VEB to buy majority of bonds for Russian road PPP

The Russian development bank says it will buy back up to 70% of a planned $340m bond issue to help fund the Moscow-St. Petersburg highway – the first Russian road PPP to reach financial close. It also said it will continue negotiations to get the EBRD on board the project.

Russian development bank Vnesheconombank (VEB) has said it is willing to buy back up to 70 percent of a RUB10 billion (€258 million; $340 million) bond issue to help fund the initial stretch of the Moscow-St. Petersburg highway.

The project became Russia’s first road public-private partnership (PPP) to reach financial close earlier this week. It will run over 43 kilometres and aims to alleviate congestion on the existing M10 link between Sheremetyevo International Airport, Moscow’s main airport, and the city centre. Another road – the $850 million Odintsovo bypass – swiftly followed it to reach financial close yesterday.

As previously reported on, the Russian government’s decision to guarantee infrastructure bonds issued by concessionaires became instrumental in helping these projects reach financial close – after the winning teams told the government the projects were unlikely to close with bank debt alone.

But state-backed VEB’s recent announcement shows the government has gone further to ensure that its guaranteed bond issue for the Moscow-St. Petersburg PPP is successful.

Troika Dialog, an adviser on the project, said in an earlier statement that the bond will mature in 20 years and will be linked to inflation, “thus making the financial instrument extremely attractive for long-term investors such as pension funds and insurance companies”. It added that the issue “may be considered the first cry of the newborn infrastructure bond market”.

In addition to buying back the future bond issue, VEB will finance half of a RUB33.5 billion bank loan provided together with Sberbank, Russia’s largest bank. That loan breaks down into just over RUB29 billion in senior debt – with a 20-year maturity – and a RUB4.5 billion VAT facility. The federal budget will provide around RUB23 billion for the project.

That covers RUB66.5 billion of the financing for the road, which is now reported to cost around RUB70 billion up from an estimated RUB60 billion last July, according to the Moscow Times. The remaining RUB3.5 billion could come from the VINCI-led consortium’s balance sheet, which was awarded the project last year.

In the meantime, VEB said in a statement that it will continue negotiations with the European Bank for Reconstruction and Development (EBRD) in the hope of getting the bank to fund the project.

The EBRD signed a memorandum of understanding last year in which it contemplated lending up to €400 million for the road deal. But a spokesman from the bank told the Moscow Times that “we are still studying various aspects of the project” before making a decision, expected in October.