PPP Financing RMIT April 2012
Speaker Lindel James Associate Director, Infrastructure Advisory Tel: +61 3 9288 8551 Fax: +61 3 8650 7705 Email: lindel.james@au.ey.com Lindel James is an Associate Director with Ernst & Young’s Infrastructure Advisory Group in Melbourne and has over ten years experience working in both Government and the private sector around infrastructure procurement, financial management and budgetary policy. Lindel joined Ernst & Young in 2009 from the origination team in Plenary Group, a boutique PPP infrastructure investment house ,and brings a well developed understanding of PPPs from both the public sector and bidder perspectives. Lindel’s PPP experience includes advising Government clients on alternative financing structures for PPPs, the $1 billion Victorian Comprehensive Cancer Centre that reached financial close in December 2011, the new Royal Adelaide Hospital Project ($2.5bn 2011), Partnerships Victoria in Schools and other projects. Her private sector PPP experience includes bids for the Bendigo Hospital PPP, AgriBIO, new Royal Children’s Hospital, Royal North Shore Hospital redevelopment and Canadian PPP Projects.
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Is FINANCE the most important part of a PPP?
No but... Finance is the glue
Value for Money 3
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What is Value for Money?
Quality
Time
Value for Money
Risk
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Cost
Quality & Cost ►
Whole of Life
►
Innovation
New Royal Adelaide Hospital
Royal Children’s Hospital
Partnerships Victoria in Schools 5
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Cost & Risk ►
Fixed Price
►
No Service = No $$$
Desalination Plant
Federation Square (non-PPP) 6
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AgriBIO
Time & Cost â–ş
Desalination Plant 7
Eastlink
Time is Money!!
Royal North Shore Hospital
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Risk & Time ►
Fixed Time
►
Incentive to deliver
Desalination Plant Partnerships Victoria in Schools
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Who provides the glue? ►
►
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Debt ►
Banks
►
Bonds
►
Superannuation Funds
Equity ►
Superannuation Funds
►
Infrastructure Investment Funds
►
Builder or Operator
►
Stockmarket
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What does the financing process look like? ►
►
Expression of Interest ►
Initial consortium formation
►
Indicative letters of support from debt financiers and third party equity
Request for Proposal ►
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Due diligence ►
Constructor & FM Provider presentations
►
Briefings on the technical solution/design etc
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Technical due diligence reports
►
Negotiation of risk allocation
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Security and bank guarantees
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Other protections such as reserve accounts
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What does the financing process look like? ►
►
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Request for Proposal continued ►
Credit Committee approvals
►
Pricing Committee approvals
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Commitment Letter
Financial Close ►
Finalisation of risk allocation and contracts
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Updated due diligence reports
►
Updated credit committee approvals if necessary
►
Set interest rates
►
Fund
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How much does this glue cost? Financing terms – debt margins on recent Australian PPPs Post-GFC
Pre-GFC
Source: Ernst & Young (2011)
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Recap ►
Is Finance the most important element? ►
►
Is Finance a critical component of a PPPs success? ►
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No
Absolutely
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