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Thoughts on PPP Financings 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 Norway (Not EU) Portugal Spain Sweden UK Cyprus Czech Republic Estonia Hungary Lativa Lithuania Malta Poland Slovakia Slovenia Bulgaria Romania Turkey Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands 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
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