Higher capital requirements resulting from the financial crisis have simultaneously decreased banks’ appetite for relatively illiquid infrastructure assets, so much so that mini-perm (interim financing) structures for PPPs are becoming more popular, as the Freeport LNG deal also exemplifies. Banks’ increased liquidity also means the volume of loans relative to bonds is growing. “The terms of the loans are competitive, whereas a few years back the debt market was the only source of financing, at least for the highest-quality projects,” says BBVA’s Milans del Bosch.
Finally, the Freeport LNG expansion was driven by high energy prices and the shale gas boom in the US. Now that crude has been tumbling, the outlook is less clear. “The impact on capital expenditure budgets of oil and gas companies, and to what extent this postpones or derails existing projects, depends on how sustained the oil decline is,” says Paul Clifford, regional head of project and export finance for the Americas at Standard Chartered. The Lavaca Bay LNG terminal in Texas was put on hold at the end of 2014.
Where could the next impetus come from? “There is a lot more privatization that can happen,” says Dinham. “In Australia, for example, the federal government is keen to promote it across sectors and states, and in the EU there is pressure on countries to balance their budgets through privatization.” The plan by the European Commission to leverage public funds and guarantees to spur investment could also help. Last year Société Générale and Crédit Agricole CIB were joint lead arrangers in the deal for the enhancement of the A7 Motorway in Germany, the country’s largest PPP project and the first of its kind, as the European Investment Bank is providing part of the financing. According to SocGen’s Stas de Richelle, this could be a sign of things to come. “Benefiting from EIB guarantees, the deal combined bank debt with bond issuance with institutional investment,” he says. “It’s a groundbreaking structure that we will see much more of.”
Another impulse comes from new markets such as Turkey. BBVA, alongside other commercial banks and multilateral institutions, recently financed the first PPP in Turkey, a hospital in the southern city of Adana. But some countries—including Turkey—might not always be accessible for Western banks, as their domestic counterparts have an edge in terms of local knowledge and more leeway doing deals that don’t comply with environmental and social standards, like the Equator Principles, that European banks are bound by. However, recently French banks like Société Générale, BNP Paribas and Crédit Agricole have regained a place near the top.