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MAKING FINANCE WORK FOR INFRASTRUTURE What Options Exist ...

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MAKING FINANCE WORK FOR INFRASTRUTURE What Options Exist ...

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    1. MAKING FINANCE WORK FOR INFRASTRUTURE What Options Exist For Institutional Investors To Invest In Infrastructure Projects? BY DR. (MRS) CECILIA IBRU MD/CEO OCEANIC BANK INTERNATIONAL PLC AT Africa investor project summit 7Th – 8th November 2007 THE CIVIC CENTRE, VICTORIA ISLAND, LAGOS

    4. Most developing and developed economies face a similar challenges: rapidly growing demand for roads, power, and telecommunications, but significantly insufficient public funds. Closing infrastructure gap (by implementing a well- infrastructure privatization and investment program) can be a critical catalyst for economic development. providing highly attractive investment opportunities for both foreign and domestic corporations. Introduction

    5. INSTITUTIONAL INVESTORS & INFRASTRUCTURE

    6. Institutional Investors Who is an institutional investor? An institutional investor is an investor, such as a bank, insurance company, pension fund, hedge fund, or mutual fund, that is financially sophisticated and makes large investments, often held in very large portfolios of investments.

    7. Infrastructure Categories This comprises three categories: Transport, Energy & Utilities, and Communications. i. Transportation infrastructure - includes roads, bridges, tunnels, airports, rail systems, seaports, cargo and logistics centres, and urban mass transit. ii. The energy & utilities use infrastructure - includes electricity generation and distribution, gas storage and distribution, water supply and waste-water treatment, and renewable (clean) energy. iii. communication infrastructure – includes cable networks, cell towers, Wi-Fi, satellites, radio, TV and other systems.

    8. POTENTIAL IN THE NIGERIA INFRASTRUCTURE MARKET

    9. Potential in the Nigerian Infrastructure Market Fast Growing Financial Sector: - Well-developed banking and financial sector. - Investors has easy access to working capital and other credit facilities. Abundant Resources: - Tremendous resources (mineral, agricultural and human), - Most of which are yet to be fully exploited. Large Market: - Population of about 140 million people. - with potential stretching into the growing West African sub- region (i.e. only 33% GSM penetration rate) Political Stability: - Stable political environment. Free Market Economy: - Favorable climate for business and industrial ventures. - Greatly streamlined Administrative and bureaucratic procedures for doing business - Ranking on the ease of doing business (Nigeria ranks 108 out of 178 countries surveyed.

    10. Potential in the Nigerian Infrastructure Market Robust Private Sector: - Dynamic private sector, - Assured greater responsibilities under the new economic environment. Free Flow of Investment: - Liberalized exchange control regulations - Unrestricted movement of investment capital. Attractive Incentives: - Comprehensive package of incentives to attract investment. Skilled and Low Cost Labour: - Abundance of skilled labour at an economic cost - Lowest Production costs in Africa.

    11. INFRASTRUCTURE INVESTMENT OPTIONS

    12. Infrastructure Investment Options Public-Private-Partnership (PPP) Funding or operating public service or private venture through a partnership of government, and the private sector. PPP Typology Build-own-operate (BOO) Build-develop-operate (BDO) Design-construct-manage-finance (DCMF) Buy-build-operate (BBO) Lease-develop-operate (LDO) Wrap-around addition (WAA) Build-operate-transfer (BOT) Build-own-operate-transfer (BOOT) Build-rent-own-transfer (BROT) Build-transfer-operate (BTO)

    13. Infrastructure Investment Options Project-based Debt Financing The financing of a long-term infrastructure or an industrial project through debt which is repaid using the cash flow generated by the operation of the project. In form of concessions to the private sector to build and operate infrastructure assets. Asset-based debt financing on the other hand may be in form of concessions to the private sector to operate infrastructure assets.

    14. Privatization can be through three forms namely: - share issue, - asset sale and - voucher privatization. Steps: 1. selling the shares of public infrastructure or firm on the stock market to the private investors. 2. selling the entire or part of the public assets to a strategic investor usually by auction Infrastructure Investment Options

    15. OCEANIC BANKS CONTRIBUTION TO INFRASTRUCTURAL DEVELOPMENT

    16. Oceanic Bank’s Involvement Regardless of the identified challenges that hinder Nigerian Institutions from investing in infrastructural development, Oceanic Bank International, in line with its commitment to building a stronger Nigeria, has contributed immensely to this noble course.

    17. Airport Infrastructure Development In the light of the importance of an airport in the socio-economic life of the country Oceanic Bank decided to partner with Bi-Courtney Ltd when the company was granted concession to develop and modernize the Murtala Muhammad Airport (MMA) Terminal 2 on a BOT basis The massive project was funded from the onset by Oceanic with a total of =N=12Billion The objective is to redevelop the airport and bring it to a world class standard with all modern gadgets and facilities that are comparable to any airport in the world

    18. Oceanic Bank’s Involvement Giving that the project is long-term, the company decided to restructure its indebtedness to Oceanic Bank by inviting other Banks. This gave rise to the =N=20Billion syndication medium term facility with five other participating banks. This project has bequeathed to Nigerians a befitting edifice that will eventually serve as the hub of business in Africa Oceanic Bank is a significant player in the Nigeria’s Aviation Industry and would continue to expand this business in the sector over the coming years.

    19. Port and Maritime Infrastructure Development ENL Consortium Ltd: Oceanic Bank provided facility for payment for the terminal D and C at Apapa port Vigeo Limited: Oceanic Bank International Plc provided credit facility worth $14.5 million to Vigeo Limited to acquire a state of the art anchor handler vessel from Farstad Shipping of Norway. The first time a Nigerian company was owing a vessel of such capacity. This is one of the five vessels Oceanic Bank has made plans to finance These efforts are targeted at encouraging active participation of Nigerian companies in oil and gas activities

    20. Industrial Park Development Partnership with some State Government (for example Delta State, Osun state & Federal Capital Territory) in the development of Industrial parks. Memorandum of Understanding have been executed and Special purpose vehicles are about to be set up. Plans are on top gear in Lagos to warehouse major SME industrial parks in Lagos Some projects already scheduled to relocate to the Industrial Park located in Idi-Iroko area of Lagos include Psidochem (into Production of Plumbing Materials), Adostino Industies (into production of Tissue paper), Rikky Rabit (Processing of portable water)

    21. CHALLENGES OF INFRASTRUCTUE INVESTMENTS

    22. Challenges of Infrastructure Investments Power Government plans to upgrade the country’s infrastructure, especially with regard to energy supply. Nigeria’s insufficient energy supply is to be expanded from 2,000 megawatts to 30,000 megawatts in 2011 Lack of talent and experience The number of professionals with the appropriate level of institutional investment experience in sourcing, structuring, and transacting complex infrastructure deals is limited.

    23. Lack of robust data, market less mature, market inefficiencies Infrastructure, as an investment option, is still in its infancy; as such investors are subject to the risks associated with investing in any newly emerging asset class. Liquidity these assets are of very long duration, are of a significant size, and are more illiquid than real estate. Challenges of Infrastructure Investments

    24. Leverage the often predictable cash flows of these types of assets allow for higher levels of debt, which typically can be anywhere from 50-90% per asset. While leverage can potentially enhance returns, particularly when interest rates are low, it also increases the sensitivity of an asset’s return to interest rates. Additionally, hedging protection rarely extends for the life of the lease or asset. Challenges of Infrastructure Investments

    25. RECOMMENDATIONS

    26. Recommendations Government should: Develop policy and legal framework for private public partnership (PPP) in regional infrastructure Formulate policy framework that supports PPP in the development and financing of clean energy Communicate clearly the objectives of infrastructure policies and put in place mechanism for consultations between public and private partners

    27. Recommendations Government should: Ensure adequate consultation with end-users and other stakeholders including prior to the initiation of an infrastructure project Simplify tax procedure, reduce excess tax rate for large firms and foreign investors Reduce Regulatory burdens and institute business friendly regulations

    28. CONCLUSION

    29. Conclusion Nigeria’s public infrastructure market offers a very attractive investment channel for the innovative and ingenious international and local investors to stake their funds.

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