Russia’s €1.1bn Pulkovo Airport PPP reaches financial close

It is the third PPP to reach financial close in Russia this week, though it was the first one to do so without government debt guarantees. The IFC and a group of several other development institutions committed about €715m in debt financing.

The €1.1 billion Pulkovo Airport modernisation project in St. Petersburg has reached financial close, marking the third public-private partnership to receive financing this week.

Earlier in the week, the $2.1 billion Moscow-St. Petersburg highway and the $850m Odintsovo bypass became the first and second road public-private partnerships (PPPs) to reach financial close, respectivley.

“In Russia, this is a really, really big deal to get these things going,” Bernard Sheahan, the head of the International Finance Corporation’s Infrastructure Department, said in an interview. The IFC, the private investment arm of the World Bank Group, is lending €70 million of its own funds to the project.

“The Russians have had an issue now for quite some time, it’s been getting sharper over the last few years, which is how do they diversify their economy?” he added, saying that PPPs are going to be crucial toward helping Russia achieve that diversification goal. “They need hundreds of these PPPs all across the country in one form or another.”

Unlike the two road PPPs, though, the Pulkovo Airport project did not rely on debt guarantees from the Russian government to secure the financing.

“To a large extent, it's probably the first true PPP in Russia,” said Oleg Pankratov, the head of the infrastructure group at Russian investment bank VTB Capital, one of the members of the winning consortium for the project. “It's the first one that closed without the government's support.”

The project’s $1.1 billion price tag will be met through a €715 million loan financing package provided by development institutions and private commercial banks and the remainder in equity.

The loan financing will come from the IFC (€70 million), the European Bank for Reconstruction and Development (€100 million), the Nordic Investment Bank (€50 million), the Eurasian Development Bank ($92 million), the Black Sea Trade and Development Bank ($25 million) and Vneshekonombank, Russia’s state-owned development bank (R10 billion), according to the IFC.

Additionally, the IFC and the European Bank for Reconstruction and Development will syndicate another €190 million of debt to a group of international commercial banks, according to a statement.

The equity sponsors for the project include the Northern Capital Gateway, a consortium comprising VTB Capital, Fraport, the owner and operator of Frankfurt Airport, and Horizon Air investments.
VTB's Pankratov said a “substantial amount” of the equity will come from the Northern Capital Gateway consortium members, while the remainder will be funded by the cashflows from the ongoing opearation of the airport.

The consortium a given a 30-year concession on the airport’s existing facilities and will fund major expansion activities such as the construction of a new passenger terminal and modernisation of the airport’s existing facilities. They took over the operations of the airport on 29 April, immediately installing a new management team.

The objective is to turn the airport into a major transport hub for St. Petersburg, one of the most populous regions in Russia.

Asked whether the project’s financial close bodes well for the Russian PPP market as a whole, IFC's Sheahan said he’s “alternatively optimistic and pessimistic” about its prospects. But he added, “we’re much more optimistic than we were 24 hours ago.”