The Trials And Tribulations Of The EC's Project Bond Initiative
Everything seems to be up for grabs. The EC and the EIB spent between last September and February of this year road showing its Europe 2020 project bond initiative, a scheme which aims to encourage investment into the European project bond market. On May 3, it completed its public consultation on the details of the scheme, and now it plans to publish a comprehensive proposal on project bonds next month. However, the market seems to be as much divided now as ever it was on how the scheme will work. Also, not everyone is convinced that the two European institutions will be able to get the scheme off the ground by its deadline of 2014.
The scheme is about encouraging private sector investment into the project finance market by means of credit enhancing project bonds. The EIB and the EU hope to achieve this by providing either, or both, guarantees and mezzanine debt that will enhance the credit rating of the project finance bonds. In the process, they hope to make the senior tranches of the bonds more attractive to potential investors.
Few disagree that, in principle, this is a great scheme. After all, there is a vast need for new infrastructure. In its consultation document the EU said that between EUR1.5tn and EUR2tn are need between now and 2020 to finance a wide range of infrastructure-related assets, including transport, distribution and transmission networks, and also new energy generational and broadband capacity. These figures roughly match those published by the World Bank in 2009, which said that USD2tn was needed annually to finance global infrastructure.
Also, new ways of financing infrastructure are needed. Today, Europe almost exclusively relies upon banks to finance new infrastructure. This cannot be healthy. “It should never be a situation where everyone is going only bank or bond,” said one senior industry source. In addition, the need for considering bonds more seriously is growing as banks today are less willing to lend long term debt than they were, say, five years ago. Also, Basel III will make it harder for banks to lend as much in the future.
The need for alternatives to banks is also reflected in the sheer number of projects – similar to the project bond initiative – currently being looked at. These include Hadrian’s Wall, which is currently fundraising for a fund which will acquire the junior portion of a debt facility to credit enhance the senior tranche. There is also the Loan Guarantee Instrument for Trans-European Transport Network Projects (LGTT) scheme, which provides guarantees in case of losses occurring during the early operating stages of projects. It is also understood that at least one monoline is considering launching a new product in the infrastructure market.
History, also, has shown that project bonds can work, and this is most clearly shown in the non-European markets. Municipal bonds are commonplace in the US, and bonds are also popular in Canada where there is a healthy investor appetite, particularly from pension funds, for such funding structures. Australia, too, has a history of using project finance bonds. Mark Dooley, senior managing director focussing on PPPs at Macquarie Capital, said that during the 90s and early 2000s bond financing dominated Australian accommodation PPP, with around 30 PPPs closed in that way, the majority of which were not monoline-wrapped. The reason for this, he remarked, was that “through this period the Australian bank market would not lend much beyond 15 to 20 years, leaving bonds with a significant tenor advantage”. In Europe, many deals were financed using monoline-wrapped bonds. The EU and the EIB hope that their scheme – to credit enhance bonds – will have the same effect as the monolines’ wrap.
Uncertainty Over Structuring Of The Project Bond Initiative
Notwithstanding all of the above, there is a large group of people in the infrastructure industry who believe that the EU’s project bond initiative will probably never get off the ground. And to illustrate their argument they point to fundamental problems within European project bonds.
Firstly they point to the issue of negative carry. This works in the following way: on a bank funded deal, project companies draw down on credit lines provided by banks as and when they are needed. Project companies, as a result, only pay interest on the amount they have borrowed to date. In a bond funded deal, however, project companies receive finance for the entire project in one lump sum on the day the bond is issued. Therefore, they start paying interest to bondholders on the whole amount from day one. They can mitigate these cost liabilities by placing the money they don’t want into an interest bearing account. However, the amount they pay in interest to bondholders is always much higher than the amount they receive from these safe investments, hence the existence of negative carry.
To read the full article, click here: http://www.infra-news.com/analysis/news-analysis/865573/the-trials-and-tribulations-of-the-ecs-project-bond-initiative.thtml
For more information about InfraNews (www.infra-news.com) and find out if you are eligible for a free trial call Ken McAllister on + 44 (0) 207 786 9282 or e-mail at email@example.com. Please remember to quote your reference: INPR14OPR.
InfraNews is the most relevant, timely & accurate provider of news, analysis & research about the latest greenfield & brownfield infrastructure projects & deals across the European and global infrastructure communities.
4 City Road
This release was published on openPR.
Permanent link to this press release:
Please set a link in the press area of your homepage to this press release on openPR. openPR disclaims liability for any content contained in this release.
You can edit or delete your press release The Trials And Tribulations Of The EC's Project Bond Initiative here
News-ID: 176404 • Views: 1153
More Releases from InfraNews
Why the Eurozone Sovereign Crisis is a Bad Thing for Infrastructure Investors
By Peter Allison To say that fear stalked European financial markets during August is something of an understatement. While temperatures rose in Greece, Italy and Spain, markets headed in the opposite direction. The underlying theme was volatility. The swing in yields on ten-year Spanish and Italian government treasuries was an eye-watering 1% during one week in August. Equities dropped in value and then recovered slightly. Then they fell again. The price
Will KKR, Munich Re T-Solar Investment Kickstart Renewables M&A In Spain?
By Peter Kneller The Spanish solar market has been experiencing some strange goings-on of late, most notably KKR and Munich Re’s investment in Grupo T-Solar’s 168MW Spanish and Italian solar portfolio. The deal – one of the largest investments in an operational solar PV portfolio in the renewable energy sector’s short history - took place against the background of increased regulatory pressure in the country’s solar market. The bulk of installed solar PV
InfraNews Case Study: Multicurrency Programme Sets a Precedent for Infra Investo …
The NOK3.8bn (EUR477.8m) of sterling, dollar and kroner bonds that a venture between UBS International Infrastructure Fund and CDC Infrastructure issued in the second half of June to finance its acquisition of an 8% stake in Gassled has established a template for other recent financial investors in Norway’s offshore gas pipeline company to follow. Further bond issues to provide acquisition finance for shares in the company that ships a quarter
InfraNews Case Study: BAA Broadens its Investor Base with Inaugural US Dollar Bo …
UK airports operator BAA refinanced most of its outstanding medium-term bank debt in June with an inaugural USD1bn bond issue that significantly furthered the company’ strategic plan of broadening its investor base. The BAA funding securitisation vehicle, set up by the Ferrovial-led Airport Development and Investment (ADI) consortium in August 2008 to refinance its GBP10.3bn acquisition of the company two years earlier, has now issued significant volumes of capital markets
More Releases for Europe
Synthetic Biology Market – Europe
Synthetic Biology Market Europe is expected to reach USD XX Billion by 2026 from USD XX Billion in 2016 at a CAGR of XX% (Detailed analysis of the market CAGR is provided in the report). Synthetic biology has expanded into various interdisciplinary fields that may be defined as the combination of artificial design and engineering to produce biological systems, chemicals or living organisms. Synthetic biology is also used for improving applications
Europe Wooden Doors Market
Europe Wooden Doors Market https://www.qandqmarketresearch.com/reports/wooden-doors-market-78 This report studies the Wooden Doorsmarket status and outlook of Europe and major countries, from angles of players, countries, product types and end industries; this report analyzes the top players in Europe and major countries, and splits the Wooden Doors market by product type and applications/end industries. The global Wooden Doors market is valued at XX million USD in 2018 and is expected to reach XX million
Europe Radiotherapy Market
The Europe Radiotherapy Market research report consists of a primary and secondary research along with an in-depth analysis of the quantitative and qualitative aspects by the expert industry analysts and professionals, leading management bodies, to gain a profound insight of the industry as well as the industry performance. The Europe Radiotherapy Market report presents a lucid picture of the current industry landscape, including the historical and projected market size, based
Europe Business Assembly
The Europe Business Assembly (EBA) is an international corporation for the evolution and implementation of economic and social development. The company was established in April 2000 and its history shows a plethora of promising initiatives, creative growth and professional victories. EBA’s activity demonstrates the capabilities and power of professional partnership. The year 2000 saw the beginning and the foundation of EBA with the signing of the memorandum of cooperation and
Smartsourcing in Eastern Europe
In 2008 the outsourcing business of Eastern Europe was estimated at nearly $2 billion, representing just a tiny fraction of the global IT outsourcing market, estimated at about $386 billion. According to the Gartner Dataquest predictions, in the next four years Eastern Europe is expected to outstrip the rest of the offshore market concentrated mainly in the “classical” locations like India. By 2010 Eastern Europe’s IT outsourcing market share is
Home Control conquers Europe
European Home Control Summit attracts participation from leading International companies and organizations 29. February 2008 - Copenhagen/Frankfurt - The first European Wireless Home Control Summit on 9 April 2008, taking place parallel to Light + Building, features leading companies such as Merten, Horstmann, Danfoss, and market researcher Parks Associates as well as publicly funded organizations like the Danish Energy Saving Trust (DEST) presenting the newest trends, products and market strategies pertaining