Description
Learn how debt and equity can be used to finance infrastructure investments and how investors approach infrastructure investments!
According to the OECD, the global infrastructure investment requirement by 2030 for transport, electricity generation, transmission & distribution, and water & telecommunications totals to 71 trillion dollars. This figure represents about 3.5% of the annual World GDP from 2007 to 2030.
The European Commission estimated, that by 2020, Europe will need between 1.5 – 2 trillion Euros in infrastructure investments. Between 2011 and 2020, about 500 billion Euros will be required for the implementation of the Trans-European Transport Network (TEN-T) program, 400 billion Euros for Energy distribution networks and smart grids, 200 billion Euros on Energy transmission networks and storage, and 500 billion Euros for the upgrade and construction of new power plants. An additional 38 – 58 billion Euros and 181 – 268 billion Euros in capital investment will be needed to achieve the targets set by the European Commission for broadband diffusion.
Traditionally investments in infrastructure were financed using public sources. However, severe budget constraints and inefficient management of infrastructure by public entities have led to an increased involvement of private investors in the business.
The course focuses on how private investors approach infrastructure projects from the standpoint of equity, debt, and hybrid instruments.
The course concentrates on the practical aspects of project finance: the most frequently used financial techniques for infrastructure investments. The repeated use of real life examples and case studies will allow students to link the theoretical background to actual business practices.
In the end of the course, students will be capable of analyzing a complex transaction, identifying the key elements of a deal, and suggesting proper solutions for deal structuring from a financial advisor’s perspective.
Course Format
The course will consist of lecture videos, readings, and talks given by guest speakers. Although we do hope you will attend the entire course, it is possible to just focus on single topics.
Suggested Readings
The course is designed to be self-contained, there are no obligatory readings that must be acquired outside of the course.
For students interested in additional study material, you may refer to:
• Gatti Stefano, “Project Finance in theory and practice”, Academic Press, 2nd edition, 2012.
What you will learn
Project Finance and the Network of Contracts
Module 1 explores the nature of project finance as a nexus of contracts. We will analyze the nature of the SPV (Special Purpose Vehicle) as an empty shell and the key contracts surrounding it (project contracts and financial contracts).
Syndicate
Module 2 analyzes the relationship between the SPV and its lenders. We will start from the introduction of what a syndicate is looking at the different roles performed by banks in a syndicate and the options available to organize such a syndicate. We will also look at the cost paid by the SPV for the organization of the financing and reflect on how the recent financial crisis has reshaped the syndicated loans market.
Risk Analysis
Module 3 introduces the topic of risk in infrastructure financing. We will introduce a possible risk taxonomy (pre-, post-, and both pre- and post-completion risks) useful for analyzing risk as a preliminary step for its allocation to the parties best able to manage and control risk. Our final learning outcome will be the preparation of a risk matrix for an infrastructure project.
Capital Budgeting
Module 4 introduces capital budgeting of infrastructure deals. Firstly, we will present the key elements making up the budget of the construction phase and the sources of finance used for the construction of said infrastructure. We will then move on with the analysis of the budgeting of the operational phase pointing our attention to the sources and uses of funds. Special care will be given to the analysis of the system of reserve accounts of the SPV.
