To Russia with love
International firms have shown support to Russia’s new pipeline of transport PPPs despite the uncertainty. Local bank VTB is in line to pick up the first two but other sources of rouble financing will be needed. By Colin Leopold
Preferred bidders have been identified on two of Russia’s largest transport PPPs – the US$1.7bn Lena bridge in the Far East and the US$2.3bn project for Sections 7 and 8 of the M11 Moscow–St Petersburg.
A consortium comprising VTB Bank, USK, Bamstroymekhanizatsia andInstitute Stroyproekt has been awarded the concession for the bridge over the River Lena in Yakutsk with a bid of Rbs38.9bn (US$1.1bn) for the construction. It is understood that VTB in partnership with Vinci has emerged as lead contender for the M11 project.
The results on the M11 following the bid envelopes being opened were as follows: Avtodorozhnaya Construction Corporation, comprising Sacyr, Autobahn Construction and Khanty-MansiyskDorstroy, bid a capital grant Rbs61.928m for 2015–2017 including VAT; an operating payment of Rbs33.455m including VAT for the entire concession period; and an investment payment of Rbs62.076m (VAT-exempt) for the entire period.
The Highway Two Capitals consortium, comprising VTB Capital and Vinci Concessions Services Russia, bid a capital grant of Rbs57.601m for 2015–2017 including VAT; an operating payment of Rbs33.429m including VAT for the entire concession period; and an investment payment of Rbs59.416m (VAT-exempt) for the entire period.
The third consortium, comprising the Russian Direct Investment Fund, Gazprombank and the Macquarie Russia & CIS Infrastructure Fund, bid a capital grant Rbs61.690m for 2015–2017 including VAT; an operating payment of Rbs34.980m including VAT for the entire concession period; and an investment payment of Rbs53.980m (VAT-exempt) for the entire period.
The losing bidders on Lena bridge included Chinese Railway Construction Company backed by the State Development Bank of China.
The role of international bidders on both projects is interesting given the recent Ukraine stand-off and the resulting economic sanctions against the Russian government. Letters of support were provided to VTB on the Lena bridge by both the EBRD and the IFC, as well as Vinci, among others. Although the EBRD refused to clarify its position last week following the announcement, it is likely that it might seek to distance itself from the project. Russian banks and advisers are fine with this – the presence of international banks is not crucial to the financing of either project.
“International banks normally put in an insignificant part of the financing. Russian banks are more powerful and they have resources, but I think once more foreign investors are coming then banks will follow,” said Olga Revzina, a lawyer at Herbert Smith Freehills. “The most important thing [for international banks] is to have a pipeline of projects and this is growing. If we look to the international participants in the M11 tender [Vinci, Sacyr, Macquarie Infrastructure Fund], we can understand that the interest of the foreign investors is growing since the tenders in Russia have started to become more transparent.”
Russia’s pipeline of transport PPPs is certainly growing. Bids for are due for the “12-tonne truck” toll collection system on May 15. It has capex of about US$800m and a requirement of the tender is the presence of an international firm in each team with experience of tolling. This has led to the pre-qualification of firms including Vinci, Austria’s Kapsch and Skytel.
Last month, Moscow’s state government, advised by PwC, tendered a four-lane bypass, its first proper toll concession – bids are due on May 16 and the project has capex of about US$1.1bn. Then there is the postponed US$1.5bn first section of Moscow’s Central Ring Road, a 49km tolled stretch. Bids are due this Friday with about Rbs6.8bn required from private investors.
Given concerns in the market over the reliability of traffic projections, every project bar the Moscow bypass is availability-based, which should provide some assurance to bidders. The debt requirement compared with European levels is also lower – on federal projects granted by highways agency Avtodor, the government typically provides 75% of the financing with the remainder coming from private funds. Although international banks provided quotes to VTB for both the M11 stretch and the Lena bridge, both projects are now expected to be syndicated to local funders.
“The government is keen to have the availability payments in roubles so that means financing in roubles, and that leaves you with the three largest Russian banks and the pension funds,” said a source close to both projects. “The EBRD and IFC have access to roubles, as does UniCredit, and the Japanese too. It is possible you will see some international money. The pricing is an issue but that is not related to the risk premium; it is related to the availability of roubles. Getting roubles at certain times is not easy.”
Indeed, getting large rouble commitments all at the same time, when these transport PPPs are due to close and there is talk of more (Sections 2 and 3 of the M11 and the M1 for example), could be very tricky. But for the time being the bigger concern in the market is the imminent tender for the country’s first high-speed rail concession between Moscow and Kazan, which could swallow up all the liquidity in sight.
A roadshow held in Moscow at the start of March was attended by150 companies including Siemens, Alstom, Hyundai,Mitsubishi, Vinci, Bombardier, Vossloh and Bouygues. Banks present included UBS, Deutsche Bank, the Eurasian Development Bank, the EBRD and all the Russian banks. Total capex for the project is now put at more than US$27bn and of four segments, three will be bid out as private concessions. About 30% of the total cost will be provided by the state, with the same coming jointly from Russian Railways, the Pension Fund and the National Welfare Fund. This means private firms will provide a quarter of the overall financing with a further 14% provided through state-guaranteed loans.
Construction of the line is due by 2018, so initial soundings on the US$7bn private debt requirement should start this year. If international bidders eyeing the project don’t have their banks with them, the amount of roubles flowing around the economy will surely be a concern for everyone.