United Capital PLC · NSENG:UCAP
United Capital — IPFA Presentation (November 2015)
37 slides from United Capital's conference presentation, November 2015
Slide 1: Unlocking Rapid Development of Transport Infrastructure in Nigeria
U N L OC KING R A P I D D E V E L O P MEN T O F TR A N S P ORT I N F R A S TRU CTU RE I N N I G E RIA Industry Overview and PPP Opportunities Wale Shonibare N O V E M B E R 2 0 1 5 Managing Director, Investment Banking United Capital Plc
Slide 2: World Bank quote on infrastructure spend and GDP
“The World Bank estimates that every 1% of government funds spent on physical infrastructure stock leads to an equivalent 1% increase in GDP”
Slide 3: Outline
Outline 1 Background 2 Transport Sectors 3 Financing Needs & Challenges AGENDA 4 Experience from other Countries 5 Key Structuring Issues for Rail in Nigeria 6 Case Studies - Key Success Factors 7 Key Next Steps
Slide 4: Background on Infrastructure
Background Background on Infrastructure The international benchmark for infrastructure stock Infrastructure Stock as a % of GDP as a % of GDP is 70%. Nigeria currently stands at 25% 87% 76% 80% In order to bring Nigeria up to the benchmark by Benchmark 70% 58% 2043, there is need for expenditure
Slide 5: Transport Infrastructure
Background Transport Infrastructure Infrastructure spend requirements over the next 30 years Nigeria’s expenditure on transport infrastructure as at 2013 stood at USD 2.3 Billion. Funding Requirements Transport Sector (USD Billion) Roads 350 This level of expenditure has created a funding gap of
Slide 6: Rail Transport
Rail Trans port Railway The 2015 Global Competitiveness Index of the systems World Economic Forum ranked the quality of encourage Nigeria’s rail infrastructure at 100th out of 144 inter-regional countries. development as population To bridge this gap ~USD 75 Billion is required and over the 30
Slide 7: Road Transport
Road Trans port Nigeria has the largest road network in West Africa and the second largest, south of the Sahara with an estimated 200,000km of road network connecting Freight and Passenger Movements villages to cities. 10% The 2015 Global Competitiveness Index of the World Roads Economic Forum r
Slide 8: Aviation
Aviation Required investments for the aviation sector amounts to ~USD 50 Billion comprising of rehabilitation and remodeling of the eleven (11) airports in Nigeria. The 2015 Global Competitiveness Index of the World Economic Forum ranked the quality of Nigeria’s aviation infrastructure at 121st
Slide 9: Urban Mass Transit
Urban M as s Trans it NIIMP indicates a finance gap of USD 300 million Proposed Lagos State Ferry Service route Mile 12 Ikorodu Ijede Oworonsoki Oke Afa Badore West Festac IBB Iddo Lasu Mile 2 Ebute Ero Marina Satellite Town Olodi Apapa Falomo Bridge Lekki Liverpool West Line Central Line Apape Line
Slide 10: Maritime
M ar i ti me The 2015 Global Competitiveness Index of the World Maritime Sector Contribution to Economic Forum ranked the quality of Nigeria‟s port GDP of Developing Economies infrastructure at 110th out of 144 countries. (2012) Required investments over the 30 year period of the NIIMP amount to
Slide 11: Financing Needs for Transport Infrastructure
F inancing Needs & Challenges Financing Needs for Transport Infrastructure With around 48% expected to come from the private sector, about USD 1.4 trillion will be required over the 30 year Infrastructure spend funding source period. The sources of finance are as follows: ‒ Local project sponsor
Slide 12: Private Sector Financing - Challenges
Pr ivate Sector F inancing - C hallenges Local Project Often inexperienced; lack of credible track record Sponsors International Project Little local knowledge; very risk averse; concerned about transparency Sponsors Short –term focus due to asset liability mismatch; inadequate access to long-
Slide 13: Public Sector Financing - Challenges
Public Sector F inancing - C hallenges Slow implementation of the The National Integrated Infrastructure Master Plan (“NIIMP”) (covering 2014 to National Integrated 2043) envisages a total investment outlay of USD 2.9 trillion to bring Nigeria’s Infrastructure infrastructure stock to the internati
Slide 14: The Domestic NGN Yield Curve
F inancing Needs & Challenges The Domestic NGN Yield Curve Maturity (Years) 0.81 1.85 2.59 4.30 8.38 14.74 18.73 Yield 10.70% 12.74% 13.02% 13.32% 13.41% 15.52% 13.95% Federal Government of Nigeria Yield Curve 16.00 14.00 Yield 12.00 Yield (%) 10.00 8.00 0.81 1.85 2.59 4.30 8.38 14.74 18.73 Years to
Slide 15: Capital Market Solutions
C apital M ar ket Solutions Institutional Investors Cash rich Matching institu ti on a l Long-term I nvestment horizons (USD 78.1 bn) (USD 108 bn) investor s with Relativ ely stable returns Aggregate Nigeria‟s infr astr uctur e pr ojects (USD 23.9 bn) Low risk tolerance infrastructure Pensio
Slide 16: Experience from other Countries
Exper ience f r om other C ountr ies T his se ct ion fo cus es on m ea sur es t aken by ot her count ries to fa ci lit at e in fra st ruct ure development by t he privat e sect or A Legal Framework Appropriate Risk Sources of H Allocation Finance B Infrastructure Project G Development Financing C In
Slide 17: Legal and Regulatory Framework
Exper ience f r om other C ountr ies A Legal and Regulatory Framework S/N Initiative Precedent Clear regulatory framework. A mendment of regulatory framew orks and Japan/ issuance of regulat ions and clarity of procurement requirements is Unit ed Kingdom 1. necessary t o ensure a robust framework t
Slide 18: Sources of Finance
Exper ience f r om other C ountr ies B Sources of Finance S/N Initiative Precedent 1. Infrastructure Banks/Specialised Developm ent Banks. Government Unit ed St ates/ est ablished/supported financial institutions w ith a mandate to fund Malaysia/India- development of infrastructure. It could involve
Slide 19: Government Support
Exper ience f r om other C ountr ies D Government Support S/N Initiative Precedent 1. Federal Government Grants. Provision of grants and credit assistance Unit ed States/ to state and local governments through loans, loan guarant ees and I ndia ( VGF) t ax preferences. Viability Gap Funding: The Ind
Slide 20: Incentives and Initiatives
Exper ience f r om other C ountr ies E Incentives and Initiatives S/N Initiative Precedent 1. Specific tax incentives. South Korea -5% tax rate for dividend income from investments up to a cap, and 14% above the cap. -0% tax rate for VAT for construction services of revertible infrastructure facilit
Slide 21: Project Development
Exper ience f r om other C ountr ies G Project Development S/N Initiative Precedent 1. Encouragem ent of Unsolicited Proposals. Promotion of solicited as w ell as South Korea unsolicited projects in line w ith government infrastructure plans and Japan priorities. Government agencies could be mandate
Slide 22: Project Development (continued)
Exper ience f r om other C ountr ies G Project Development S/N Initiative Precedent 5. Minimum Revenue Guarantee. Provision of operational period subsidy in South Korea the form of minimum revenue guarantees w hich guarantee a portion of projected revenues for a fixed number of years. Alternate stru
Slide 23: Sector Specific Initiatives
Exper ience f r om other C ountr ies F Sector Specific Initiatives S/N Initiative Precedent 1. Highway projects. For selected highway projects, Government provides Malaysia/ subsidy on int erest cost incurred by companies or ext ends soft loans to Chile projects. 2. Road Fund. Establishment of a ded
Slide 24: Heavy Rail – Structuring Options for Nigeria
Heavy Rail –Str uctur ing Options f or Niger ia Main Components of a Rail Business Components Infrastructure Construction of the rail - Track, terminals, signal, control and communication system business include the Infrastructure operations and maintenance rail network Rail - O&M of support s
Slide 25: Heavy Rail – Structuring Options for Nigeria
Heavy Rail – Str uctur ing Options f or Niger ia Public Vertical Horizontal Integration Private Vertical Integration Integration Public Infra Co Service Co Private 1 2 4 Govt. Body Franchise Govt. Body Govt. Body Infra Co. Horizontal Private Vertical (Govt.) Pvt. Service Co. Integration Integration
Slide 26: Heavy Rail – Structuring Options for Nigeria
Heavy Rail – Str uctur ing Options f or Niger ia Financial analysis will Demand Feasibility Report determine whether the Project is Revenue Must be competitive economically viable Tariffs against road or whether subsidies transport costs will be required. A passenger service will Infrastructure ty
Slide 27: Example Cashflow Profile for an Infraco
Exam ple C as hf low Pr of ile f or an I nf r aco AED bn Year – on – Year Cash Flow Profile AED bn Cumulative Cash Flow Profile 4.0 4 3.0 2 Without Grant 2.0 0 1.0 (2) (4) 0.0 (6) -1.0 (8) -2.0 (10) -3.0 (12) -4.0 (14) -5.0 (16) AED bn 3.0 Year – on – Year Cash Flow Profile 10 AED bn Cumulative Cash
Slide 28: Example of Cash Flow Profiles of an Opco
Exam ple of C as h F low Pr of iles of an Opco AED bn Year – on – Year Cash Flow Profile AED bn Cumulative Cash Flow Profile 3.0 35 Without Charge Free Cash Flows 30 Debt Serv ice 2.0 Total Maint. Cost Operating Cost 25 Inv estment 20 1.0 15 10 0.0 5 0 -1.0 2008 2010 2012 2014 2016 2018 20
Slide 29: Global Light Rail
Global L ight Rail Comparison of fare revenues and operating costs, USA (24 States) 2004 120,000 Fare rev enue 100,000 Amount (U S$'000s) Operat ing expenses 80,000 60,000 40,000 % of farebox revenue to operating 20,000 costs (2005) 0 % London Underground 129 Fare Revenue as a percentage of Operatin
Slide 30: Global Light Rail – Key Structuring Issues
Global L ight Rail – Key Str uctur ing I s s ues PROJECT APPROACH COMMENTARY Croydon Tramlink, UK Gov ernment Subsidies Funded via a contribution of government upfront grant and priv ate farebox revenues Specialized Gov ernment Madrid Metro, Spain agencies w ith borrowing Creation of company to
Slide 31: Key Success Factors
Key Succes s F actor s Project realism 10 9 8 7 Bidder 6 Project expertise 5 preparation Legal Regulatory framework environment Strength of financial market 31 31
Slide 32: Key Success Factors
Key Succes s F actor s Strong link between cost and affordability Problem for “prestige” projects Project Realism Unrealistic traffic projections can cause project failure Grants/guarantees can help project financial viability Tolls must be set at the right level Good feasibility studies
Slide 33: Case Studies – Hungary M5
C as e Studies – Hungar y M 5 Project realism 3 Low usage; tolls too expensive Project realism Project 6 Inaccurate traffic forecasts; 9 Preparation local opposition 8 7 Bidder 6 Project 5 expertise 4 preparation Regulatory 5 Brief history of concessions 3 2 environment 1 0 Financial 4 Under
Slide 34: Case Studies – Netherlands High Speed Rail
C as e Studies – Nether lands High Speed Rail Project realism 7 No demand risk transfer, availability-based payment; Project realism 10 Project 7 Complex project; well 9 Preparation promoted 8 7 Project Bidder 6 5 preparatio expertise 4 Regulatory 7 Well established 3 n environment 2 1 0 Finan
Slide 35: Case Studies – Channel Tunnel Rail Link
C as e Studies – C hannel Tunnel Rail L ink Project realism 4 Revenue short fall result ing in renegot iat ion and Project government guarantee realism 10 9 8 7 Project 7 Significant t echnical planning Bidder 6 Project Preparation 5 expertise 4 preparation 3 2 Regulatory 9 Well est ablished 1
Slide 36: Key Next Steps
Key Next Steps Begin Implementation Step 5 Create an Implementation Plan The implementation of this plan w ill begin to Step 4 mov e Nigeria’s transport Determine Optimal infrastructure from Funding Mix A holistic and current state to the level well-thought of of its peers Step 3 plan w ill be Ident
Slide 37: Wale Shonibare, Managing Director – Investment Banking
Wale Shonibare Managing Director – Investment Banking Office: +234-1-280 8669 Mob: + 234-703-414-5045 Email: [email protected]