PPP Asia 2009 - A brilliant conference!

By Nick Crawley on August 25 2009

PPP Asia 2009 was a fantastic success.

The location for the Singapore event was, Royal Plaza on Scott was a great training location, upmarket but well positioned for companies with a close eye on costs. The marketing, by LexisNexis, of the two day event was intelligent and drew a great audience from the Asia Pacific region along with a good line up of speakers.

Speakers, Peter Hicks, of Leightons Contractors, discussed the Australasian infrastructure market and how PPP / PFI transactions fit into Leightons plans.

Other very well qualified speakers included Sharad Somani, Executive Director of KPMG’s Asian Infrastructure practice summarised the PPP landscape in the current market from his own perspective. Agreeing with the widely accepted view that the PPP risk allocation structure has huge potential for success in the Asian market, Sharad went onto discuss the challenges that now face these projects with margins tripling. I commented as part of the Q&A process that

“although margins are up significantly base rates are also down so that the overall cost of debt is about the same as it used to be and that these risks can be hedged - so it is liquidity or pricing that is causing the real problem.”

Sharad responded quite correctly that although liquidity is an obvious issue that pricing is more important than you might think because although the base rates are indeed low, these are predicted to be increasing whilst entering into a loan position now also takes on long term margin obligations so the overall cost of debt would be forecast to rise significantly and with no security that a refinancing would be succesful a borrower is leaving themselves exposed to significantly increased borrowing costs.

Government to take more responsibility

Some solutions to this were discussed by the floor and other speakers that maybe the role of government is to step in and underwrite the risk of refinancing which has been seen in a number of projects in the Australasian PPP and general PF market. Compared to tradition this is a radical approach but actually seems quite sensible when the majority of the assets are important for regional economic growth being transport infrastructure, social and civil building, schools, hospitals and assets that the government should be helping ‘get across the line’. More immediate solutions include blunter instruments such as tax breaks and special concessions / capital allowances.

Other speakers

Other speakers, including Gary Swinfield of Marsh (inc Mercer) and Ed Doherty of Gammon Capital (winners of the ITE College West PPP in Singapore) also covered some important messages on the successful features of a PPP project which for many of the attendees (new to the PPP / PFI sector) was really useful core information on the challenges facing their companies. Generally, these features are: