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Project bonds: Their growing role in global infrastructure finance

With a global shortfall in investments for essential projects estimated to exceed US$1 trillion annually, project bonds have gone mainstream and become an increasingly popular financing option for sponsors in a growing number of markets.

The global infrastructure gap is growing

There is nothing new in capital markets being used to finance infrastructure.  Over the last 20 years, many governments have been successful in developing PPPs and other structures to attract private capital to their infrastructure investment programs.

Even where there is no shortage of public money, the public sector has turned to equity and debt markets to diversify funding, meet regulatory demands, improve efficiency or simply tap into private sector expertise.

This time, however, things are different.  On the one hand, although bank lenders to infrastructure projects are still very much a key part of the market, banks still face considerable regulatory uncertainty.  On the other hand, the shortfall in investment for essential infrastructure projects around the world is estimated by the World Economic Forum (WEF) to exceed US$1 trillion annually.  International concern is escalating, and the G20, WEF and IMF have pushed infrastructure improvement to the very top of the strategic agenda.  And as public finances remain stretched following the financial crisis, there is an urgent need for new sources of funds to help narrow the gap.

In this update, we examine the increasing use of project bonds in a selection of diverse regions and infrastructure markets.  And, helped by the input of prominent investors, bankers and sponsors, we plot the global rise in non-bank debt in greenfield and brownfield projects.

‘Infrastructure’ is a fluid concept but describes the physical and social systems essential to the world’s populations and enterprises.  In this report, we have taken an expansive view, but have concentrated on single-asset projects, as opposed to well-established infrastructure-owning corporates.

Our sincere thanks go to the following clients and friends for their invaluable input:

• Charlie Seymour, Abu Dhabi Water and Electricity Authority
• Cedric Mbeng Mezui, African Development Bank
• Deborah Zurkow, Allianz Global Investors
• Sergio Monaro, HSBC
• Massimo Fiorentino and Matthieu Mazumdar, Meridiam

We hope you enjoy reading this paper, and we would welcome the opportunity to discuss the matters with you in greater depth.


Investor attractions in infrastructure
Project bonds offer long-term investors attractive yields and significant credit spreads.

Developments in Europe: A blueprint for credit enhancement?
In Europe, bondholders have been responsible for 100 percent of senior debt on several prominent infrastructure deals and have shown themselves to be comfortable with construction risk.

Project bond progress in the United States
In the United States, bank lending and private activity bonds (PABs) provide the mainstay of transport infrastructure debt financing.

Africa: The origins of a project bond framework
The African Development Bank (AfDB) is championing project bonds as a solution to Africa's daunting investment shortfall and prioritizing the implementation of a framework to help governments approach investors.

Latin America update: New frameworks and new opportunities
Chile, Peru and Colombia stand out for their market-friendly, ambitious PPP programs, while projects in Brazil offer secure and stable cash flows.

Middle East case study: Learning from Abu Dhabi's debut project bond
The Middle East is another high-growth region with pressing infrastructure needs, and the way in which public projects are financed is evolving rapidly.


To read the full report please click here.


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© 2015 White & Case LLP