ALTERNATIVE FINANCING OPTIONS FOR INFRASTRUCTURE
DEVELOPMENT
Albert Amos The World Bank
October 5, 2018
INFRASTRUCTURE INVESTMENT GAP• USD 14.9 billion gap
from 2015 to 2040, globally
• Approximately USD 600 million/year
• Reliance has been on bank lending
• Alternative financing instruments needed to reduce investment financing gap
FUNDING AND FINANCING SOURCES, 2011 TO 2016
2011 2012 2013 2014 2015 2016
USD B % USD B %
USD
B % USD B % USD B % USD B %
IFI loans 74,8 14% 63,0 13% 62,6 11% 84,4 14% 54,4 8% 43,9 7%
Bank loans 240,4 45% 212,4 42%
274,
3 47% 290,6 47% 345,5 52% 266,5 41%
Bonds 19,2 4% 20,1 4% 38,4 7% 58,7 10% 72,2 11% 115,6 18%
Equity 200,3 37% 205,8 41%
214,
3 36% 179,2 29% 186,5 28% 228,3 35%
Total 534,8 100% 501,3 100%
589,
4 100% 612,9 100% 658,6 100% 654,4 100%
Transactions 1,048 937 990 1,341 1,573 1,542Source: IJGlobal
INFRASTRUCTURE INVESTMENT GAP
GENERAL FINANCING CHALLENGESExternal Factors Internal Factors
Macroeconomic Risks• Currency mismatches• Interest rate mismatches• External shocks
Macroeconomic Risks• Lack of long-term currency hedging
mechanisms• Lack of long-term interest rate hedging
mechanisms• Susceptibility and impact of external shocks• Public debt levels
Banking Sector Risks• Basel III• Exposures to infrastructure sector
Banking Sector Risks• Basel III• Exposures to infrastructure sector
Corporate Risks• Leverage levels of foreign
concessionaires
Corporate Risks• Leverage levels of domestic concessionaires
Market and Liquidity Risks Market and Liquidity Risks
Political Risks• Competing fiscal priorities
TAXONOMY OF FINANCIAL INSTRUMENTS AND MARKET VEHICLESModes Infrastructure Finance Instruments Market Vehicles
Asset Category Instruments Infrastructure Projects
Corporate Balance
Sheet / Other
Entities
Capital Pool
Fixed Income
Bond
Project BondsCorporate Bonds,
Green BondsBond Indices, Bond
Funds, ETFs
Municipal, sub-sovereign
bonds
Sukuks Subordinated Bonds
Loans
Direct/Co-Investment
lending to Infrastructure
Project. Syndicated Project
Loan
Direct/Co-
Investment lending
to Infrastructure
corporate
Debt Funds (GPs)
Syndicated Loans,
Securitized Loans
(ABS), CLOs
Loan Indices, Loan
Funds
Mixed HybridSubordinated Loans/
Bonds, Mezzanine Finance
Subordinated Bonds,
Convertible Bonds,
Preferred Stock
Debt Funds, Hybrid
Debt Funds
Equity
Listed YieldCos
Listed Infrastructure
& utilities stocks.
Closed end funds,
REITs, IITs, MLPs
Listed
Infrastructure
Equity Funds,
Indices, trust, ETFs
Direct/Co-Investment in Direct/Co-
Source: OECD, Infrastructure Financing and Instruments, OECD, 2015
FIXED INCOME INSTRUMENTS
PROJECT BONDSElazig Hospital Project Bonds• Privately placed bond • 450 basis points over Euribor• 3 tranches, 18-20 year
maturities• EBRD liquidity facility• Moody's rating of Baa2• Local banks primary
purchasers
• Local and foreign currency bonds• USD: $272 million, BBB-• COP: $635 million, BBB-
/AA+• 3 tranches, 18-20 year
maturities• FDN credit enhancement
facility• Local banks primary
purchasers • Debt funds and intl. banks
purchased bonds
Pacifico Tres, Colombia
SUKUKS• Islamic Finance is $2
trillion dollar market (2016)
• Banking sector comprises approximately 80%
• Sukuks • Second largest
segment• 12% average annual
growth in 5 years• Distribution by region:
GCC: 42%, Middle East and North Africa” 30%, Asia: 22%
Source: Islamic Finance Service Board
Islamic Finance
Sukuks
Gulf Corporation Council
SUKUKS
Source: The World Bank “Mobilizing Islamic Finance for Infrastructure Private Partnerships, 2017
• Returns linked to profits of the enterprise
• Financiers are partners in the project and responsible for asset delivery • Procurement• Release of funding
• SPV repays the financier on a deferred payment basis
• SPV role varies depending on structure• Ijarah: Lessee• Murabahah: Customer• Istişna: Client• Asset is delivered to SPV when
construction has been completed• Payment price includes profit for
extending financing• Examples
• Doreleh Container Terminal, Diibouti
• Karachi Thatta Dual Carriageway, Pakistan
• Konya Hospital, Turkey
MUNICIPAL FINANCEChallenges • High investment needs • Few local governments have credit
ratings• Limited own revenues• Reliance on government transfers• Few local governments generate
operating surpluses• Limited experience and technical
capacity• Maturity and currency mismatches • Public debt limits
ARGENTINA LOCAL BOND ISSUESLocal Government Moody’s Rating USD ($M) Coupon Maturity
Buenos Aires, Municipality B3 Stable 890 7.60% 11.0
Cordoba, Municipality B3 Positive 150 N/A 8.0
Buenos Aires Province B3 Stable 500 5.87% 3.0
500 7.87% 9.25
250 4.50% 3.0
500 7.375% 10.0
750 6.60% 5.0
750 8.10% 10.0
Chaco Province Caa1 250 9.37% 8.0
Chubut Province Caa1 650 7.75% 10.0
Cordoba Province B3 Stable 725 7.15% 5.0
Entre Rios Province B3 350 8.75% 8.0
La Rioja Province B3 Positive 200 9.75% 6.5
Mendoza Province B3 Stable 500 8.37% 8.0
Neuquén Province1 CCC+ 235 8.625% 12.0
Salta Province1 CCC+ 300 9.10% 7.0
Santa Fe Province B3 Positive 250 6.90% 10.0
GREEN BONDSType Proceeds Debt Recourse Example
Use of
Proceeds
Bond
Earmarked for
green projects
Standard/full re-
course to the issuer
with same credit
rating as issuer
EIB “Climate
Awareness Bond”
(backed by EIB)
Use of
Proceeds
Revenue
Bond
Earmarked for
green projects
Issuer’s revenue
stream is from fees
and taxes which are
used to secure debt
Hawaii State (backed
by a fee on electricity
bills collected by
state utilities)
Project
Bond
Ring-fenced for
specific green
projects
Recourse is only to
the project assets
Alta Wind Holdings
LLC (backed by wind
project) in California
Green
Securitized
Bond
Can be earmarked
for green projects
or directly finance
green projects
Recourse is to a
group of projects
that have been
grouped
Northland Power
(backed by solar
farms) or Solar City
(backed by residential
leases)
CREDIT GUARANTEESFeature Full Guarantee Partial Guarantee
Covers interest
and principal
Yes Yes
Irrevocable Yes Yes
Unconditional Yes Up to maximum limit
Coverage limit of
credit
enhancement
None Limit determined
according to the number
of notches of credit
enhancement required
Complexity Simple and
standardized
More complex to
administer. Investors
need to understand the
risk profile of each
project and guarantee
Maximum Credit
Enhancement
Equivalent to up
to 10 notches
Normally not more than
5 notches
Administration
costs
1% of the
guaranteed
amount
2% of the guaranteed
amount
Source: Based on The World Bank Institute, “Best Practices in Public-Private Partnership Financing in Latin America: The Role of Guarantees, 2011
• Key Issues• Crowd-in private
financing• Increased investor
comfort• Coverage by phase• Avoid extensive
coverage • Appropriately priced• Fees
UNITED KINGDOM GUARANTEE SCHEME (UKGS)Eligibility Criteria
• Nationally significant project• Start construction within 12
months• Borrower credit quality• Project dependent on a
credit guarantee to be financially viable
• Value to the taxpayerProjects• 39 projects eligible• 10 projects with guarantees
Project Guarantee Sector
Drax Power - conversion from coal to
biomass
£75mn
(bond)Energy
Sustainable Development Capital Limited £9mn (loan) Energy
Northern Line Extension
£750mn
(standby
liquid facility)
Transport
Mersey Gateway Bridge PPP£257mn
(bond)Transport
Ineos Grangemouth - Shale gas import
and storage facilities
€285mn
(bond)Energy
Speyside CHP plant£48mn
(bond)Energy
University of Northampton - relocation
of campus
£292mn
(bond)University
Countesswells - 3,000-unit housing
development£86mn (loan) Housing
University of Gloucestershire - Pittville
Student Village
£39mn
(bond)University
Hinkley Point C £2bn (bond) Energy
MIXED AND EQUITY INSTRUMENTS
GLOBAL INSTITUTIONAL INVESTOR PARTICIPATION IN INFRASTRUCTURE AND PPPS
Factors impacting institutional investment include: • Size and viability of PPP
pipeline• Project Risk Profile• Returns during
Construction (J-Curve)• Procuring agency
experience• Limited resources to
conduct project due diligence
• Pension reforms
INITIAL PUBLIC OFFERING• Brownfield vs. greenfield assets• Improves contractor financial
flexibility• Typical lock-in period of 2-5
years post-construction• Tradability • New investors• Subject to market fluctuations• “Buy and hold” tendencies
REAL ESTATE INVESTMENT TRUSTS• Asset pooling reduces
volatility • Potential tax advantages• Potential higher yields• Tradable on stock market• Increased liquidity• Tied to value capture
strategies
REAL ESTATE INVESTMENT TRUSTS, MEXICO• USD 300 million to USD 18 billion
in 5 years
• Investment in hotels, industrial zones, and office buildings
• Shares can be publicly traded
• 70% percent invested in domestic real estate
• 30% in Federal government or mutual funds
• Minimum 4 year holding period
• Deferral of 5% of taxable income
• Expansion to infrastructure projects
CLOSED END MUTUAL FUNDSClosed End Fund Investors Investments AUM USD
($M)
Investment Dates &
Duration
Infraestructura
Brookfield
Colombia
Brookfield Colombia only.
Roads, energy, ports,
airports, gas
pipelines.
228 September 2009-
13: 12 years
Fondo de Capital
Privado Nexus
Infraestructura I-
FCP
Nexus Capital
Partners
Multi-Country;
Greenfield and
brownfield roads,
airports, and energy
72 October 2009-13;
10 years
FINTRA Darby Private
Equity, Franklin
Templeton, and
Colpatria
Multi-country. Roads,
energy, ports,
airports, urban
transport.
83 August 2010-14;
20 years
CFC-SK El
Dorado LATAM
Fund
Corficolombia and
SK Group
Multi-country; Energy
and infrastructure
500 February 2015-20;
10-years
FCP 4G |
Credicorp Capital
– Sura Asset
Management,
Private Debt
Fund
Creditcorp Capital
and Sura Asset
Management
Colombia only. Debt
fund for 4G roads
320 November 2015-18;
23 years
Nova Renewable
Energy Latin
America LP
Novare Colombia, Peru, and
Chile. Renewable
energy generation
350 March 2016-21;
10-years
Ashmore CAF Ashmore Group Colombia only. 450 Pending
Key issues• Asset
diversification • Single or multi-
sector• New investors• Increased
liquidity• New investors• Longer-term,
defined investment period
Colombia• Change in
legislation
PUBLIC PRIVATE PARTNERSHIPSKey issues
• Legal and regulatory framework
• Risk sharing
• Contingent liabilities
• Project pipeline
• Due Diligence
• Diversification of financing sources
QUESTIONS AND
ANSWERS