$625M for infra deals

Businessworld - A $625-MILLION fund has been launched by four investment firms with the aim of supporting infrastructure deals in the Philippines, including those under the government’s flagship public-private partnership (PPP) program.

The Philippine Investment Alliance for Infrastructure (PINAI) will be bankrolled by state pension fund Government Service Insurance System (GSIS), Dutch pension asset manager Algemene Pensioen Groep (APG), Australian financial services giant Macquarie Group and the Asian Development Bank (ADB).

Macquarie Infrastructure and Real Assets (MIRA) -- a division of the Macquarie Group -- will be the fund manager.


“It’s all systems go for the PINAI and the fund is now open for business,” GSIS President and General Manager Robert G. Vergara said in a press conference yesterday.


The GSIS will be the lead investor, pouring in $400 million, while ADB will add $25 million. The two other firms declined to reveal their contributions.


At an estimated P25 billion, the PINAI was said to be the first and largest private equity fund in the country devoted solely to infrastructure development.


“We aim to finance five to 10 investments with approximately $50-125 million for each project. The fund should be fully deployed within the next three years and given the robust pipeline in the Philippines, we are confident we can deploy it well,” MIRA Asia Senior Managing Director Frank Kwok said.


Among the sectors being eyed by the PINAI are telecommunications, utilities, transportation such as airports, mass transit and toll roads, as well as power -- both traditional and renewable energy, and including generation and distribution.


“These assets deliver suitable risk returns and relatively predictable cash flow lines,” Mr. Kwok said.

The PINAI will initially focus on existing projects that need expansion, rehabilitation or capital recycling, he explained. Later on it will be on the lookout for new projects, especially as the government rolls out big-ticket deals under the PPP program.


As a private equity fund, the PINAI will invest by purchasing shares in the project companies.

“We have no participation limits. We can be the 100% shareholder or the minority shareholder. What is key to us, though, is to hold a significant shareholding so we can help influence and operate the projects,” Mr. Kwok said.


“We are not a passive fund manager. We believe we can be an attractive partner to other firms because they can leverage off our knowledge. We have expertise from the assets we own and operate around the world.”

The ADB estimates that Asia needs to invest approximately $8 trillion in infrastructure from 2010 to 2010 in order to sustain its high growth trajectory.


The government currently shoulders about 70% of infrastructure financing requirements while the private sector accounts for only 20%, ADB Director-General Philip Erquiaga said. Official development assistance (ODA) is responsible for the remaining 10%.


Given budgetary constraints in most Asian countries, it will be difficult to further increase public funding for infrastructure, Mr. Erquiaga said. ODA will likewise be limited given the post-crisis environment.


"The private sector’s share will need to expand to cover the gap in funding needs,” he said.

Under the Philippine Development Plan -- the government’s economic blueprint for 2011 to 2016 -- the country needs $120 billion in infrastructure investment, with $14.3 billion expected to come from the private sector. The PINAI can help bridge this funding gap, Mr. Erquiaga said.


The Philippines, moreover, is one of the most promising countries in the region to establish an infrastructure fund, Mr. Kwok said.


“The economy is performing well but there is still a strong demand for infrastructure. The administration has also formed a clear agenda for the development of infrastructure,” he said.

“Under its framework, investors are certain that projects will happen and that they will operate based on how they are governed by their contracts.”


The fund’s creation is a vote of confidence in the Aquino administration after numerous PPP setbacks last year when it managed to roll out just one deal -- the South Luzon Expressway-Daang Hari link that went to Ayala Corp. -- out of 10 in the pipeline. Economic managers have claimed that a rigorous review of feasibility studies and contracts delayed the process.


Mr. Erquiaga lauded the government for taking its time.


“The success of PPP is often based on an appropriate structuring and tendering process. It cannot be rushed, and it must be transparent, with a sensible distribution of risks,” he said.


“I am gratified that the government has managed its PPP program with prudence.”


Eight PPP projects are scheduled for implementation this year.


The P10.04-billion PPP for School Infrastructure Project is set to be awarded this month. Investors have also been invited to prequalify for the P59.2-billion Light Rail Transit Line 1 Cavite extension and the Ninoy Aquino International Airport Expressway Phase II deals.


GSIS and APG officials said they were eyeing the PINAI for good investment returns, saying infrastructure projects provide the longevity needed by pension funds.


“Strong economic conditions together with favorable population demographics make the Philippines an attractive destination for long-term investors,” APG Director Hans-Martin Aerts said.


The GSIS is still open to investing in other infrastructure funds, Mr. Vergara added.


Still on the table is a plan to pool debt capital from the government financial institutions -- the GSIS, Social Security System, Land Bank of the Philippines and the Development Bank of the Philippines.

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