Government to the rescue

By the time this issue of Infrastructure Investor lands on your desk it is highly probable that all the financial close documentation for two Russian pathfinder road public-private partnerships (PPPs) has been signed, or is very close to doing so.

Putin: throwing
weight behind

Thanks to an innovative move from the Russian government to guarantee bonds issued by infrastructure project companies, both ruble-denominated deals will tap the local capital markets for a significant amount of their funding.

The idea to guarantee these infrastructure bonds came after the winning teams told the government the projects were unlikely to reach financial close with bank debt alone. So the federal government – in a first for Russia – decided to throw its weight behind the PPPs, guaranteeing bond issues amounting to no more than 50 percent of a project’s cost for 20 years.

For the smaller of the two roads – the $750 million Odintsovo Bypass, linking Moscow’s city centre to the existing Moscow-Minsk highway – there will be one bond issue of roughly $282 million. With $379 million coming from the federal budget, that leaves about $89 million to be footed by the consortium – led by local investment firm Leader and European developers FCC, Brisa and Alpine –  and commercial banks.

The larger, 43-kilometre first stretch of the Moscow-St. Petersburg highway, awarded to a VINCI-led team, will have its capex financed by a 20-year, $1.1 billion loan from Russia’s largest bank, OAO Sberbank. But bond financing will also play a part in funding the deal.

 In a recent Q&A session with Prime Minister Vladimir Putin, the bank’s chief executive, German Gref, said some $342 million in state-guaranteed infrastructure bonds would be issued for the project. However, he did not clarify if proceeds from the bond issue would form part of the bank’s loan or if it the bond issue would raise money in addition to it. The project’s total cost is $2.1 billion with $787 million coming from the federal budget.

What is clear, though, is that the local debt markets ended up being instrumental in helping these projects reach financial close after two years in procurement and severe difficulties in courting the international bank market. A sign of deals to come?