The Philippine PPP Program OUTLINE

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The Philippine PPP Program OUTLINE The Philippine PPP Program OUTLINE 1. Overview of PPP Projects 2. Financing Case Study: Tarlac-Pangasinan-La Union Expressway (TPLEX) 3. Sources of Financing 4. Domestic Financing: Limitations and Measures to Facilitate 5. Alternative Financing Options 2 OUTLINE 1. Overview of PPP Projects 2. Financing Case Study: Tarlac-Pangasinan-La Union Expressway (TPLEX) 3. Sources of Financing 4. Domestic Financing: Limitations and Measures to Facilitate 5. Alternative Financing Options 3 PPP PROJECTS NO. OF ESTIMATED COST STATUS PROJECTS (in billion USD) PROJECTS UNDER IMPLEMENTATION Awarded 10 4.20 Other projects for implementation 2 2.13 PROJECTS IN THE PIPELINE Project for Awarding 1 .09 Projects under procurement 14 11.46 Projects approved for roll-out 2 2.39 For approval of relevant government bodies 6 3.41 Projects with ongoing studies 4 1.28 For procurement of consultants 7 TBD Under conceptualization or development 7 TBD Sub-Total 41 18.04* TOTAL 53 24.96* *This does not include 18 projects with no estimated costs yet 4 5 6 7 8 AWARDED PROJECTS 9 OUTLINE 1. Overview of PPP Projects 2. Financing Case Study: Tarlac-Pangasinan-La Union Expressway (TPLEX) 3. Sources of Financing 4. Domestic Financing: Limitations and Measures to Facilitate 5. Alternative Financing Options 10 FINANCING CASE STUDY: TPLEX PROJECT BRIEF Scheme BTO Project Cost USD 358 Million (as approved in 2010) Length 88.85 km Financial Close Y2011: by 3 local banks Status Y2014: Phase 1 (49.3 km) opened Y2015: Phase 2 (13.72 km) opened Y2016: Phase 3 (25.83 km) expected to be completed First PPP project in the Philippines to feature an all-domestic cast of sponsors and lenders 11 OUTLINE 1. Overview of PPP Projects 2. Financing Case Study: Tarlac-Pangasinan-La Union Expressway (TPLEX) 3. Sources of Financing 4. Domestic Financing: Limitations and Measures to Facilitate 5. Alternative Financing Options 12 SOURCES OF FINANCING PPPs are primarily financed by domestic banks • Stable macroeconomic fundamentals • High levels of liquidity and low interest rates • Express government commitment to PPP program • Improved capability of domestic banks (availability of longer tenors, larger SBLs, expertise in project finance) • Lack of alternative options due to institutional and regulatory issues Issuance of 10-year Syndicated loan and Targeting local bank corporate notes to security agreement financing local banks with 6 local banks 13 OUTLINE 1. Overview of PPP Projects 2. Financing Case Study: Tarlac-Pangasinan-La Union Expressway (TPLEX) 3. Sources of Financing 4. Domestic Financing: Limitations and Measures to Facilitate 5. Alternative Financing Options 14 DOMESTIC FINANCING LIMITATIONS OF DOMESTIC FINANCING Regulatory restrictions • Bank lending to a single entity is limited to 25% of bank’s net Single Borrower’s worth Limit (SBL) • Additional 25% SBL limit for PPP projects will expire in December 2016 • Limitation of loans to director, officer, stockholder or related interest (DOSRI) to an amount equivalent to his Related Interest unencumbered deposits or book value of his paid-in capital Loans contribution to the bank • Except with prior approval, combined outstanding DOSRI loans and guarantees should not exceed 15% of bank’s total loan portfolio or 100% of bank’s net worth, whichever is lower Real Estate Loans • Limitation on real estate loans: 20% of loan portfolio DOMESTIC FINANCING LIMITATIONS OF DOMESTIC FINANCING Banking practice Performance • To mitigate appropriations risk, banks often request for undertakings issuance of performance undertakings for PPP projects • While banks now offer longer tenors (10-15 years), there is still Lack of long- a gap in terms of long-term financing (given the long-term term financing nature of the concession agreement, i.e. 25-30 years) DOMESTIC FINANCING MEASURES TO FACILITATE DOMESTIC FINANCING • Active domestic credit market Financial institutions • Involvement of government financial institutions in PPP advisory and financing Regulatory support • Additional 25% SBL limit for PPP projects • Step-in rights • Termination principles Provisions in • Permitted security interests Concession Agreement • Refinancing and securitisation • Deficit payments • Grantor compensation payments 17 OUTLINE 1. Overview of PPP Projects 2. Financing Case Study: Tarlac-Pangasinan-La Union Expressway (TPLEX) 3. Sources of Financing 4. Domestic Financing: Limitations and Measures to Facilitate 5. Alternative Financing Options 18 ALTERNATIVE FINANCING OPTIONS There is a need to tap alternative financing options given the scale of PPP projects in the pipeline North-South Railway Project USD 3.79 Billion Laguna Lakeshore Expressway Dike PPP Projects Project in the USD 2.73 Billion Pipeline: USD 18.04B+ NAIA Development Project USD 1.66 Billion Regional Prison Facilities Project USD 1.12 Billion 19 ALTERNATIVE FINANCING OPTIONS • International banks: legislative support allowing full entry of foreign banks to the Financial Philippines institutions • Multilateral banks (ex. ADB, World Bank and IFC): already involved in PPP advisory • While capital market is still underdeveloped, market activity is picking up Capital markets • Bond market: Volume increased from USD40.3B in 2013 to USD45.9B in 2014 • Corporate bond sector is growing faster than government bonds 20 ALTERNATIVE FINANCING OPTIONS Various Initiatives to Develop Capital Markets Government Private Sector • Consultations and • First infrastructure roundtable discussions bonds expected to be on mechanisms for issued soon regulatory support, • Philippine Investment credit enhancement and Alliance for rating and tax Infrastructure (PINAI): incentives fund investing in Philippine infrastructure equities 21 The Philippine PPP Program .
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