CONFIDENTIAL
Thoughts on PPP Discussion Paper Financings for the OECD MENA Initiative on Governance and Investment for Development
Credit Suisse Solution Partners November 2006 W-European experience points to trends to be expected in MENA
W-European characterictics – Legal frameworks differ significantly from country to country – PPP sector-mix varies from country to country – PPP structures usually enhance delivery quality of large projects and services On budget & in time delivery – Potential drawbacks Higher cost of capital Significant transaction advisory costs Social effects – Country patterns Most active: UK, France, Spain, Italy, Portugal Emerging: Germany, Scandinavia, CEE incl Russia – Voracious appetite for assets and predictable cash-flows from infrastructure investment funds
Barriers to development – Lack of specific legal frameworks – Complexity of government structures (e.g. federal, regional, local responsibilities) – Heterogenous political will to apply PPP structures – Intransparent procurement processes
Credit Suisse Solution Partners Increasing use of PPPs across Europe
ACCEDING CANDIDATE & MEMBER STATES NEW MEMBER STATES COUNTRIES COUNTRIES Turkey Romania Bulgaria Slovenia Slovakia Poland Malta Lithuania Lativa Hungary Estonia Republic Czech Cyprus UK Sweden Spain Portugal (Not Norway EU) Netherlands Luxembourg Italy Ireland Greece Germany France Finland Denmark Belgium Austria Central Accommodation Airports
Defence
Housing
Health & Hospitals
IT
Ports
Prisons
Heavy Railway
Light Railway
Roads
Schools
Sports & Leisure
Water & Waste Water (Incl. Solid Waste)
Discussion ongoing Project in procurement Many procured projects, some projects closed Substantial number of closed projects Substantial number of closed projects, majority of them in operation
Credit Suisse Solution Partners MENA has a great future from a bank/investor perspective
MENA/Emerging Markets – Legal and fiscal situations vary greatly – Mostly low transparency of procurement and privatisation processes – Real GDP growth of 5% p.a.+ is twice the population growth rate and hence is triggering increasing demand for improved services and infrastructures transport, healthcare, education, utilities – PPP specific know-how largely with companies and institutions from outside the region – needs to be imported but each country will develop its own specific PPP model and has to create its own knowledge pool Legal, financing, policy – Gulf countries’ financial systems awash with liquidity from oil & gas sector, with inflows also from Central Asia – Public capital markets growing but small compared to needs and fully developed regions – Demand for Islamic investments is driving fast growth of Islamic capital market Capacity for corporate issues and PPPs limited – investors need education – Already about 35 private equity funds with about $5bn investment capital domiciled in and focused on MENA
Credit Suisse Solution Partners But success depends on the objectives
PPP Objectives
Ongoing Optimise Protect the Public Investment in Support Business Influence and Share Ownership Value Interest Infrastructure Strategy Control Value Impact on: Invest in sufficient Development of Majority stake and Public maximisation Economy of the capacity to meet vertically control remains Explore employee subject to region predicted traffic integrated service with the authority participation achieving other growth offering related to Employment Clarify shareholder Protection of objectives Clarify ongoing infrastructure rights and role of Environment rights Optimal, but not role of authority in Focus on profitable Board excessively risky Security & safety planning and sustainable representatives Incentive Tariffs and service schemes capital structure processes growth Specific asset levels to Optimise mix of Ensure alignment Secure sufficient ownership and Consider one-off proceeds incentivise traffic with customer financial flexibility possible rental ownership growth restrictions and ongoing needs: timing, Focused terms dividends Third party access scale, cost international Public consultation expansion strategy and PR
PPP Process Design / Choice of Method
Strategic interests of the authority must be protected in a manner that can be clearly communicated to and understood by investors Long term successful solution Minimise residual risks
Credit Suisse can design a process that enables the authority to achieve its objectives, whilst also taking into account the objectives of the Company and the requirements of the potential investors.
Credit Suisse Solution Partners Financing Trends
New debt market technology – Senior debt that PIKs (accreting swaps) – Mega tenor (60 – 80 years) – Allows distributions to equity despite not paying current interest – Hybrids are equity for credit rating but debt for tax deduction: the perfect product
Investors are searching for yield – Collapse in government bond yields, low IRRs – Investors must go into corporate assets as well as financial investments – Take and hold investors who need a yield but do not want to exit – IRRS can be as low as 10% for a toll road with no project risk – raises equity prices
Returns – Primary PPPs can be financed with 20-25% equity and yielding 13-15% IRR
Investors – Most North American pension & life insurance companies can now invest directly into unlisted assets and infrastructure funds – Universe of specialist financial investors is growing fast: from the beginnings of Macquarie and Babcock & Brown to 25 and more independent entities
Credit Suisse Solution Partners Credit Suisse snapshot
Premier global financial institution Three divisions: Private Banking, Investment Banking, Asset management Key numbers/financial information – Market cap: $62 billion – Assets under Management: $1.15 trillion – Return on Equity: 21.7% – 63,000 employees in 26 countries and 57 locations – 150 years “young” Involvement in PPPs has changed its nature over time – Founded to finance the Gotthard railway tunnel through the Alps because there was no state funding – From bank financier… – To capital market oriented financier… – And infrastructure investor
Credit Suisse Solution Partners Credit Suisse presence in the region
Credit Suisse Offices in the MENA region
Beirut Riyadh Abu Dhabi 5 Professionals Saudi Swiss Securities JV 7 Professionals Representative office since 2006 Representative office since 1999 1978
Dubai Istanbul Doha 75 Professionals 6 Professionals Representative office Representative office since since March 2006 1994 Cairo Branch office since May 2005 6 Professionals Teheran
Full banking license DIFX Representative Office since Representative office since January 2006 1978 since 1979
Credit Suisse Solution Partners Credit Suisse as infrastructure investor
Announced on May 30 this year Global Infrastructure Partners (GIP) is a $1bn 50/50 partnership between Credit Suisse and General Electric Combination of financial market know-how of Credit Suisse and industrial know- how of General Electric and both companies‘ global footprint and financial strength The joint venture will invest world-wide in power generation and transmission, gas storage and pipelines, water assets, airports, air traffic control, ports, railroads and toll roads. Capitalisation likely to increase with identification of suitable targets First investment was made in September 2006 together with insurance group AIG: purchasing London City Airport (GIP‘s share: 50%)
Credit Suisse Solution Partners Credit Suisse as advisor - recent sector deal highlights
Air Transport Metro Transport Sea Toll Roads
Ongoing Ongoing Ongoing 2003 2004 2003 Ongoing Ongoing
Chicago Midway Airport US$1,000m US$300m NA NA Financial Advisor Financial Advisor Financial Advisor CS is acting as advisor to Advising the Dutch Joint-Bookrunner for Sole Adviser on the Sale of CSX’s shipping Feasibility study for the Rendered a fairness Advising the city of the Dutch government on a Government in relation to Laidlaw’s US$406m HY privatisation of Malta business to Carlyle Group state of Illinois on the opinion to the board of Chicago on the sale of pre-IPO private placement the potential privatisation of notes and co underwriter of Freeport - a leading privatization of Illinois toll abertis on the proposed Chicago Midway Airport Connexxion Group its US$600m bank deal - to Mediterranean road system merger with Autostrade (Netherlands) finance their exit from transshipment terminal to Chp11 CMA-CGM
2006 2005 2003 2003 2003 2003 2006 2005
Budapest Airport US$ 2,100m US$ 1,100m US$304m Approx US$120m Co-bookrunner Sole Bookrunner Sole Bookrunner Joint Bookrunner / Sole International Sole Global Coordinator on Advised the Hungarian CS advised Roadway Corp CS acted as Co- Co lead manager and Placement of 236,000,000 Provided financing for Bookrunner the $1bn IPO of Grupo Government on the on its sale to Yellow Corp. Bookrunner for Deutsche bookrunner for P&O’s ordinary shares Macquarie for their SPO offering 170 million Aeroportuario del Pacifico privatisation of a 75-1% Bahn’s €850m 15-yr senior US$190m rights issue acquisition of APRR, ordinary shares stake in Budapest Airport unsecured bond and French Toll Road representing 3.4% of the €500m follow on company
2004 2001–2002 2001 1994 2002 2000 2005 2005
Zurich Airport US$ 1,400m US$1.5 billion US$151m Approx €950m A$675m placement
Sole Bookrunner Sole Bookrunner Sole Advisor Sole Advisor Co-Lead Manager Joint Lead Manager Adviser to London Regional Acted as sole bookrunner Sole Adviser to the UK CS was Sole Bookrunner Transport in connection with Sale of Ocean Car Carrier Sale of 72% strategic IPO primary offering 26 Macquarie Infrastructure on the CHF500m bond Government on the sale for CSX Corporation’s the disposal of London Division to a Consortium stake to Perez y Cia million ordinary shares Group issue of Zurich Airport of a 46% stake in the UK US$450m Convertible Buses’ 10 operating representing 28% of the air traffic control (NATS) Debentures issuance subsidiaries company to a strategic investor
Credit Suisse Solution Partners Credit Suisse: #1 Global Platform in Emerging Markets
US$416m US$320m US$1,983m US$795m Follow-on IPO ABB Follow-on #1 #1 #1 June ‘06 May ‘06 April ‘06 March ‘06
Best Investment Bank Best Investment Bank Best Equity House Global Emerging Markets Emerging Europe Middle East 2006 2006 2006 US$983m US$1,003m US$457m US$1,393m Exchangeable IPO IPO Convertible #1 #1 #1 February ‘06 February ‘06 February ‘06 January ‘06
Best Equity House Best Equity House Best Equity House Latin America Brazil & Mexico China 2006 2006 2006 US$455m US$891m US$403m US$7,585m IPO IPO IPO IPO December ‘05 December ‘05 November ‘05 October ‘05 Credit Suisse was hailed as “the pre-eminent investment bank in the emerging markets.” The editors said, “Excellence in debt and equity business combined with a solid M&A platform means that Credit Suisse stands out from its rivals. - Euromoney Awards for Excellence 2006
“it is in capital markets that the bank shines most.” In equities, Credit Suisse US$1,352m US$394m US$966m US$436m was ranked number one in IPOs in emerging markets globally, as well as number IPO IPO IPO ABB one in each of the three major regions in 2005, executing landmark transactions September ‘05 September ‘05 July ‘05 June ‘05 such as the USD 9.2 billion IPO of China Construction Bank, acting as bookrunner on three of the five largest IPOs in Russia and dominating issuance out of Brazil. - Euromoney Awards for Excellence 2006
Pyaterochka “Credit Suisse has demonstrated its commitment to the region by leading the way in US$422m US$639m US$616m US$1,557m establishing a presence in the Middle East’s capital markets”, culminating in “the IPO IPO IPO IPO bank’s most innovative equity transaction”, the €825 million exchangeable bond for June ‘05 May ‘05 April ‘05 February ‘05 Weather/Orascom Telecom in Egypt. - Euromoney Awards for Excellence 2006
Credit Suisse Solution Partners Consistent Project Finance Leadership Broad Awards League Tables Deals of the Year 2005 Global Project Advisory ($ in millions) 2005 POS. FINANCIAL ADVISOR AMT % SHARE Renewables Deal of the Year 1 HSBC Holdings plc $12,238 11.4% Hawkeye Renewables, US$185 mm 2 Royal Bank of Scotland Group plc 11,734 11.0% 3 Citigroup Inc 11,175 10.4% - Euromoney 2004 4 Societe Generale 8,990 8.4% - Project Financial Magazine 5 Credit Suisse Group 5,468 5.1% Best Global Finance Bank Merchant Deal of the Year Source: Dealogic Global Project Finance Review. Boston Gen., US$800 mm CSFB 2005 Global Project Loans - Euromoney ($ in millions) Best North American Project POS. ARRANGER AMT % SHARE EMEA Petrochemical Deal of the Finance Bank 1 Royal Bank of Scotland Group $6,657 6.1% Year 2 BNP Paribas SA 5,059 4.6% CSFB 3 Societe Generale 4,734 4.3% Q Chem 2 4 Credit Agricole SA 4,579 4.2% - Euromoney Best Power Project Finance Bank 5 Credit Suisse Group 3,488 3.2% 2004 CSFB Source: Dealogic Global Project Finance Review. 2005 Americas Project Loans North American Deal of the Year ($ in millions) Astoria Energy, US$700mm POS. ARRANGER AMT % SHARE - Project Finance Magazine 1 Credit Suisse Group 2,722 12.5% 2 Citigroup Inc. 2,636 12.1% 2003 3 Morgan Stanley 1,129 5.2% 4 Banco Bilbao Vizcaya Argentaria SA 1,096 5.0% North American Deal of the Year 5 BNP Paribas SA 1,025 4.7% FPL Energy American Wind,
Source: Dealogic Global Project Finance Review. US$380 mm - Project Finance Magazine 2003 2005 Global Project Bonds ($ in millions) - Project Finance International Project Finance Bond House of POS. BOOKRUNNER AMT % SHARE Renewable Deal of the Year the Year 1 Citigroup $4,404 21.9% 2 Goldman Sachs Group Inc 4,088 20.3% FPL Energy American Wind, CSFB 3 Lehman Brothers Holdings 2,146 10.6% US$380 mm 4 Credit Suisse Group 946 4.7% - Project Finance Magazine 5 Credit Agricole SA 795 3.9%
Source: Dealogic Global Project Finance Review.
Credit Suisse Solution Partners Comprehensive Financing Capabilities
Historic Dominance In Capital Markets Project Financings Continued Dominance In Capital Markets Project Financings Full Credit To Lead Manager, 1992-2006 YTD Full Credit To Lead Manager, 2000-2006 YTD (US Dollars in millions) (US Dollars in millions) $34,153 $15,835 98 35 $8,993 $16,467 $15,862 $7,057 $4,720 $9,396 $3,979 37 51 $8,489 21 14 25 19 10 4
Credit Suisse Lehman Citigroup Goldman Morgan Credit Suisse Lehman Citigroup Goldman Morgan Sachs Stanley Sachs Stanley
Note: As of 4/20/2006 Note: As of 4/20/2006
Total Rated Projects 1992-2006 YTD 2005 America’s Project Loans 98 (US Dollars in millions)
$2,722 $2,636
51
37 $1,129 $1,096 25 $1,025 19
Credit Suisse Citigroup Lehman Goldman Morgan Credit Suisse Citigroup Morgan Banco Bilbao BNP Paribas Sachs Stanley S l Note: As of 4/12/2006 Source: Dialogic Global Project Finance Review. Credit Suisse understands the financing markets for project financing - it does more financings than any other investment banking
Credit Suisse Solution Partners Credit Suisse – widespread experience in MENA
Middle East Financing Track Record
Audi Investment Bank Bond Joint book on MTN issue Lead arranger on $2.4bn Joint Bookrunner $2bn Syndicated Term Loan Issue Floating Rate Note acquisition financing of Cell Tell on 14 offerings since 1997 Facility Revolver
The State of Qatar Debut Ras Laffan LNG 2009 Sr. First Public Corporate Islamic Investcorp Preference Share €825m Weather Exchangeable Eurobond Offering Secured Notes Sukuk Offering from the GCC Issue into Orascom Telecom
Strong Investment Banking Franchise
2005 $891m privatisation Sultanate of Oman Airport Privatization Joint lead on IPO Advisor on $2.1bn sale of DSM petrochemical division to SABIC
AMERICAN EXPRESS BANK EGYPT Sale of Amex Egypt to EAB Sale of EAB to Credit Agricole Advisor on Telsim acquisition 2006 Capital Increase (Pending) & Mansour Group
Saudi International Bank Falcon Privatisation of Qatar Telecom Advisory Mandate Privatisation of Taweelah A1 and IV CBO Ltd. (Q-TEL) A2, Abu Dhabi Advisory on license acquisition
Credit Suisse Solution Partners Credit Suisse Presence in Turkey
History Today
Branch established in 1998 Representative office for coordinating
Fully operational banking license marketing activities and local coverage Used as a liaison office and has no local tax Trading activities performed locally until presence
2004 Strong presence in all product areas with dedicated resources in Investment Banking, Ongoing discussion regarding the purchase Debt Capital Markets, Equities, Fixed of a broker license to increase research and Income and Private Banking sales / trading platform
Recent key hires to strengthen Credit
Suisse’s coverage presence in Istanbul
Credit Suisse Solution Partners Credit Suisse - highly experienced in Turkey
€275 million US$276 million US$4.600 million US$2,774 million US$2,440 million Credit Suisse advised Credit Suisse advised Credit Suisse advised Advisor to Coca Cola Advisor to National Advising UniCredit and Banca Intesa on the National Bank of Temasek on the Icecek Turkey in its Advisor to Kocbank on Credit Suisse advised Bank of Greece Koç Group´s JV in the Disbank process Greece on the Garanti Yapi Kredi process acquisition of a 51% its merger with Yapi National Bank of in the acquisition of acquisition of c.7.3% process stake in Efes Invest Kredi Greece on the
Advisory Yapi Credit Minorities 46% of Denizbank process Finansbank
2006 2006 2006 2006 2005 2005 2005 2005
US$275 million US$216 million US$194 million US$286 million US$55 million US$651 million US$250 million US$115 million IPO Initial Public Offering Efes Breweries Secondary Offering Secondary Offering Privatisation Offering Securitisation of ASdevcisoonrdtaoryTeOlefffeorninicga Sole Global International NV International Credit in the Turk Telekom Coordinator & Sole Initial Public Offering Card Voucher Privatisation
ECM Bookrunner Receivables Global Co-ordinator Co-lead Manager Joint Bookrunner Lead Manager Co-lead Manager Lead Manager Lead Manager
2006 2005 2004 2000 1998 1998 1998 21090957
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