Today, on the 18th of October, APMG International has organized and conducted an interactive webinar on PPP finance as a part of a series of events titled Level Up. Level Up unites experts from a variety of fields, enabling them to share a wide range of ideas, approaches and resources regarding project preparation and management.
During the 1-hour session, webinar participants were able to pose their questions directly to the panel of 5 experts in the field of PPP, sharing ideas and relevant examples from their experience.
During the first part of the virtual interaction session, PPP experts answered general questions regarding the preparation and implementation of PPP projects. A key factor in the success of any PPP project is the quality of its preparation, evaluation and structuring, including the identification of risk and financial structures (from the perspectives of both private and public partners, including the payment mechanism), other key commercial terms of the PPP contract, as well as a strategy and main characteristics of tender procedures.
During the second part, experts focused on PPP financing: from the general practice of attracting financing from equity and debt capital providers (including the peculiarities of attracting financing from Multilateral Development Banks) to advanced financial instruments used to support long-term infrastructure development (eg, guarantees and other means of improving credit rating).
Additionally, during the webinar, one of the leading instructors of PPP Expertise Eurasia, Serhiy Samolis has presented a 10-minute report “5 most popular questions about PPP finance from CP3P program participants”:
- The difference between sponsors (equity providers) and creditors (debt capital providers) was discussed, including their interests and priorities in PPP projects.
- The lower cost of debt capital compared to equity was substantiated. Serhiy Samolis has also provided examples of how the weighted average cost of capital (WACC) changes when the ratio (share) of debt, the interest rate on loans and the market value of equity vary.
- The definition of a mechanism of PPP project financing called mezzanine was given. It is a debt subordinated to the senior debt, which at the same time has advantages over equity. As a result, the return on the mezzanine is higher than on senior debt but lower than on equity.
- Syndicated lending was examined, including how commercial banks are protected in the A/B lending structure by international financial institutions (IFIs) due to their status of best lenders. Thus, loan A is provided by a multilateral development bank, and loan B is a commercial loan provided by syndicated commercial creditors and indirectly protected by provisions on cross-default.
- Arguments were given on why international financial institutions (IFIs) are vital for the implementation of PPP projects in countries with transition and emerging-market economies. International financial institutions, particularly Multilateral Development Banks (MDBs), finance PPP projects most often in hard currency and on a long-term basis. Typically, they set longer deadlines compared to commercial lenders who cannot offer sufficient duration or amount of project financing structure. The existence of such institutions protects commercial creditors through the A/B loan structure. Aside from this, MDBs can provide guarantees (risk guarantees or partial credit guarantees) or certain political risk guarantees to commercial banks and investors alike.
It is important to note that the support of Multilateral Development Banks in the context of PPPs is multifaceted and includes:
- Support in project identification and selection;
- Support in PPPs’ structuring, acting as government consultants and providing funding to hire advisors to create a more effective PPP structure and project;
- Consulting on regulatory policy to improve public-private partnership legislation.
You can watch the session on Youtube.
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