with marketing to a broader

group of qualified institutional buyers

• Typically underwritten by an investment bank and sold to investors once the transaction

has been fully structured and its documents have been negotiated

• This offering potentially captures a wide universe of investors(pension funds, insurance

companies, asset managers and specialized funds)

• It is possible for these transactions to have only one rating but usually two is preferable

Project Bonds C

18

Project Bonds may be issued as public or via private placements (cont.)

Private placements may not be listed and therefore are only be sold to a limited number of

large investors

• The investors are either brought together in a Club Deal* at the beginning of the financing

process or identified by an arranging bank which structures and underwrites the transaction

and then brings the investors at a later stage of the structuring process

• Generally, there is no required public disclosure but private placements may be listed on a

regulated stock exchange and sold to a limited number of institutional investors

– Disclosure policy varies according to investor base and quotation as well as

exemptions used (such as the Rule 144A in the US)

• Usually only one rating is required for these transactions, even though there may also be

deals with no rating (smaller projects)

• Even though rare, private placements can take place without the involvement of an

investment bank as lead manager

Project Bonds C

*Leveraged buyout or other private equity investment that involves several different private equity investment firms

19

Special features of Project Bonds

Although there is an increasing trend for using project bonds as a financing source, they are

still in their infancy in Europe and raise a number of issues, in particular for procuring

authorities during the project procurement phase

Several features of bond financing need to be taken into account when considering it as an

alternative financing solution for PPPs, including:

• Maturity/refinancing risk – Bonds are by nature long-term financing solutions. Institutional

investors which invest in bonds seek long-term assets to match their long-term liabilities.

For PPPs, this can translate into financing solutions that near-match PPP contract

maturities and entail no refinancing risk (as is the case with projects financed by short-term

“mini-perm” commercial bank debt)

• Pricing – In current market conditions, the “all-in” price of bond financing often compares

favourably to that of bank financing

• Preparatory costs – Bond financings involve significant preparatory costs (e.g. obtaining a

credit rating for the bonds, preparing the bond placement documentation and marketing,

legal costs)

Source: European PPP Expertise Centre “Financing PPPs with project bonds - Issues for public procuring authorities”

Project Bonds C

20

Special features of Project Bonds (cont.)

• Credit quality – To meet investors’ expectations, the “arrangers” of bond issues (usually

banks) involve rating agencies and seek to structure their transactions so as to achieve a

credit rating of about A- or above. As the typical PPP project is structured to achieve a BB+

or BBB- rating, bond financings are likely to involve “credit enhancing” instruments to

achieve the rating required by investors

• Transaction size – Because of their costs, complexity and investor appetite, bond

financings are only suited to PPP transactions of a significant size (e.g. a bond financing in

excess of EUR 100 million). Public offerings may be contemplated for very large

transactions. Private placements are more suited to smaller transactions as they involve

lower costs and less on-going administration

• Deliverability and pricing uncertainties – The deliverability and pricing of bonds are

normally only firmed up upon actual issuance. For PPPs, this means that some

uncertainties inevitably remain throughout the procurement process. As a result, authorities

will often find it difficult to seek fully committed bond financing offers at bid or final offer

stages


Project Bonds C

21

Special features of Project Bonds (cont.)

• Cost of carry – As the bond proceeds are drawn at once upon issuance, the private

partner in a PPP will need to invest these proceeds until they are actually required by the

project over its construction period. This typically results in a “negative carry” because the

interest received by the private partner is generally lower than that paid to the bond holders

• Termination provisions – In the case of early repayment, the bond terms will generally

call for a prepayment fee in addition to the return of the amount outstanding to put the bond

holders in an equivalent position as if the bond had run to maturity

• Controlling creditor – Traditional PPP bank financings, organized under an inter-creditor

agreement, grant the lenders the opportunity to exercise, during the project lifespan,

decision rights in a coordinated/regulated manner (e.g. in the case of restructuring). In the

case of bond financing, a “controlling creditor” needs to be appointed to take care of the

interests of a multitude of bond holders


Project Bonds C

22

Project Bonds

Executive Summary

Global Picture

Credit Enhancement

Selected Examples

B

C

D

E

F

Introduction A



Annexes I

23

Throughout the last decades, trends towards project bonds changed due to

several market factors

1980s • Project bonds started to be used in North America

• In the late 1990s, more aggressive commercial banks’ price conditions and operations’ flexibility contributed

for sponsor’s preference for bank loans, decreasing the tendency for project bonds 1990s

• By 2008, the economic and financial crisis led to a strict financial regulation, decline in market liquidity and

lower bank financing levels. This led to the reappearance of project bonds as an additional source of

funding for infrastructure projects

• Also, with the global slump in returns, institutional investors shifted towards bonds

2000s

2010s

• Globally, there is already a clear trend towards project bond issuance in project finance structures, with

data from Dealogic showing that project bond issuance more than doubled in 2013 vs. 2012, reaching

$54.7bn at the end of November

• In 2012 and 2013 there was a fairly high level of project bond activity coming out of Latin America,

particularly Peru, Brazil and Mexico. Since 2005, Latin American countries account for 17% of USD project

bonds issued globally (although the US accounts for 43% of global issues, 40% of those are issued for

assets within EM)*

*Source: Bloomberg , Private Finance International, Private Placement Letter, Private Placement Monitor, International Financing Review; these several sources

are not necessarily consistent

Global Picture D

24

8.305

4.859

3.200 3.138

807

Oil & Gas Infrastructure Petrochemicals Power SocialInfrastructure

5.740

3.515

2.000

1.640 1.338

1.078 989 930 850 542

350 350 350 300 165 111 61

Source: Project Finance International July 17 2013, Project Bond volume in USD Million during the first semester of 2013

Project Bonds’ issuance comes mainly from the US but it has been growing all

over the world and across several market segments

Country Issuance (first semester 2013)

Sector Issuance (first semester 2013)

• In the first half of 2013, Germany stood

out as the main European project bond

issuer

• In EM, project bonds increases the

exposure to countries where there are

usually scarce corporate issuers

• Oil & Gas project bond issuance in the

first half of 2013 was twice the H1 2012

figure, even though Australia, the main

issuer in the sector during the previous

year, was not active during this period

Global Picture D

25

Even though growing, project bonds still represent a small percentage as a

source of financing for infrastructure projects, particularly in Europe

• Between 2007 and 2013 there were vey few infrastructure developments

• During this period, in terms of volumes, more than 90% of bonds issued in the sectors

covered by the CEF (Connecting Europe Facility) were re-financings

• Greenfield investments accounted for only 6% and acquisitions for 3%

Bond as a percentage of project debt financing,

in CEF sectors* within the EU28

Source: Dealogic ProjectWare database 2000-2013

*Sectors covered by the CEF include Transport, Energy, Information and Communications, Technology and Telecommunications

**Eight months from January to August 2013

4%

1%

4%

25%

11%

1%

8%

1% 1% 0% 0%

4% 4%

22%

4%

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13** '00-'12

Global Picture D

26

European PPP Market 2014-2013 (Value and Number of Projects)

Source: European Commission “Interim report on the pilot phase of the Europe 2020 Project Bond Initiative” and European PPP Expertise Centre “Market Update

Review of the European PPP Market in 2013”

• In 2013, the aggregate

value of PPP transactions

which reached financial

close in the European

market totaled EUR 16.3

billion, a 27% increase

over 2012 (EUR 12.8

billion)

PPP and Project Finance in Europe

• After a partial recovery in 2010 and 2011, the value of PPP transactions reaching financial

close in Europe in 2012 dropped approximately a 28% compared to 2011 and presented

the lowest value since 2004

• This decline in PPP projects and project financing volumes reflected not only the limited

project pipeline and project preparation (due to governments increased indebtedness,

followed by strong austerity measures, the governments became limited in their ability and

willingness to finance large infrastructure projects), but also the lack of long term financing

in certain sectors and countries which was affected by the financial crisis

0

20

40

60

80

100

120

140

160

0

5

10

15

20

25

30

35

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Value in H1 Value in H2 Number of Projects

Value (EUR billion) Number of Projects

Global Picture D

27

PPP and Project Finance in Europe (cont.)

• The UK remained the largest PPP market in Europe, both in terms of value and number of

projects, with 31 transactions closed (compared to 26 in 2012) for a value of about EUR 6

billion (EUR 5.6 billion in 2012)

• In value terms, Italy was the second largest PPP market (EUR 4.4 billion) as two very large

projects accounted for the vast majority of the Italian PPP market by value

• With regard to the number of transactions closed, the UK was followed by France with 19

deals (22 in 2012) and Germany with 10 transactions of a relatively small size (6 in 2012)

• In 2013, 14 countries closed at least one PPP transaction, a significant increase over the

previous year (10 countries). Portugal dropped out of the European PPP market, while

Austria, Lithuania and Poland returned after a few years of absence

• The transport sector remained the most active in value terms (EUR 9.6 billion) followed by

the Environment (13 transactions for a total value of EUR 2.3 billion) and Healthcare

sectors (12 projects worth an aggregate value of EUR 1.5 billion, making it the fastest

growing sector in 2013, in value terms)

• Education was the most active sector in 2013 in terms of number of projects (21

transactions worth approximately EUR 1.4 billion)



Global Picture D

28

PPP and Project Finance in Europe (cont.)

The role of institutional investors (e.g. insurance companies, pension funds) as providers of

debt to European PPPs has been growing

These institutions commitment to finance PPPs is reflected in the number and volume of

transactions supported in 2013:

• 16 transactions (20% of the total number of PPP deals) involved institutional investor debt

through a variety of financing models

• Institutional investors provided around EUR 2.5 billion of debt to European PPPs at very

long maturities (on average 30 years, with a maximum of 45 years)

• The transactions involving institutional investors’ debt closed mainly in the UK, France or

the Netherlands



Global Picture D

29

Project Bonds issuance in Europe has been increasing as an additional source

of funding for infrastructure projects

• European Project bond volume stood at USD 8.7bn at the beginning of December 2013 (the

highest YTD volume). This was up five times over the same period in 2012 (USD 1.8bn) and

up 61% on the previous YTD record high set in 2011 (USD 5.4bn)

• Deal activity also presented a YTD record high with 15 European project bonds priced until

the end of November 2013 (up three times from the five deals priced in 2012)

Source: Dealogic DCM Snapshot

*Eleven months from January to November 2013

European Project Bonds Issuance

0

5

10

15

20

0

2

4

6

8

10

2007 2008 2009 2010 2011 2012 2013*

Volume Deals

Volume (USD billion) Deals

Global Picture D

30

Within Europe, the UK has been the main project bond issuer but Germany and

Spain are also becoming active users of this financing instrument

• UK issuers were the most active in 2013 (excluding December), with five deals pricing for a

total of USD 1.5bn, the highest deal activity, over the same reference period, since 2007

YTD (six deals). Since 2000, UK issuers have priced 25 bonds for a total of USD 9.3bn, the

highest amount when compared to any European nation over this time period

• Spain follows the UK with USD 3.4bn via four project bonds since 2000. However, three

Spanish deals were priced in 2013, marking the first Spanish project bonds to be priced

since 2010. The most recent was a USD 660m deal from Madrileña Red de Gas Finance

BV, priced on September 3rd, 2013

• Also in 2013 was issued the first German public project bond since 2007. On June 3rd,

2013, the Utility & Energy company Vier Gas Transport GmbH completed its euro-

denominated corporate investment grade bond for USD 1.9bn, marking the largest

European project finance bond since 2006

• Société Général lead the European project finance bond bookrunner ranking till the end of

November 2013 with an 8.8% market share, Credit Agricole and BNP Paribas followed,

each with an 8.6% share

Source: Dealogic DCM Snapshot

Global Picture D

31

Project Bonds

Executive Summary

Global Picture

Credit Enhancement

Selected Examples

B

C

D

E

F

Introduction A



Annexes I

32

Sovereign entities have been providing initiatives to support the development of

the project bonds market

• The European Commission estimates that investments of up to EUR 2trn are required in

transport, energy and IT infrastructure in the EU up to 2020

• Following the financial crisis and taking into account the current funding gap, several

institutions have been trying to identify new ways to finance projects

• Various forms of “credit enhancement” of project bonds have been proposed by the public

and private sectors (PEBBLE, UK Government Guarantee, PBCE) as an incentive to

finance infrastructure projects

• The European Commission and the UK government have each started guarantee

programs in the last two years to boost the credit rating of project bonds in an effort to

make them more attractive to institutional investors such as pension funds and insurance

companies

Credit Enhancement E

33

PEBBLE – Pan European Bank to Bond Loan Equitization is a private sector

initiative focused on enhancing the credit rating of senior project bonds

• PEBBLE is a standardized format for funding Greenfield projects as adopted by the

International Project Finance Association which involves credit support in the form of a

tranche of subordinated debt

• PEBBLE aims to secure increased investment from institutional investors by enhancing the

credit rating of the senior debt through a multiple tiered debt structure

• Senior debt takes the form of a loan note or bond with a tenor similar to the length of the

concession or life of the project, supported by a medium term subordinated loan (intended

to be advanced by a commercial bank or experienced project finance lender)

• Key features:

– The mezzanine* subordinated financing is repaid before the senior debt

– The subordinated lenders have a greater degree of control than typically afforded to

mezzanine lenders (controlling creditor role)

Source: Norton Rose Fulbright: Energy Academy – Project Bonds and Clifford Chance’s brief note “Infrastructure Bonds – underwriting Europe’s growth agenda”

*Mezzanine debt is the middle layer of the capital structure and falls between secured senior debt and equity. It is usually not secured by assets and is lent strictly

based on a company's ability to repay the debt from free cash flow


34

The UK Guarantees Scheme was developed for bond financing but can also

cover other investments

• The UK Guarantee Scheme was announced by the UK Government in July 2012 with the

aim of “kick starting critical infrastructure projects that may have stalled because of adverse

market conditions”

• The UK guarantee ensures the coverage of 100% of the originally scheduled payments of

principal and interest, even where an event of default or prepayment under the terms of the

bond or other credit facility may create an immediate repayment obligation for the project

company

• Under this program, guarantees have been offered with a fee at market rates

• The program covers projects that could come from a range of sectors including transport,

utilities, energy and communications

• The total amount for the provision of guarantees provided was GBP 51 billion

– GBP 40 billion for projects that were ready or nearly ready

– GBP 6 billion for projects due to proceed in the following 12 months (new temporary

lending program created ensuring that approximately 30 PPP infrastructure projects

would go ahead during this period)

– GBP 5 billion (exports refinancing facility providing long-term loans for overseas buyers

of UK exports at competitive rates by guaranteeing a series of short-term bank loans)

Source: UK Government Press release: “Government uses fiscal credibility to unveil new infrastructure investment and exports plan”


35

The UK Guarantees Scheme was developed for bond financing but can also

cover other investments (cont.)

• Eligible projects must be subject to charges, due diligence and as a minimum must meet

five key criteria:

– Nationally significant, as identified in the Government’s National Infrastructure Plan

2011

– Ready to start construction within 12 months from a guarantee being given and

planning consent obtained

– Financially credible, with equity finance committed and project sponsors willing to

accept appropriate restructuring of the project to limit any risk to the taxpayer

– Dependent on a guarantee to proceed and not otherwise financeable within a

reasonable timeframe

– Good value to the taxpayer: assessed by Her Majesty’s Treasury to have an

acceptable credit quality, not to present unacceptable fiscal or economic risks and to

make a positive impact on economic growth

• Until the end of October 2013, 40 projects valued at GBP 33 million had reached

prequalification stage, half of which from the energy sector

Source: UK Government Press release: “Government uses fiscal credibility to unveil new infrastructure investment and exports plan”


36

The Europe 2020 Project Bond Initiative is a joint program by the European

Commission and the EIB focused on increasing the projects’ credit quality

• The program aim is to attract institutional investors via the capital markets, to finance

projects with stable and predictable cash flow generation potential, by enhancing the credit

quality of project bonds issued by private companies

• Its pilot phase started in 2012, supporting capital market financing for infrastructures

projects, by providing credit enhancements and complementing loans, but not replacing

other sources of financing, such as grants, nor intervening in stages prior to financing, such

as feasibility studies, assessments or procurement, where grants are also widely used

• The objectives of the pilot phase of the Initiative were:

– To stimulate investment in key strategic EU infrastructures within the transport, energy

and broadband sectors

– To establish debt capital markets as an additional source of financing for infrastructure

projects

• The budget for the pilot phase allocated EUR 230 million to Trans-European Network

(TEN) programmes, split between EUR 200 million for transport projects, EUR 10 million

for energy transmission and EUR 20 million for broadband/information and communication

technology projects

Source: European Commission – Economic and Financial Affairs


37

The Europe 2020 Project Bond Initiative is a joint program by the European

Commission and the EIB focused on increasing the projects’ credit quality (cont.)

• The mechanism of improving the credit standing of projects relies on the capacity to

separate the debt of the project company into senior and subordinated tranches:

– The senior tranche is provided by private institutional investors for whom infrastructure

projects with an easily predictable income structure basically represent an asset class

with an attractive risk/return profile

– The subordinated tranche is provided by the EIB in the form of a Project Bonds Credit

Enhancement (PBCE)

• The PBCE is a subordinated mezzanine instrument designed to provide credit

enhancement for senior bonds. It is typically structured to achieve credit ratings of

investment grade levels (BBB- or above)

• The maximum amount available for a single transaction recurring to the PBCE is the lower

of 20% of the senior debt project value or EUR 200 million

• During the pilot phase of the Europe 2020 Project Bond Initiative 2 projects were supported

via a PBCE which accounted for approximately EUR 256 million



38

Even though only 2 projects were supported by the PBCE during the pilot

phase, by its end, several projects were already planning to use the PBCE

• Until the end of 2013, eight energy and transport projects became eligible for PBCE within

several EU Member States and had already been granted approval by the EIB board

Policy Project Country

Expected size of

credit enhancement

facility (EUR million)

TEN-T Motorway Belgium 150

TEN-T Motorway Germany 120

TEN-T Motorway UK 200

TEN-E Grid Connections to several

offshore wind farms UK 150

TEN-E Gas Storage Spain 200

TEN-E Gas Storage* Italy 200

TEN-T Motorway Slovakia 200

TEN-E Grid Connections to several

offshore wind farms Germany 170

Total Approved 1,390

Note: Highlighted in bold are the project bonds already issued


*Subject to EU funding available


39

The PBCE may be provided in different ways depending on the project’s

characteristics

The PBCE provides the credit-enhancing subordinated tranche in one of two ways:

• Funded: a subordinated loan given to the project company from the outset (Fig.1)

• Unfunded: by way of a contingent credit line (Fig. 2) which can be drawn if:

– The cash flows generated by the project are not sufficient to ensure senior debt

service

– To cover construction costs overruns

Figure 1 – Funded PBCE Figure 2 – Unfunded PBCE


Project

Costs

Project

Bond

Investors

Project

Bonds (target

rating

based on

market

conditions)

Equity

EIB Sub-

Debt

Public Bond

Issue or

private

placement

Project

Costs

Project

Bond

Investors

Project

Bonds (target

rating

based on

market

conditions)

Equity

Public Bond

Issue or

private

placement

EIB

Guarantee


40

Project Bonds

Executive Summary

Global Pictures

Credit Enhancement

Selected Examples

B

C

D

E

F

Introduction A



Annexes I

41

Through different forms and due to the guarantees being provided, project

bond activity, in Europe, increased considerably during 2013

Date Issuer Country Size

(mm)

Project

Maturity Coupon

Credit

Quality Project Description

Mar-14 Via A11 NV Belgium €557.9 31 years 4.49% A3

Design, build, finance and maintenance of the

A11 road connection (port of Zebrugge and

European motorway network)

Dec-13 Aeroporti di Roma

S.P.A. Italy €600 8 years 3.25%

Baa3

BBB+

BBB+

New senior unsecured issue. Proceeds used

to refinance, in advance, senior secured debt

and bank maturities

Nov-13 Greater Gabbard

OFTO UK €305 19 years 4.14% A3

Greater Gabbard offshore wind

transmission link in the UK

Nov-13 R1 Highway Slovakia €1,200 26 years 4.78% BBB+ (S&P) Refinancing of the R1 expressway in

Slovakia, country's first major road PPP

Nov-13 Birmingham Airport UK £38

£38

10 years

15 years Undisclosed BBB+

Operator of Birmingham International

Airport, fifth largest airport in the UK

Nov-13 Forth Ports UK

$160

£60

£35

£80

10 years

10 years

18 years

18 years

Undisclosed BBB One of the largest UK port operator, based

in Edinburgh

Oct-13 L2 Bypass France €78.8

€85.7

28 years

30 years Undisclosed Baa3

Construction and operation of an 11km

motorway bypassing the city of Marseille

Oct-13 Heathrow Funding UK €750 33 years 4.63% A- (Fitch) Operator of Heathrow Airport

Sep-13 Zaanstad Prison The

Netherlands

€165

€35

27.5 years

8 years Undisclosed NR

PPP for the Zaanstad Prison in The

Netherlands

Sep-13 FHW Dalmore Salford UK £71.7 29 years 5.41% NR Salford Council’s social housing PFI project

(refurbishment of 1,270 existing dwellings)

Note: For the purpose of this analysis only the most recent publically disclosed European project bonds information was included

Source: Project Bond Prospectus and Société Général Market Update – January 2014

Selected Examples F

42

Through different forms and due to the guarantees being provided, project

bond activity, in Europe, increased considerably during 2013 (cont.)

Date Issuer Country Size

(mm)

Project

Maturity Coupon

Credit

Quality Project Description

Jul-13 Watercraft Capital Spain €1,400 21.5 years 5.76% BBB (S&P)

BBB+ (Fitch) Castor gas storage refinancing

Jul-13 Holyrood Student

Accommodation PLC UK

£31.5

£31.5

34.8 years

34.8 years

5.53%

1.97%

A2

AA- (S&P)

Assured Guaranty wrapped bond for

Holyrood student accommodation in

Birmingham

Jul-13

Sustainable

Communities for

Leeds

UK £101.8 19.2 years 5.07% A2

AA- (S&P)

Assured Guaranty wrapped bond for the

redevelopment of the Little London,

Beeston Hill and Holbeck area in Leeds

Jun-13 Vier Gas Transport

GmbH Germany

€750

€750

€750

7 years

10 years

12 years

2.00%

3.13%

2.875%

A- (S&P) Holding company of the gas transmission

system operator Open Brid Europe GmbH

Jun-13 Meridian Spirit ApS Norway €195 17.1 years 4.11% Baa1 TK Marubeni - LNG Vessel - Single asset

refinancing

Jun-13 Brussels Airport

Holdings NV/SA Belgium €500 7 years 3.25%

Baa1

BBB (Fitch) Partial refinancing of Brussels Airport

May-13 Arqiva Limited UK $358

£163 12 years

4.42%

4.10%

BBB

BBB

Essential television and radio broadcast

infrastructure

May-13 Uliving@herts

Plc UK £143.5 41 years 2.06% A- (S&P)

University of Hertfordshire student

accommodation project

Mar-13 Alder Hey Hospital UK £55 25 years 4.90% A Construction and maintenance of a new

children's hospital in Liverpool

Selected Examples F

Note: For the purpose of this analysis only the most recent publically disclosed European project bonds information was included

Source: Project Bond Prospectus and Société Général Market Update – January 2014

43

Project Bonds Examples with no guarantee mechanism

Aeroporti di Roma S.P.A.

Infrastructure Project description

• Atlantia Group manages the Rome airport system under concession until 2044

– Fiumiccino international airport (seventh largest airport in Europe)

– Ciampino airport (low cost, couriers and general aviation)

• Bonds issued to refinance, in advance, senior secured debt and bank maturities

Financial close: December 2013

Financial support

• Senior unsecured EUR 600 million with a 3.250% coupon with a maturity date of February

2021

The bonds were rated Baa3 / BBB+ / BBB+

The main investors were fund managers (79%). Insurers and pension funds (10%) and

commercial banks (8%) accounted for a smaller part of subscriptions

Source: Project Bond Prospectus

Selected Examples F

44

Project Bonds Examples with no guarantee mechanism (cont.)

The Slovakian road project Granvia


• Refinancing a EUR 1.3 billion expressway in Slovakia that opened in 2012

• The initial project was entitled to build and operate two stretches of the R1 Expressway in

southwestern Slovakia under a concession from the Slovakian Ministry of Transport and a

government entity - Construction and Regional Development

• Granvia is entitled to operate the road until July 2041

• Granvia's return comes from an availability payment from the Slovakian government

Financial close: November 2013

Financial support

• Equity – 11% - EUR 15 million

• Senior debt – 89% - (fully refinanced in 2013 with a EUR 1.24 billion, 26 year bond, priced

at par with a fixed semi-annual coupon of 4.781%)


Selected Examples F

45


The Slovakian road project Granvia (cont.)

• The bonds were not listed

• The bonds were rated BBB+ by Standard & Poor's

• This project was developed under the Slovakia’s first road public-private partnership

• The main owners of the concession were Meridian Infrastructure Slovakia and VINCI

Concessions Slovakia (50%)


Selected Examples F

46


The Marseille L2 ring road


• Design, building, technical management, maintenance, renovation and financing of the

A507 Motorway

• 30-year public-private partnership

• Total cost of construction: EUR 620 million

Financial close: October 2013

Financial support

• Subsidies

• Equity

• Two fixed rate bonds

– EUR 78 million project bonds (due in May 2041, backed by availability payments

from the state)

– EUR 84 million (due in October 2043, issued by a securitization vehicle, backed

by an unconditionally guaranteed cashflow from the state to refinance a secured

loan, issued by a French securitization mutual fund) Source: Project Bond Prospectus

Selected Examples F

47


The Marseille L2 ring road (cont.)

• The bonds were listed in the Luxembourg stock exchange

• Both tranches of bonds were rated Baa3 by Moody's

Project's sponsors:

• Consortium of entities from the Bouygues Construction Group, Colas Midi-Méditerranée,

Spie Batignolles, Egis Projects, Egis Investment Partners, Meridiam Infrastructure and

CDC Infrastructure

The main investor in the financing was Allianz Global Investors

This was the the 1st greenfield project bond in France to be wholly financed by institutional

investors

Note: The securitized notes amounted to the so-called daily tranche. A peculiarity of French PPP law which consists of government-guaranteed rental payments made to

the lender once construction is completed. However, as the security transfer can only benefit banks, a pass-through securitization structure was established. The

arrangement sees Crédit Agricole (as the fronting bank) provide the credit facility to the project company, transfer the receivables to FCT (the issuer), and afterwards sell

the securitized receivables to Allianz, the investor


Selected Examples F

48

Examples - Project Bonds supported by the EIB

The A11 road in Belgium


• Design, build, finance and maintenance of the A11 road connection (links the port of

Zebrugge to the European motorway network)

• First greenfield project backed by EIB

• 30 years concession

Financial close: March 2014

Financial Support

• Project bond – EUR 557.9 million with a fixed coupon of 4.49%

• PBCE (20%) – EUR 111.58 million

• Committed financing and deferred drawdown structure which matched construction

requirements

The bond was listed in the Luxembourg stock exchange

The bond received a rating of A3 from the Moody's

Key investor in the financing: Allianz


Selected Examples F

49

Examples - Project Bonds supported by the EIB (cont.)

The 504MW Greater Gabbard offshore transmission project (OFTO)


• The OFTO License entitles the project company to own and operate the assets (a new

transmission link to connect the 140 turbine wind farm off the Suffolk coast with the UK

onshore grid) for a period of 20 years and in return receive availability-based revenues.

The tariff paid to the operator is RPI-linked and 90% of the revenue is guaranteed

Financial close: November 2013

Financial Support

• Equity - GBP 46 million

• Public bond - GBP 305 million (fixed coupon of 4.137% and maturity date on 29 November

2032)

• Unfunded Project Bond Credit Enhancement of GBP 45,8 million

The bond was listed in the Dublin stock exchange

The bond received a rating of A3 from the Moody's

• Bond investors: Fund managers 78%, insurance companies and pension funds 22%

• OFTO project company is an equally shared joint venture between Balfour Beatty

Investments, Equitix and AMP Capital Investors


Selected Examples F

50


Castor gas storage facility


• Construction and operation of an underground gas storage and associated facilities

providing storage for 30% of Spain’s daily gas consumption – 30 years concession

Financial close: September 2013

Financial support

• Project bond - EUR 1.4 billion (coupon of 5.756 at a spread of 100 basis points over

Spanish government bonds and maturity date on December 2034)

• Liquidity line (under the Project Bond Credit Enhancement Initiative) - EUR 200 million

The bond issuer was Watercraft Capital, an SPV based in Luxembourg

The bond was listed in the Luxembourg stock exchange

The bond received a rating of BBB from Standard & Poor's


Selected Examples F

51


Castor gas storage facility (cont.)

• Bond investors: 30 geographically diversified investors (Germany, France, Spain, Italy, UK

and Luxembourg) with insurers and pension funds taking over 60% of the issue, the

remainder being agencies, fund managers and banks (only 4%). EIB bought EUR 300

million of the bonds

• The project ran into trouble in September when pumping gas into the storage reservoir

appeared to trigger a series of minor earthquakes. Commissioning of the project had to be

put on hold


Selected Examples F

52

The Case for Brisa Concessão Rodoviária – an alternative to the standard

project finance model

Source: BCR Investor Presentation November 2013

• In December 2010, Brisa transferred its Main Concession to Brisa Concessão Rodoviária

(BCR) and its operations and maintenance activities to Brisa O&M

• All senior creditors of BCR rank pari passu and share a common covenant and security

package

Instrument Dec

2010

Dec

2013

Oct 2012 Notes 63 -

Securitisation Notes 160 -

Sep 2013 Notes 500 -

Dec 2014 Retail Notes - 225

Mar 2015 Notes - 64

Dec 2016 Notes 600 600

Apr 2018 Notes - 300

Dec 2020 Notes - 120

Jan 2032 Notes - 100

EIB 780 682

Other (banks) 495 75

Total 2,598 2,166

Brisa Auto Estradas

(Parent Company)

BCR

(100%)

• Within BCR, Brisa concentrated the EIB and Bond

investment as well as other types of bank debt related

to the main concession

• BCR provides a strong financial profile

• BCR is ring-fenced from the other concessions

• BCR includes Common Terms Agreement (CTA),

covenant structure and security package

Gross Debt – EUR million

Selected Examples F

53

• Moody’s published an initial rating of Baa1

(stable) for BCR (since then it was reviewed

to Ba2 Negative Outlook following the

sovereign downgrades and, afterwards,

since May 2014, it became under review to

be upgraded)

– Exposure to the Main Concession only, ring

fenced from the rest of the group

• Main Concession is a mature, stable asset,

with high cash flow visibility and low business

risk

• Generates most of group’s EBITDA


project finance model (cont.)


• BCR structure presents several advantages so that BCR funders may be

provided an enhanced credit position

– Improved and stable credit rating position

• Fitch published an initial rating of A- (stable) for BCR (since then,

following the Portuguese sovereign downgrades, BCR rating was

reviewed to BBB Negative Outlook)

Brisa

Brisa

Participações

SGPS

BCR

SGPS

BCR

EIB

Others

(banks)

Bond

holders

Pledge of

shares of

BCR

Intercreditor

Agreement

Covenants

Pledge of Company’s

accounts

Common Terms Agreement

Selected Examples F

54

• BCR structure presents several advantages so that BCR funders may be provided an

enhanced credit position (cont.)

– Common covenant package provides funders with greater protection

• Borrower only allowed to perform activities related to Main Concession

• Tighter controls on cash flows and future indebtedness, through financial

covenants and distribution tests, with de-leveraging profile to end of concession

• Additional liquidity requirements through debt service and capex reserves

– Security package for all lenders

• Pledge over shares

• Pledge over bank accounts

– Management team exclusively dedicated to BCR

– Protected ownership structure

• Concession agreement limits potential changes in ownership of BCR


project finance model (cont.)


Selected Examples F

55

Project Bonds

Executive Summary

Global Framework

Credit Enhancement

Selected Examples

B

C

D

E

F

Introduction A



Annexes I

56

Project bonds provide access to a wider investor base and an alternative or

complement to project finance activity but they also present challenges

• Construction risks are the main investor concern with regards to project bonds - in the

past, institutional investors were given comfort by debt service guarantees (monolines),

arranged by insurance companies. Since the monoline insurance industry collapsed in

2008, project bonds have been largely limited to refinancing purposes

• Lack of experience from the investors in the direct subscription of bonds to fund

infrastructure projects - without the monolines, institutional investors have struggled to

monitor project construction, coordinate voting and amendments, mitigate construction risk

and deal with negative carry issues. However, pension funds and insurers are becoming

more prone to new investment structures and are increasingly building up teams to lend

directly to infrastructure projects


57

The construction phase presents several risks for investors but there are

certain structures which can protect their commitment to the project

• In the past, the project bond market was not prepared to structure an operation with the

flexibility needed to fund the construction phase, even though project bonds have been

used to fund these types of projects

• Some of the project bonds issued in the past relied on completion guarantees and other

support from the sponsors to protect bondholders against start-up and construction risks

• Many of the power projects and pipeline financings, however, did not have sponsor support

in excess of the limited equity that the sponsors were required to contribute

• The bonds with completion guarantees were structured so that the completion guarantees

stayed in place until the project demonstrated revenue generation in accordance with the

project’s financial model. This in turn allowed the rating agencies to provide the investment-

grade ratings needed by the underwriters to market and sell the project bonds


58

The construction phase presents several risks for investors but there are

certain structures which can protect their commitment to the project (cont.)

• The bonds without completion support were structured with “turnkey” engineering,

procurement and construction contracts that placed most of the construction risk on the

contractors

• However, investors are increasingly taking construction risk if the project has an investment

grade rating and appropriate yield

Operations &

Maintenance Phase Construction Phase

Financial support

Hip. I

Hip. II

Project Phases

Project Bond + construction performance support

packages

Project Bond refinancing

post completion Bridge loans


59

Project Bonds

Executive Summary

Global Framework

Credit Enhancement

Selected Examples

B

C

D

E

F

Introduction A



Annexes I

60

Current improvements within the Portuguese macro environment gradually

make it possible to use project bonds as an alternative source of financing

• Apart from providing an alternative source of financing, project bonds issuance is a means

to attract private investors, mainly institutional and international investors, which are very

important for Portugal future growth

• There is a number of projects in pipeline, as well as refinancing needs in existing

structures, that will become gradually available in the Portuguese market. Across a variety

of sectors, such as energy, telecommunications, transports, water and waste and others,

these financing needs could benefit from project bond markets access

• At this point, however, the Portuguese market must provide several conditions for such

investors to recognize the country and its opportunities as a good investment. With regards

to project bonds, the most relevant are:

– Sovereign credit risk improvements

– Regulatory guidelines with regards to project bonds

– Clarification of the PPP framework and its alignment with the government budget

• Therefore, the support being provided by the EIB via the PBCE Initiative would be a very

useful solution with regards to rating requirements as well as to mitigate the construction

risk some of the projects may present


61

It is likely that some of the infrastructure projects which were initiated before the

current economic crisis will have the need to be refinanced

Number of PPP

projects closed

Total capital

investment

(EUR million)

Roads 26 19,158

Water, waste and

energy distribution 9 742

Health 6 626

Other sectors 4 338

Total 45 20,864

Number and value of PPPs which have

reached financial close from 1995 to 2013*

*Source: European PPP Expertise Centre - Portugal : PPP Units and Related Institutional Framework – January 2014

**Source: UTAP – Unidade Técnica de Acompanhamento de Projectos – Boletim Trimestral PPP– 3º Trimestre de 2013

Number

of PPPs

Maturity

(average)

Investment

(EUR million)

Roads 22 30 18,189

Railways 2 25 392

Health 10 17 622

Internal

Security 1 15 126

Total 35 19,329

Number and Value of PPPs per Sector

at the end of the third quarter 2013**


62

There are several concessions operating in the Portuguese market across

different sectors, particularly within water, waste, energy and seaports

• Concessions may present attractive opportunities for institutional and international

investors

Sector Number of

Concessions

Maturity

(average)

Water 19 34

Waste 11 26

Seaports 32 23

Natural Gas 10 40

Electricity 3 65

Water Energy 2 70

Airports 1 20

Active Portuguese Concessions

Source: UTAP – Unidade Técnica de Acompanhamento de Projectos – Boletim Trimestral de Concessões – 3º Trimestre de 2013


63

Apart from refinancing activities, there may also be opportunities for investors

within new projects to be implemented

• There is a set of new projects to be initiated, particularly regarding transport

infrastructures*, where the intervention from private investors is essential

Number of

projects QREN (€M)** EU (€M) Private (€M) Public (€M) Total

Railways 15 10 1,606 6 1,017 2,639

Airports 6 - - 241 - 241

Roads 10 120 96 600 82 898

Seaports 20 - 389 945 200 1,534

Public Passengers

transportation 3 15 592 88 60 755

Total 60 145 2,683 1,880 1,359 6,067

*Plano Estratégico dos Transportes e Infraestruturas (PETI) includes a list of the main investments needed within the Portuguese transport infrastructures across five

areas (railways, airports, roads, seaports and public passengers transportation). The program was built relying on four main sources of funding: EU funds, public

funds, QREN and private investments

**QREN - Quadro de Referência Estratégico Nacional, is the entity in charge of the fulfilment of the European Community objectives of economic and social cohesion

in Portugal

Plano Estratégico dos Transportes e Infraestruturas (PETI)


64

Project Bonds

Executive Summary

Global Framework

Credit Enhancement

Selected Examples

B

C

D

E

F

Introduction A



Annexes I

65

Annex I – Active Portuguese Concessions – Water, Waste, Electricity, Water

Energy and Airway Sectors

Sector Concession Concession

Inception Maturity

Investment

(EUR million)

Water

Águas do Algarve 2001 30 564

Águas do Centro Alentejo 2003 30 80

Águas do Centro 2001 30 258

Águas do Douro e Paiva 1996 30 409

Águas do Mondego 2004 35 225

Águas do Norte Alentejo 2001 30 122

Águas do Noroeste 2010 50 802

Águas do Oeste 2001 30 279

Águas de St.º André 2001 30 95

Águas de Trás-os-Mpntes e Alto Douro 2001 30 480

Águs do Zêzere e Côa 2000 30 303

Águas Públicas do Alentejo S.A.* 2010 50 25

Águas da Região de Aveiro S.A.* 2010 50 15

Sanest 1995 25 273

Simarsul 2004 30 205

Simadouro 2009 50 122

Simlis 2000 30 110

Simria 2000 30 252

Simtejo 2001 30 343

Total 4,962

Waste

Algar 1996 25 128

Amarsul 1997 25 108

Ersuc 1997 25 159

Resistrela 2008 30 35

Resinorte 2009 30 160

Resulina 1996 25 25

Suldouro 1996 25 63

Valnor 2001 29 67

Valorlis 1996 25 53

Valorminho 1996 25 12

Valorsul 1995 25 344

Total 1,154

Source: UTAP – Boletim Trimestral Concessões – 3ª Trimestre de 2013 – Águas de Portugal S.A., Direcção Geral de Energia e Geologia, Instituto da Água I.P. and

Diário da República

*Local Government Partnership


Inception Maturity

Natural Gas

Armazenamento Subterrâneo de Gás Natual - Guarda 2006 40

Distribuição Regional de Gás Natural - Lisboa 2008 40

Distribuição Regional de Gás Natural – Centro 2008 40

Distribuição Regional de Gás Natural – Setúbal 2008 40

Distribuição Regional de Gás Natural – Porto 2008 40

Distribuição Regional de Gás Natural – Sines 2008 40

Distribuição Regional de Gás Natural - Guarda,Pombal 2006 40

Distribuição Regional de Gás Natural – Beiras 2006 40

Distribuição Regional de Gás Natural - Vale do Tejo 2008 40

Gestão Rede Nacional ransporte de Gás Natural 2008 40

Electricity

Rede Elétrica Nacional 2006 50

Exploração da Rede Nacional de Distribuição de Eletricidade 2007 35

Exploração Zona Piloto “produção de energia das ondas do Mar” 2006 45

Water Energy Barragem de Foz Tua 2010 75

Barragem Girabolhos 2008 65

Airports Concessão de Aeroportos - ANA 2013 50

Annex I

66

Annex I – Active Portuguese Concessions (cont.) – Seaports Sector

Region Subsector

Concession

Concession

Inception Maturity

Concession Investment

(EUR million) 2001/2012

Grantor Investment

(EUR million) 2001/2012

Douro / Leixões

Terminal de Contentores de Leixões 2000 25 31

254

Terminal de Carga a Granel de Leixões 2001 25 30

Silos de Leixões 2007 25 2

Terminal Produtos Petrolíferos 2006 25 N/A

Terminal de Granéis Líquidos Alimentares 2001 15 N/A

Terminal Expedição de Cimento a Granel 2001 15 N/A

Serviço de Descarga, Venda e Expedição de Pesca 1995 25 N/A

Instalações de Apoio à Navegação de Recreio 1985 25 N/A

Exploração Turística Hoteleira 2001 20 N/A

Exploração Restaurante e Bar 2000 20 N/A

Aveiro Terminal Sul Aveiro 2001 25 8

128 Serviço de Reboque Aveiro 2004 10 3

Sines

Terminal de Contentores Sines XXI 1999 30 123

344

Terminal Multipurpose de Sines 1992 25 3

Terminal Petroleiro e Petroquímico 2003 10 177

Serviço de Reboque e Amarração Sines 2002 20 16

Terminal de Granéis Líquidos e Gestão de Resíduos 2008 30 7

Lisboa

Terminal de Contentores de Alcantâra 1985 * 33

195

Terminal de Contentores de Santa Apolónia 2001 20 21

Terminal Multipurpose de Lisboa 1995 15** -

Terminal Multiusos do Beato 2000 20 5

Terminal Multiusos do Poço do Bispo 2000 20 4

Terminal de Granéis Alimentares da Trafaria 1995 30 4

Terminal de Granéis Alimentares do Beato 1995 30 3

Terminal de Granéis Alimentares de Palença 1995 30 87

Terminal do Barreiro 1995 30 2

Terminal de Granéis Líquidos do Barreiro 1995 30 22

Terminal do Seixal – Baía do Tejo 1995 30 -

Setúbal

Terminal Multiusos Zona 1 2004 20 9

31 Terminal Multiusos Zona 2 2004 20 12

Terminal de Granéis Sólidos de Setúbal 1995 25 6

Terminal de Granéis Líquidos de Setúbal 2003 25 5

Total 613 952

Source: UTAP – Boletim Trimestral Concessões – 3ª Trimestre de 2013 – Seaports data

*The regulation DL 188/2008, through which the initial concession deadline would be extended until 2042 , was replaced by a new law (14/2010 de 23 de Julho) which

is the reason why there is a litigation process underway between the concession and the Portuguese Government

**Concession agreement is being extended until a new call for tender is held

Annex I

67

Annex II – Active Portuguese PPPs – Roads, Railways, Health and National

Security Sectors Sector Road Sector

Concession

Inception Maturity

Investment

(EUR million)*

Network

Size**

Roads

Concessão Lusoponte 1995 30 897 17

Concessão Norte 1999 36 1,570 175

Concessão Oeste 1999 30 415 85

Concessão Brisa*** 2000 35 4,096 1,099

Concessão Litoral Centro*** 2004 30 587 92

Concessão Beira Interior 1999 30 628 174

Concessão Costa da Prata 2000 30 492 110

Concessão Algarve 2000 30 201 127

Concessão Interior Norte 2000 30 726 155

Concessão das Beiras Litoral Alta 2001 30 1020 173

Concessão Norte Litoral 2001 30 317 120

Concessão Grande Porto 2002 30 763 56

Concessão Grande Lisboa 2007 30 256 23

Concessão Douro Litoral 2007 27 1,000 129

Concessão Túnel do Marão 2008 30 458 29

Subconcessão Transmontana 2008 30 800 186

Subconsessão Douro Interior 2008 30 940 242

Subconcessão Baixo Alentejo 2009 30 561 345

Subconcessão baixo Tejo 2009 30 278 70

Subconcessão Algarve Litoral 2009 30 318 273

Subconsessão Litoral Oeste 2009 30 622 109

Subconcessão Pinhal Interior 2010 30 1,244 520

Total 18,189

Source: UTAP – Boletim Trimestral PPPs – 3ª Trimestre de 2013

*Total investment reported by concessions

**Total network Km for roads and railways PPPs and number of beds for health PPPs

***Construction cost reported by Brisa in 2011

****Total investment upon agreement

*****REFER infrastructure investment not included


Inception Maturity

Investment (EUR

million)****

Network

Size**

Railways

Metro Sul Tejo 2002 30 388 14

Transporte Ferroviário Eixo

Norte/Sul***** 1999 11 + 9 4 54

Total 392

Health

Gestão do Centro de

Atendimento do SNS 2006 4 + 3 4 N/A

CMFRS – São Brás de Alportel 2006 7 3 54

Gestão Hospital Braga – Gestão

Edifício 2009 30 155 705

Gestãi Hospital Braga – Gestão

Estabelecimento 2009 10 59 705

Gestão Hospital Cascais –

Gestão Edifício 2008 30 74 277

Gestão HospitalCascais – Gestão


Gestão Hospital Loures – Gestão

Edifício 2009 30 125 424

Gestão Hospital Loures – Gestão


Gestão Hospital Vila Franca de

Xira – Gestão Edifício 2010 30 103 280

Gestão HospitalVila Franca de

Xiira – Gestão Estabalecimento 2010 10 30 280

Total 622

National

Security SIRESP 2006 15 126 N/A

Annex I

68

Annex III – Sources

• BCR Investor Presentation November 2013

• Bloomberg

• Clifford Chance’s brief note “Infrastructure Bonds – underwriting Europe’s growth agenda”

• Dialogic

• European Commission – Economic and Financial Affairs

• European Commission “Interim report on the pilot phase of the Europe 2020 Project Bond Initiative”

• European PPP Expertise Centre “Market Update Review of the European PPP Market in 2013”

• European PPP Expertise Centre “Financing PPPs with project bonds - Issues for public procuring authorities”

• European PPP Expertise Centre - Portugal : PPP Units and Related Institutional Framework – January 2014

• International Financing Review

• Norton Rose Fulbright: Energy Academy – Project Bonds

• Plano Estratégico dos Transportes e Infraestruturas (PETI)

• Private Finance International

• Private Placement Letter

• Private Placement Monitor

• Project Bond Prospectus

• PWC 2013: Capital Markets: The Rise of Non-Bank Infrastructure Project Finance

• Société Général Market Update - January 2014

• The 2013 Preqin Investor Network Global Alternatives Report

• UK Government Press release: “Government uses fiscal credibility to unveil new infrastructure investment and exports plan”

• UTAP – Unidade Técnica de Acompanhamento de Projectos – Boletim Trimestral de Concessões – 3º Trimestre de 2013

• UTAP – Unidade Técnica de Acompanhamento de Projectos – Boletim Trimestral PPP– 3º Trimestre de 2013

Annex I

Ana Barreto Albuquerque

[email protected]

Isabel Simões dos Reis

[email protected]

Disclaimer

The purpose of this communication is to provide information with regards to

project bonds. It does not include a full analysis of all the relevant issues

with regards to this financial instrument. The views expressed in this

presentation are those of the authors and not necessarily those of the Nova

School of Business and Economics

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