Directory of Innovative Financing: Multicountry

Multicountry

Project Title: Fiberoptic Link Around the Globe (FLAG)

Project Title: Global Power Investments

Project Title: Asia Infrastructure Fund

Project Title: AIG-GE Capital Latin American Infrastructure Fund

Project Title: AIG Asian Infrastructure Fund

Project Title: Fiberoptic Link Around the Globe (FLAG)

Other: Undersea cable landing in 12 countries and passing through 23 political jurisdictions between the UK and Japan.

Project Cost: Approximately $1.6 billion

Sector: Telecommunications

Status: Closed July, 1995

Sponsors/Lead Manager: International consortium of five companies led by NYNEX of the U.S. (41% equity interest), along with Dallah Albaraka Group of Saudi Arabia, Marubeni Corp. of Japan, Telecom Holdings of Thailand, and the Asian Infrastructure Fund of Hong Kong; CS First Boston structured the transaction and arranged financing.

Purchaser: National telecom operating companies in Asia, the Middle East and Europe.

Financing Package: $350 million in sponsor equity; $100 million preferred stock led by General Electric Capital Corp.; $165 million of common equity to be raised from new strategic and financial investors; $950 million in limited recourse commercial debt with the following political risk and export credit coverage: 1)$500 million syndicated tranche at 5 years and 150 bp over LIBOR underwritten by Barclays de Zoete Wedd and Canadian Imperial Bank of Commerce with full export credit and political risk insurance coverage from US EXIM; 2) identically structured $450 million-equivalent loan underwritten by Marubeni that is to be syndicated among Japanese banks with full MITI coverage.

Innovation: FLAG represents the first privately financed for-profit submarine cable of its kind, and the first time a project of this type has ever been financed with a substantial debt component. Several creative techniques were involved to secure financing, including an unprecedented 18-country project-specific political risk package from US EXIM and MITI. But commercial lenders also took comfort from the fact that FLAG's repayment source is forward sales of cable trunk capacity, not fixed long-term contracts. Its standard agreement with each purchaser requires full payment 45 days after construction of the cable is completed, meaning that all debt will likely be repaid in a bullet upon completion of the 27 month construction phase.

At the time of financial closure, FLAG had already sold $300 million of its circuit capacity, and had secured terms through which the bank loans would fall away if it could sell enough capacity upfront. The sponsors also provided a contingent equity cushion during the construction in the form of guaranteed letters of credit. Lenders' faith in the project and its sponsors led them to take an element of supplier risk, although there was recourse to AT&T Submarine Systems and KDD, who are jointly building the project on a fixed turnkey contract.

Brief: Upon its scheduled completion in 1996, FLAG is set to be the longest submarine fiberoptic cable in the world, providing a state-of-the-art link between Europe, the Middle East and Asia.

It will sell capacity to international telephone companies for voice and data communications, including high-bandwidth features such as video conferencing, imaging, mulimedia applications, and computer-to-computer communications. FLAG's capacity is expected to be fully utilized long before satellites or any other new technology pose it with serious competition.

Project Title: Global Power Investments

Other: Emerging markets worldwide, including China, India, Indonesia, Mexico and others.

Issue Amount: $2.5 billion (targeted)

Sector: Power generation

Status: Launched in January, 1994

Sponsors: Global Power Investments Co.

Investors: Initially set up with $450 million from GE Capital ($200 million), the George Soros-related investment vehicle Quantum Industrial Holdings ($200 million), and IFC ($50 million).

Financing Package: The initial capitalization is expected to grow through additional stakes from strategic investors from the power generation industry, other long-term financial investors.

Innovation: This is the largest emerging markets equity investment fund to be announced to date, and reportedly could involve mobilization of an additional $10 billion in project-related debt. It draws on the extensive resources of GE Capital, which has previously provided debt and equity finance for $7 billion of power projects in the US, the IFC, and highly publicized billionaire George Soros, whose Quantum funds have earned 40% returns over the past two decades. The investors are attracted by the massive infrastructure finance needs worldwide, which they anticipate should earn them equity returns of at least 20% through this fund.

Brief: GPI has not yet released any information about the projects in its portfolio, but reportedly will support projects that will draw additional financing in the international commercial loan syndication and capital markets. Many of the target projects are expected to have other GE involvement.

Project Title: Asia Infrastructure Fund

Other: Asian emerging market countries.

Issue Amount: $1 billion (projected)

Sector: Power generation, transport, telecom and others

Status: Launched in April, 1994

Lead Manager: AIF Fund Management Co., Hong Kong.

Investors: Peregrine Investment Holdings (Hong Kong), Frank Russell Co. (US), Soros Capital Inc. (US), IFC, Asian Development Bank.

Financing Package: A 10-year fund that will make investments in individual projects ranging from $10 million to $75 million, and will consider taking stakes in securities of private companies or state-owned enterprises slated for privatization. It anticipates returns of 20 percent or more. Helping to attract the private capital was $50 million from the IFC and $20 million from the ADB.

Innovation: This international equity fund draws on an impressive international set of long-term investors experienced in infrastructure finance. The participation of Frank Russell, the leading US pension fund adviser, provides access to a vast set of potential long-term investors, as does the involvement of George Soros.

Brief: This fund has reportedly begun with an initial closing of approximately $500 million. Details of its investments have not yet been disclosed, but it is expected to be a long-term player active in numerous infrastructure projects around Asia over the next decade with an active interest in Chinese toll roads and power plants, among others.

Project Title: AIG-GE Capital Latin American Infrastructure Fund

Other: Argentina, Chile, Brazil, Mexico, and others.

Issue Amount: $1 billion (targeted)

Sector: Power generation, transport and telecommunications, and other industries

Status: Launched in October, 1995

Sponsors/Lead Manager: American International Group and GE Capital; Emerging Markets Partnership, a Washington DC investment advisory firm.

Purchaser: U.S. and international institutional investors.

Financing Package: AIG and GE Capital have each committed $100 million to this closed-end vehicle that will take long-term direct investment stakes in Latin infrastructure projects. The balance must still be raised in the coming months.

Innovation: This is expected to be the largest fund of its kind yet for Latin America, pooling the resources and expertise of several players with extensive operational knowledge of the region in order to support its desire for new privately financed infrastructure. Like the AIG Asian Infrastructure Fund, it will take minority investments along with other partners.

Unlike the AAIF, however, this fund will have strong multilateral support. The Inter-American Development Bank will be an active advisor to the fund and may provide additional debt financing to some of the investment targets through its private sector lending window. The Inter-American Investment Corp. will also be an advisor. The investment horizon is also somewhat wider, with financial sector infrastructure, natural resources development, environmental services, water treatment and distribution and infrastructure-related facilities.

Brief: In initial publicity materials, the sponsors have said that "this is the opportune time to establish an equity fund for Latin American infrastructure." They cite the convergence of two factors: the region's ongoing democratization and free market economic reforms, and its need for $60 billion of annual infrastructure investments in the region between 1996 and 2000.

Project Title: AIG Asian Infrastructure Fund

Country: China, Indonesia, Philippines, Thailand and other emerging Asian countries.

Issue Amount: $1.1 billion

Sector: Power generation, transport and telecom

Status: Closed in June, 1994

Sponsor/Lead Manager: The largest U.S. international insurance company, American International Group; Emerging Markets Partnership.

Investors: 27 U.S. and international institutional investors, led by the Singapore Government Investment Cos. (approximately $250 million); AIG ($100 million), Chinese government entities six other U.S. insurance companies, private pension funds, endowments, and others. The Bank of China, China International Trust and Investment Corp., AIA Capital Corp. of Hong Kong and others are listed as investment advisers.

Financing Package: A 10-to-12-year closed-end fund that invests $20 million to $60 million at a time in individual infrastructure projects, generally going in alongside a technical partner for an ownership interest of between 5% and 40%.

Innovation: This is the largest fund of its kind in the world. After less than 18 months of operations, it is currently approximately 50% invested, with 13 different commitments in a variety of Asian countries. It is investing exclusively in unlisted equities, targeting sponsor companies of some of Asia's biggest infrastructure projects.

Approximately 40% of all assets are invested in China, which is expected to be the target for the duration of the fund's life. While still in the development stages, the fund expects to be paying dividends to its shareholders by its third or fourth year, increasing the flow by about the fifth year when it begins to liquidate some initial assets at substantial capital gains through initial public offerings on local capital markets or other means.

Brief: The AAIF does not disclose its investments, although some have been revealed by other parties. One example is a $50 million stake in a new $150 million joint venture that the U.S. independent power producer Sithe Energies has developed with the AAIF and the Government of Singapore Investment Corp. to develop power plants in China. That investment was an important source of new equity for Sithe, which had already announced eight such projects under development near Beijing and in Guangdong, Shanghai and Hainan provinces.

The AAIF also holds a smaller stake the dominant Philippine cellular telephone company Piltel, which subsequently raised $177.5 million in a May, 1995 IPO in Manila with Goldman Sachs as global coordinator. Other AAIF investments that have been publicly disclosed include stakes in the Indonesian pay-per-view and cable television operator Indovision, Indonesian cellular telephone company Bakrie Communications, Taiwanese domestic airline Far East Air Transport, and two Chinese tollroads - one in Guangdong sponsored by Wai Ku of Hong Kong, and another in Szechuan sponsored by New China Holdings, also of Hong Kong.

Infrastructure and Financial Markets Division
Private Enterprise and Financial Markets Subdepartment
Sustainable Development Department
Inter-American Development Bank

Last updated: 02/26/07