‘Big three’ ready final offers for €3bn French HSR

French rail agency RFF is expecting final offers for the €3 billion Bretagne Pays de la Loire (BPL) high-speed rail line – connecting Connerre, in eastern France, to Rennes, in the centre of the country – by October 13.

Consortia led by France’s three largest infrastructure groups – Bouygues, Eiffage and VINCI – have been in competitive dialogue with RFF since late April and are now required to submit their final offers for the 182-kilometre railway line.

However, an extension of the French government’s debt guarantee – which can cover up to 80 percent of the commercial debt used to fund public-private partnership (PPP) projects – beyond its original closing date of December 31 2010 is likely to be crucial for the project to reach financial close, as a source close to the deal suggested BPL is unlikely to close this year.

Originally, projects eligible for the government’s debt guarantee were required to reach financial close by the end of this year. But after the authorities concluded that most of its multi-billion euro PPP pipeline is unlikely to meet that deadline, it started mulling an extension.

As such, a proposal is due to be sent to the French legislature in October calling for projects that are deemed eligible for the debt guarantee by November 1 to be allowed to reach financial close after December 31, paving the way for deals like BPL to reach financial close during 2011. The government deemed BPL eligible for the guarantee in late October 2009.

The guarantee is able to cover about €800 million of the roughly €1 billion required from the private sector to fund the project. For BPL, it will only cover the construction period (although it can also cover the ramp-up period and the first refinancing risk) and will add between 120 basis points and 150 basis points to the final price.

In addition to private sector funding, BPL will receive €1 billion from the central government to cover the availability payments required over the length of the 25-year contract and the same amount from the regional authorities as an upfront payment. Availability payments are public payments to the private sector in exchange for making the asset available in good condition.

State-backed bank Caisse des Dépôts (CDC) will also have a prominent role in BPL’s funding, having already pledged to lend €500 million to the regional authorities under favourable conditions to help fund their upfront contribution. The bank can also mobilise its savings funds – Fonds d’Epargne – to help finance up to 25 percent of the project cost post-construction.

A consortium of VINCI, AXA Private Equity and CDC have started negotiations to reach financial close for the €7.8 billion Tours-Bordeaux railway line in what is likely to be the only French high-speed rail deal to close this year.