PPP Funds for
Infrastructure Investments
Istanbul, 8th November 2006
Alessandro Merlo
Sanpaolo IMI Group
International Public and Infrastructure Finance
Public Private Partnership
PPP schemes continue to develop well throughout Europe and
United States
Successfully PPP schemes in Europe:
France, Germany, Italy, Spain, Portugal, Greece, etc.
Supported by:

legislative framework

PPP taskforces

governments commitment
PPP in Italy
Which lesson
can be learned?
PPP in Italy and MENA countries
A parallelism can be drawn between the Italian development of
PPP scheme and the experience in MENA countries

Lack of modern infrastructures

Government Budget restrictions

State providing public services (experience vs. efficiency)

Lack of institutional investors

Lack of capital for local sponsors
Nowadays Italy can be considered one of the most promising
market for PPP projects development in Continental Europe
PPP in Italy a long start-up period
The last three years (2002 - 2005), thanks to legislative
innovations, can be considered as the true start up phase with:

public entities

private companies

banks
That gave the necessary experience and defined operating
criteria those will permit to speed up the bidding and structuring
procedures
PPP in Italy creating the “legal
framework”
Modifications to the legal framework:

elimination of limits on the concession period

priority right attributed to the promoter
are the factors that have determined a boost of projects under PPP
schemes.
Procedures
2002
2004

In a three years’ period the
128
280
119%
number of tenders has doubled tender ex art 19.2
(from 206 to 418), while the
78
138
77%
number of concessions granted tender ex art. 37 bis
has increased by almost 4
206
418
103%
times (from 47 to 229).
PPP in Italy
Data related to projects
prometed by public
authorities
Data related to projects
promoted by private
companies
Investors come when revenue stream is supported
by a clear regulation.
Financing PPP
Not only debt but
also equity needs
Role of PPP funds
Leverage

funds
PPP funds attract money from long term investors (such as pension
funds, banks, foundations). They inject equity or mezzanine finance in
PPP projects
100
Debt
Project Financing
provided by banks
Equity provided by
sponsors
Mezzanine or Equity
provided by PPP funds
Role of PPP funds
Benefits

Help

Investing in stable cash-flow businesses, with a moderate risk
sponsors
PPP funds help sponsors to:
-
Structure project financing (making them “bankables”)
-
Face equity needs (both through capital increase and mezzanine financing)
-
Control costs during construction and operational period
Benefits


for investors in PPP funds
for public sector
PPP funds stress analysis on economic and financial feasibility of projects in
the long term
PPP funds are bynature long term investor, they are not interested in
construction revenues
What comes first ?
What comes first: PPP development or PPP funds ?
Lesson took from PPP experience in the UK:

the growth has been in parallel.
The PPP Italia Fund
SPONSOR
FIN.OPI S.p.A. (SANPAOLOIMI GROUP)
MANAGEMENT COMPANY
Fondaco SGR (controlled by banking foundations)
ADVISOR
FIN.OPI S.p.A
FUND TARGET
€120 million
INVESTORS
SANPAOLOIMI Group, Banking Foundations, International
institutional investors
FUND LIFE
12 years (+ 2 years)
Investment Period 6 years
Fund Strategy
Divestment Period 6 + 2 years
Geographic Focus
Italy
Investment Type
Social and Public Buildings, Environment projects, Public
Utilities networks
Investment Philosophy
Investing in greenfield and brownfield PPP projects
The PPP Italia Fund
Investment strategy
PUBLIC
BUILDING
ENVIRONMENT
URBAN
DEVELOPMENT
TRANSPORTS
PUBLIC
UTILITIES
MEDIUMLOW
MEDIUM-HIGH
MEDIUM-LOW
HIGH
HIGH
RISK
LOW
MEDIUM
MEDIUM
MEDIUMHIGH
MEDIUM
YIELD
MEDIUM
HIGH
HIGH
MEDIUMHIGH
MEDIUM
TENOR
MEDIUMHIGH
MEDIUM-HIGH
MEDIUM
HIGH
MEDIUM
50-60%
10-20%
15-20%
5-10%
20%
SIZE of
INVESTMENT
INVESTMENT
POLICY OF THE
FUND
With such an investment policy PPP Italia, raising €120mln,
will in invest in projects for about €1,5bln
Financing PPP
How to have a
more efficient
use of public and
donor funds
Public Investments in PPP funds
To
attract investors Public Authorities and Donors normally gives subsidies
to project sponsors

Subsidies are one-off investments

Subsidies availability is very restricted

Difficult to choose to which projects grant subsidies and in which amount
Public
Authorities and Donors can invest in PPP funds and being able to
accept more risk and less return, compared to Private Institutional Investors,
they can:


Decrease the cost of equity and mezzanine for infrastructure projects
Have a strong leverage effect: up to 1 to 20 (1€ invested in PPP Funds by
Public Authorities can attract additional 2€ from institutional investors and as
a result participating to projects for 20€)

Take profit of project analysis and selection made by a dedicated team (fund
managers are remunerated based on the success of their investment)

If things goes well Public Authorities and Donors can receives back their
investments and participate to extra-performance
A case study: FIDEME
Fideme
is a closed-end fund, managed by IXIS CIB, which
provides mezzanine finance to renewable energy sector in
France
Junior
Investor
A share
Ademe
€15mln
French Public Agency for
Renewables
FIDEME
Senior
Investor
Institutional
Investors
B share
(CDC, Banca OPI,
Caisses d’Epargne, …)
Mezzanine
Finance
Project
€30mln
 30 projects
 320 MW installed
 €370mln invested
FIDEME Cash Flow Cascade
1. Payment of priority interest to B shares
2. Buy Back of B shares (at nominal value) – reimbursement of invested
capital
3. Buy Back of A shares – reimbursement to Public Agency
4. Payment of extra performance, if any, equally divided between A (50%)
and B (50%) shares
After four years (2002 – 2006)

All the funds has been invested
No default projects (a portfolio analysis shows an better risk profile
compared to initial hypothesis)


Potential over-performance (current evaluation): €5mln

ADEME will be able to re-invest entirely its commitment, … and even more
Alessandro Merlo
Sanpaolo IMI Group
International Public and Infrastructure Finance
Edin & Suner Plaza
Meydan Sok. 14/1, Akatlar
Istanbul, Turkey
Phone +90 212 3511731
Fax +90 212 3511733
E-mail a.merlo@sanpaoloimi.com