toronto: a centre of p3 excellence - tfsa€¦ · toronto: a centre of p3 excellence developed in...
Post on 21-May-2018
221 Views
Preview:
TRANSCRIPT
Toronto:A Centre ofP3 ExcellenceDeveloped in cooperation
with The Canadian Council for
Public-Private Partnerships
1
With two decades of experience, a critical
ecosystem of P3 expertise has been
established in Canada. Toronto is a centre
of excellence, home to leading national and
international developers and construction
companies as well as financiers, architects,
engineers, lawyers, asset managers and
consultants. There are currently 34 P3
projects in operation in the city. Another
17 are under construction, including the
$9.1-billion Eglinton Crosstown LRT, the
largest investment in public transit in Canada,
while six more are in the procurement stages.
With a steady pipeline of projects and a well-
respected procurement process, Canada has
become a popular market for national and
international P3 players.
As Canada’s financial and business capital,
Toronto provides a gateway for global public
and private sector participants to reach
members of the country’s P3 infrastructure
community. At the same time, Toronto’s P3
community is actively seeking opportunities
abroad to apply its expertise.
Three of the world’s leading infrastructure
developers operate from offices in Toronto,
along with two of the world’s major
infrastructure advisory firms and three of
the world’s 60 biggest pension funds. As
global leaders in infrastructure financing,
they have invested for the last two decades
in infrastructure projects around the world.
In the process, they have engaged Canadian
partners such as banks, legal and accounting
firms, and other advisors.
A Made in Canada Approach to P3The need for construction and renewal of public infrastructure has become critical throughout the world. Addressing this need over the next 25 years will cost as much as C$75 trillion. Faced with such prospects, governments have turned to partnerships with the private sector to design, build, finance and maintain infrastructure projects. Canada is increasingly being recognized as a world leader in establishing successful public-private partnerships (P3s) to address its infrastructure deficit.
To date, there have been more than 220 projects worth over $70 billion developed using the P3 model across the country.
220+
In Toronto and elsewhere in Canada, the
benefits of P3 infrastructure initiatives
have become readily apparent. They include
value for money, innovation, on-time,
on-budget delivery and the benefits to local
communities of new and renewed state-
of-the-art facilities that will contribute to
their economic future and quality of life for
decades to come.
Recognizing the country’s leadership,
governments around the world have turned
to Canada for support in undertaking their
own P3 infrastructure projects. Toronto, for
example, has welcomed representatives of
developing countries, where more than a
million people a week are moving into urban
centres and raising demand for essential
services that can be addressed only if
their governments invest in infrastructure.
Toronto has also welcomed public- and
private-sector leaders from developed
nations, whose sustainable economic growth
depends on the repair and replacement of
aging water, power, transportation and other
public facilities. All of these nations are
looking at new ways to deliver much-needed
infrastructure and maximize government
investment, and they have discovered a
world-leading source of expertise in Toronto.
FACTS ABOUT TORONTOToronto is Canada’s financial and
business capital and the fastest-growing
financial centre in North America.
Toronto is home to the head offices of
Canada’s five largest banks, three of
which rank among the world’s largest
25 banks by market capitalization.
Canada’s banking system has been
ranked as one of the soundest in the
world by the World Economic Forum
(WEF) for nine consecutive years.
Toronto is headquarters for six
of Canada’s top insurers, which
manage more than 90 per cent of the
industry’s assets, and five of Canada’s
largest pension plans, with combined
assets in excess of $300 billion and
extensive investment experience in P3
infrastructure projects.
Toronto is home to the TMX Group, the
third-largest stock exchange group
in North America and among the
largest in the world based on market
capitalization.
The 57 P3 projects in the Greater
Toronto Area, with a total value of
$28.6 billion, account for about one-
quarter of the financial value of all
P3 projects in Canada.
The Canadian Council for Public-
Private Partnerships Annual
Conference is held in Toronto yearly.
It began in 1993 and is now recognized
as the premier event on public-private
partnerships (P3) in the world. For
more information, go to p3-2016.ca
“Our Made in Canada P3 approach is garnering international attention and offers opportunities to take our industry experience and expertise global.”Mark Romoff President and CEO of The Canadian Council for Public-Private Partnerships
3
5
Bridges to the world: Canadian pension funds and P3 infrastructure.
Having refined their capabilities as direct
investors in P3 infrastructure programs,
CPPIB, OMERS, OTPP and other major
pension funds in Toronto have attracted
global attention from governments
around the world. Every year, government
representatives from the UK, India, China
and elsewhere visit Toronto to encourage
these funds to invest in their domestic
infrastructure.
“OMERS’ long-term strategy [is] to diversify
internationally,” says Michael Rolland,
President and Chief Executive Officer of
Borealis Infrastructure, which was formed by
OMERS in the late 1990s with a mandate to
invest in infrastructure as a separate asset
class. “We bring to investee companies the
experience gained through managing a large
infrastructure asset portfolio as well as the
relationships we have with governments,
lenders, other investors and members of the
business community.”
Equally important, the funds attract leaders
from the business and financial communities
to sit on their boards and compensate their
managers at rates competitive with the
private sector.
Independent from government involvement
or influence, Canada’s major pension funds
operate with private-sector priorities,
managed by professional directors chosen
solely for their experience and capabilities.
“They understand what it takes,” says Romoff,
“to build and operate a sophisticated
investment-management organization, and
[they] have adopted policies to enable and
promote a high-performance culture.”
“When opportunities arise anywhere in the world, Canada’s major pension plans hear about them first. If you’re the first call, you’re going to get the pick of the litter.”
Ron Mock President and CEO of OTPP
infrastructure projects, pension funds aim
for higher returns for their members than
they would receive from publicly traded
stocks and bonds.
Although they often participate with
private-equity firms as co-sponsors,
Canada’s public pension funds have a longer
investment horizon than their private
counterparts. They are also good owners
of infrastructure assets since they have the
incentive to reinvest in them to maintain
their capabilities for generating cash flow
over many years. “We invest in infrastructure
assets because they generally offer stable
long-term cash flows linked to inflation,”
says Jane Rowe, Senior Vice-President of
Teachers’ Private Capital, part of the OTPP.
As Mark Machin, President and CEO of
CPPIB, explains, large funds readily invest in
long-duration infrastructure assets, because
their portfolios span multiple generations.
“We have no intention or need to sell them,”
Machin says, “and indeed, every incentive to
reinvest in them to ensure they continue to
fulfill their intended purpose and generate
cash flows over many years for our fund.”
Because they often take years to
complete, major infrastructure projects
require patient, long-term financing. In
Canada and in other parts of the world, a
significant source of this financing is the
country’s large public pension funds.
“These funds are important sources of long-
term capital for much-needed infrastructure
investments,” says Mark Romoff, President
and CEO of The Canadian Council for Public-
Private Partnerships, “which are critical to
economies and societies globally.”
In Toronto, the Canada Pension Plan
Investment Board (CPPIB) along with the
Ontario Teachers Pension Plan (OTPP)
and the Ontario Municipal Employees
Retirement System (OMERS) have all
participated with the private sector in
global P3 infrastructure projects.
These pension funds run their portfolios
internally and invest directly. At CPPIB, for
example, almost 1,300 people in Toronto, as
well as in London, New York, Mumbai, Sao
Paulo, Luxembourg and Hong Kong, put
the fund’s public and private investment
initiatives into effect. By investing in
P3 Financing: The Bond Solution
For investors, “these bonds are designed as
low risk and stable long term investments,”
observe Catherine Doyle and Tim Murphy of
McMillan LLP in Toronto, “backed by cash
flows generated from core government
infrastructure assets and are often seen
as defensive plays in times of economic
uncertainty.”
Project bonds issued in connection with
P3 transactions also offer a yield premium
when compared to traditional government
or quasi-government debt issuances. “For
institutional investors focusing on lower-risk
portfolios, they can enhance overall return,”
observe Doyle and Murphy in a report on the
Canadian market for P3 bonds.
Having participated in transactions
involving more than $7 billion in broadly
marketed P3 bond issuance, Toronto’s legal,
investment and advisory communities
have become a centre of expertise for P3
infrastructure financing. To a large extent,
these professionals have standardized their
documentation and the principles of risk
allocation involved in P3 infrastructure deals.
They have also established templates that
enable ratings agencies to evaluate deals
within a standardized context.
While legal, tax and accounting regimes may
differ, public- and private-sector participants
have acknowledged the feasibility of bond
financing for P3 infrastructure projects in
other jurisdictions. As Little and Morley
observe, Canada’s bond financing experience
“may offer some guidance to [overseas] P3
projects in search of these solutions.”
At the same time as governments have
increased their support and capital
contributions, a market has also developed
for project bonds as a source of long-term
funding.
“The evolution of the Canadian P3 market
over the last five years shows that bond
financing can be an effective and value-
enhancing source of financing, without the
necessity of a monoline-style wrap,” say
Little and Morley in a paper written for
“PPP International”.
Bond financing for a P3 infrastructure project
comes with some stipulations, including
a minimum size of about C$150 million to
C$200 million per tranche and a rating for
the project of A to BBB from at least one
recognized rating agency. Bond issues must
also meet higher regulatory requirements
governing such factors as disclosure.
A key precondition for infrastructure
development is access to stable, adequate,
long-term financial resources. During the
recent global financial crisis, financial
institutions curtailed their long-term
lending for P3 infrastructure projects,
putting future developments at risk.
“Tough conditions in European financial
markets are forcing government agencies
responsible for public infrastructure
procurement to look beyond traditional forms
of non-equity funding, such as long-term
bank debt financing or wrapped monoline
insurance financing, to undertake the next
round of P3 deals,” say David Little and Sean
Morley of Fasken Martineau LLP, a law firm
with offices in Toronto and Vancouver.
In response, organizations such as RBC
Capital Markets, BMO Capital Markets, CIBC
Capital Markets, TD Securities, Scotiabank
and Stonebridge Financial Corporation,
based in Toronto, have developed specialized
financial solutions for P3 infrastructure
ventures. Stonebridge, for example, has
developed two infrastructure debt funds with
the objective of investing in long-term, fixed-
rate, senior debt financings of infrastructure
assets. Insurance companies based in
Toronto, such as Manulife Financial and Sun
Life Financial, have also become involved in
P3 infrastructure financing.
9
Specialists in infrastructure development
Another major infrastructure developer
with an international presence and offices
in Toronto, Carillon Canada Inc., has
participated as developer, financier, equity
investor and service provider in seven P3
infrastructure projects in Canada, including
hospitals, a correctional facility and a
university learning centre, while Plenary
Group Canada has participated in P3
infrastructure projects in Canada, the U.S.,
Australia and Singapore, valued at more
than C$10.5 billion.
As long-term investors, builders and
operators of public infrastructure, these
companies participate in financing, planning,
designing and constructing P3 projects
throughout the world, as well as acting as
developers and asset managers.
P3 infrastructure projects require specific
expertise in property development,
including skills in finance and
management. From hospitals to roads
to water treatment plants, development
expertise not only enhances the efficiency
of the project, it also accommodates the
risks involved for public- and private-
sector participants.
In most P3 infrastructure projects, a
procuring agency signs an agreement with
a special-purpose project company led
by a developer following a competitive
procurement process. Once the agreement
is signed, the developer creates value by
developing an efficient project plan, bringing
together a team of experts to design, build,
finance, maintain and in some cases operate
the asset for 20 to 30 years.
From its headquarters in Toronto, EllisDon
Corporation, for example, a global
construction services company, has become
an industry leader in P3 infrastructure
projects such as the Surrey Memorial
Hospital in British Columbia and the
Confederation Line transit project in Ottawa.
Canada’s public sector drives P3
Based on the success of Infrastructure
Ontario and similar provincial agencies, the
federal government created PPP Canada Inc.
to build on their example in developing P3
infrastructure projects. PPP Canada began
operating in 2009, managing a C$1.25-
billion P3 Canada Fund, the first national
infrastructure program in the country
dedicated to supporting infrastructure
projects delivered through a P3 approach.
The federal government has allocated another
C$1.25 billion through 2018 to renew the P3
Canada Fund and remains committed to P3s
as a way to add value in the development of
large-scale federal infrastructure projects
and in the development of projects at the
municipal level.
Federal and provincial governments in
Canada have made their support clear in
other ways, as well, for P3 infrastructure
deals. At the federal level, the Canadian
government continues to evaluate selected
infrastructure projects to encourage greater
involvement of the private sector and to
determine whether better value for money
can be achieved through P3 procurement.
Ontario and British Columbia apply value-
for-money assessments to substantiate the
financial benefits of their P3 programs.
Canada’s experience in P3 infrastructure
projects extends to all relevant areas of
the public sector.
“The most important feature of the
Canadian market and where they excel is
in the caliber of their central infrastructure
agencies [such as] Infrastructure Ontario,”
says James Stewart, chair of global
infrastructure at KPMG and former Chief
Executive of Infrastructure UK. “The state
has invested heavily in developing the
capability – bringing in people from the
private sector, being prepared to pay for
those people and creating a critical mass
of expertise in the agencies.”
Unlike some jurisdictions, Canada’s
governments empower these infrastructure
agencies to actually do the work,” Stewart
adds. Rather than simply advising other
agencies of government, they drive P3
projects and control procurement.
Infrastructure Ontario, for example, based
in Toronto, oversees the largest amount of
P3 infrastructure spending in Canada. The
organization has authorized more than 75
projects and over C$30-billion of spending
since 2006. It also has committed
more than C$7.5-billion through its loan
program to more than 2,100 projects.
“Canadian governments and companies are now global leaders in the implementation of P3s. They are also leaders in adapting the model to emerging market opportunities.”Mike Marasco CEO of Plenary Concessions the holding company for all project-specific initiatives of the Plenary Group
A source of sound P3 advice
provide advice on structured finance,
financial modeling, tax strategy and
accounting treatments. They also provide
feasibility, risk and options analysis; project
procurement; bid preparation, contract
negotiation and funding assistance.
As advisors to governments and
corporations, for example, PwC has gained
extensive experience in structuring and
arranging limited-recourse financing for
private and public infrastructure projects.
“When working with the public sector,
PwC services include: business case and
feasibility analysis, transaction structuring,
financial analysis, transaction execution,
and assistance in the transaction closing,”
the firm says. With the private sector, PwC
will develop the bid strategy, structure the
transaction, raise financing and assist in the
transaction closing.
From investment banks, law firms and risk
advisors to cost consultants, architects
and insurance experts, the involvement of
Toronto’s community of P3 experts over
20 years in developing, constructing and
operating successful P3 infrastructure
projects has distinguished them as world
leaders in the sector.
In fact, says Mark Machin, President and CEO
of the Canada Pension Plan Investment Board,
“there is every reason to think that Toronto
can rival London and Sydney as a centre of
expertise in this sector in the years ahead.”
Because of the sustained involvement
of Toronto’s business and financial
community in P3 infrastructure projects,
in Canada and throughout the world, the
city has generated an ecosystem of expert
advisors with world-leading capabilities.
At the centre of Canada’s legal profession,
for example, law firms based in Toronto such
as Weir Foulds LLP, Norton Rose, Fasken
Martineau DuMoulin LLP and others ensure
that concession agreements, design-build
agreements, operation and management
agreements and other contracts address all
contingencies of a P3 project over its lifetime.
They also advise on development, financing,
acquisition and divestiture of P3 projects.
Since a P3 infrastructure project aims to
increase project value by managing the risk,
Toronto’s risk advisors play a critical role in
assessing and allocating project risk to the
party most qualified to assume it.
For example, a private developer may be
better qualified than a public partner to
operate and maintain an asset, while the
public partner may be better positioned to
assume the risk of environmental approval. By
allocating these risks effectively, advisors can
help to eliminate uncertainty and maximize
the value of a project to the public sector.
Meanwhile, Toronto’s major consulting
firms such as Deloitte, Ernst & Young
Orenda Corporate Finance Inc. and
PricewaterhouseCoopers LLP (PwC)
The involvement of Toronto’s community of P3 experts over 20 years in developing, constructing and operating successful P3 infrastructure projects has distinguished them as world leaders in the sector.
20+ YEARS
The Toronto Financial Services Alliance (TFSA) is a unique public-private partnership dedicated to building Toronto as a global financial services centre.
For more information on the TFSA and Toronto’s
financial services sector, please visit tfsa.ca
or call 416-933-6780.
For more information on the Canadian Council for
Public-Private Partnerships, please visit pppcouncil.ca Dec
emb
er 2
016
| d
esig
n: S
OS
Des
ign
Inc.
top related