PPP round-up

NORTH AMERICA

Midway causes upset…

In what may go down as the most significant development for the infrastructure and public-private partnership (PPP; P3) market in 2013 took place in September with the abrupt end of the proposed Chicago Midway International Airport P3.

Chicago Mayor Rahm Emanuel nixed the tender in late procurement after finalist Industry Funds Management (IFM) backed out, negating a competitive bidding process. IFM had bid on Midway Airport with partner Manchester Airports Group (MAG). A team pairing Macquarie Group with Ferrovial was the other remaining challenger for the Midway deal, said to be a 40-year lease worth $2 billion.

The shelved P3 put a damper on enthusiasm surrounding a possible bull market in airport privatisation in the US which had begun building in January with the announcement that Chicago had revived its long-dormant effort to lease Midway. The US has no other comparable airport concession on the horizon. In lieu of Midway, only Gary/Chicago International Airport, a comparatively tiny, currently inactive airfield in Gary, Indiana, is looking for a private partner.

…As does Puerto Rico

Puerto Rico, home to the first-ever airport P3 in America, was also the site of a dropped project. Nuevo Comienzo, or ‘New Beginning’ in English – a 600-bed juvenile correction facility – would have been the first social infrastructure PPP for the unincorporated US territory had it not been cancelled. Puerto Rico, which from 2009 through last year hosted a wave of privatisation involving its Luis Munoz Marin International Airport (LMM) and Puerto Rico Highway 22 (PR-22), is insisting that private investment is still a viable funding mechanism for its infrastructure.

Thank goodness for Long Beach

Despite Midway and Puerto Rico, a gradually improving project pipeline and innovation are helping move deal flow in the US ahead. In California, the Long Beach Courthouse, a project undertaken by greenfield investor Meridiam Infrastructure, opened to the public in September.
The Courthouse was the debut social infrastructure P3 for the US.

Meanwhile, Midwest state Indiana continued procurement on a design, build, finance, operate and maintain (DBFOM) concession involving Interstate 69 (I-69), drafting a bidder shortlist; while Texas unveiled its shortlist for a rare ‘pure’ revenue risk toll road project for State Highway 288 (SH 288).

TIGER roars

With enabling P3 legislation becoming commonplace on a state-level – with Ohio, Pennsylvania, Illinois and Maryland adopting legal frameworks for privatisation – US Department of Transportation (USDOT) Commissioner Anthony Foxx announced $484 million in TIGER (Transportation Investment Generating Economic Recovery) funding. Meanwhile, insolvent Detroit is rumored to be considering large-scale asset monetisation.

Capital rolling in

Infrastructure fundraising in the US and North America has remained strong according to San Francisco-headquartered placement agent Probitas Partners. Capital raising for the first half (H1) of 2013 reached $10.7 billion, exceeding the $9.9 billion recorded in H1 2012, according to Probitas.

Brookfield Asset Management (BAM), a $150 billion alternative asset manager, can stake claim to the most impressive fundraise of 2013: its Brookfield Infrastructure Fund II (BIF II) was last month awarded a $300 million commitment from the New York City Retirement System (NYCRS). BIF II has set a reported $7 billion hard cap. Last year, Global Infrastructure Partners II (GIP II) became the largest-ever infrastructure fund raised, amassing $8.25 billion.

Macquarie Infrastructure Partners III (MIP III), a fund dedicated to the US and Canada, held its first close in September on $1.3 billion – a respectable fundraising for a North America-focused vehicle. Meanwhile, Stonepeak Infrastructure Fund, a debut offering from New York manager Stonepeak Infrastructure Partners, surpassed its $1 billion target size and is expected to reach final close in the fourth quarter.

ASIA & ROW

Bumps in the road

Several of the nation’s largest PPP projects are beginning to run into problems, and the government may struggle to meet its ambitious targets this year.

While the Philippine government and its Public-Private Partnership Centre have been regularly drafting PPP projects in the Philippines, projects already in the market are beginning to encounter some problems. Although the Aquino government has reiterated that it remains committed to the model, there are some methods and processes that the Southeast Asian nation will have to clear up if it wants to roll out more projects.

Last month, after weeks of looking for alternative solutions, the Philippines Department of Communication and Transportation (DOTC) conceded that the bidding round for the PHP60.6 billion (€1 billion; $1.4 billion) LRT Line 1 Cavite Extension PPP failed, and applied for a rebidding.

Although the government department identified four prospective consortia after the pre-bidding process in October 2012, the bidding for the project has been consistently delayed as bidders and government have been unable to agree on certain terms and timing.
Johan G. Martinez, project manager for the LRT1 project at the Philippines PPP Centre, tells Infrastructure Investor that this project – the largest in the country’s lineup – simply had “too many moving parts”.

There was the PPP itself, but then also several components not under the PPP structure that the private sector bidders would have to account for, such as government contributions and obtaining right of way permits for the entire extension.

Back to school

Australian fund manager AMP Capital acquired a 49.99 percent equity interest in the South East Queensland Schools Public-Private Partnership (PPP) from Commonwealth Bank of Australia, which has an enterprise value of more than A$250 million (€169 million; $226 million) overall and a remaining concession period of 26 years.

The PPP involves the design, construction, maintenance and operation of seven new schools accommodating more than 5,790 students in high-growth areas of the Sunshine Coast, Western Corridor, Gold Coast and Redlands.

AMP’s investment comes from its AMP Capital Community Infrastructure Fund, which invests in social infrastructure PPPs in the education, health, justice, defence, community housing, recreational facility and transport sectors. It now has eight concessions in Australia and New Zealand.
According to AMP Capital investment director Julie-Anne Mizzi, the PPP “provides our clients with the opportunity to access stable, long-term, CPI-linked cash flows underwritten by availability-based payments from the Queensland government”.

Mizzi pointed out that AMP now has a portfolio of 24 schools in New South Wales, Queensland and South Australia under PPP arrangements, providing 16,700 spots to primary, secondary, early childhood and special education students.

Try, try again

The PPP model may be out of favour with many investors in the world’s second most populous country, but as far as the Indian government is concerned it is definitely not out. Even after several high-profile bid failures, both state and national governments continue to hand out PPP infrastructure projects in the country and solicit bids for other major projects nationwide.

In mid-August the bidding process for the INR96 billion Mumbai TransHarbour Link road project, one of Mumbai’s largest and most ambitious PPPs, received no bids even after the deadline had been extended twice. Local media reports have suggested that the government is considering doing away with the PPP model for this particular project.

Later in August, one of India’s few social infrastructure projects – a small PPP for a cancer hospital in southern Mumbai – also drew no bids from the private sector. The government body responsible for the project, the Municipal Corporation of Greater Mumbai (BMC), is now revising the tender offer for the hospital, according to local media reports.
But the state of Odisha, India’s ninth-largest province, is attempting to get some momentum behind its PPP programme with the approval of one of its largest projects yet: the INR12.9 billion (€150 million; $198 million) expansion of State Highway No.10 between the cities of Sambalpur and Rourkela.

EUROPE

JLIF to tap market for £240m

London-listed John Laing Infrastructure Fund (JLIF) is getting ready to tap the market for up to £240 million (€285 million; $374 million), it announced in a statement today.
The fundraising is aiming for a minimum of £100 million, with JLIF saying it plans to use proceeds to acquire a portfolio of three operational UK and Canadian public-private partnership (PPP) projects, as well as refinance existing bank debt.

The projects include two hospitals and one education PPP and will be purchased from developer parent John Laing and the John Laing Pension Trust, taking JLIF’s total portfolio to 52 assets. John Laing, which owns a minority stake in JLIF, said it doesn’t plan to participate in the fundraising unless the issue is undersubscribed.

EC clears Barclays/3i deal

The European Commission has given the go-ahead for 3i Group to acquire Barclays Infrastructure Funds Management (BIFM) from UK bank Barclays.
“The Commission concluded that the proposed acquisition would not raise competition concerns given the companies' limited market shares on the markets concerned,” the European body said in a brief statement.
A spokeswoman for 3i, however, said the Commission’s approval is not yet the final step, as “other conditions need to be met before the deal is closed”. She did not specify what those other conditions are.
In late May, 3i made an irrevocable offer for BIFM, which has approximately £780 million (€909 million; $1.2 billion) in infrastructure assets under management and investment teams in London and Paris.
Barclays’ European infrastructure fund management arm is headed by Christopher Elliott – managing director and head of infrastructure investing – together with managing directors Nigel Middleton and Andy Matthews.
The Barclays unit was one of the first fund managers to target PPP deals and raised its first fund in 1996. Since then, it has invested £1.7 billion through six funds in the UK and across Europe in a wide range of sectors including health, education and transport.

Balfour Beatty profit down 70%

Balfour Beatty posted an interim underlying profit of £45 million (€52 million; $70 million) in the first half of this year, the UK-headquartered infrastructure developer and operator reported. This was 70 percent down on the £150 million recorded previously.

The group's UK regional construction unit made an operational loss of £41 million in the first six months of 2013, down from a £59 million profit a year earlier.

The company had issued a profit warning in April, with construction considered a weak area of the UK economy – though there have been some signs of improvement in recent months. A recent Markit/CIPS report found that UK construction activity in July had reached its highest level since June 2010.

Balfour Beatty in January announced a leadership change, naming Andrew McNaughton chief executive. McNaughton replaced Ian Tyler, who became chief executive in 2005.

The company reported that its order book had increased £13.9 billion, up 7 percent on H1 2012. Revenue, however, dropped 3 percent compared with last year.

Its infrastructure investment business posted a pre-tax result of £78 million, driven by £45 million from PPP disposals made in the first half.