Mr william young mipim asia congres paper in jakarta 2012

Private Sector Financing Schemes for Strategic Urban Infrastructure Investments William Young UCLG ASPAC Congress October 2012

Table of Contents • Introduction • Seeking financing from the private sector • Private sector trends relating to debt and equity type financing • Projects and return profiles • Criteria and Risks

Introduction New Risk to Europe's Growth: Banks Cut Lending to Cities Source: Wall Street Journal, 7 June 2012

Across Southeast Asia, public works are being expanded by governments needing to counter a slowdown in global demand and sustain an acceleration in growth that has made the region one of the few bright spots in a volatile world economy.

Source: Reuters, 2 September 2012

The Asian Development Bank (ADB) estimates that Southeast Asia’s 10 countries need at least $60 billion a year to fund ambitious infrastructure work.

Infrastructure projects are not without danger.

Source: Reuters, 2 September 2012

Execution problems and cost overruns are common. Land acquisition can be thorny — laws sometimes don’t help — and financing can be complicated.

Source: Bloomberg, 8 September 2012

Introduction In affluent Singapore, the roads are good and public housing is the envy of most other countries, but a jump in the population in the recent years has caused problems.

Source: Reutersl, 15 September 2012

"Providing effective infrastructure for trade will be critical to help ASEAN economies move progressively into more complex and highervalue manufacturing and production, including meeting rising demand from a growing middle class in the region," the ADB’s Goswami said.

Seeking financing from Private Sector • Reduction in bank financing • Vast increase in public projects • Reduction in public money (tax revenue) • Increasing population and aging population • Need to understand drivers for private investors

Private Sector Trends to Debt and Equity • Increase conservatism in the private sector (risk appetite) • Private investors are on a wait and see approach due to the global economy • More stringent assessment criteria • • • • •

Wanting more control Higher weighting on risk premium Looking for preservation of equity Better alignment of interest Transparency

Project and Return Profiles • 5 year term for development type projects (time bound) • Higher expected returns • Guarantee equity/Project guarantee by government (Europe) • Investor involvement in decision making • Working together with private sector investors in developing projects, Australia is a good example

Criteria and Risks • • • • • • • •

Executional risks and cost overruns Country risks & transparency Sound legal framework Green and sustainable projects Well defined exit strategies Government support/continuity Development support/reliable partners Reporting in English and to international standards