Italy will use EU presidency to 'relaunch debate' on project bonds

Out-Law News | 10 Jul 2014 | 4:01 pm | 2 min. read

Italy will use its six-month rotating presidency of the European Union to “relaunch debate” on long-term project bonds for the financing of key European infrastructure projects, according to the country’s economy and finance minister.

“In all European countries, we have seen a constant decline in (infrastructure) investment, both in the public and private sector. We must reverse that trend,” Pier Carlo Padoan told French business daily Les Echos.

Under the pilot phase of the EU’s '2020 Project Bond Initiative', implemented by the European Investment Bank (EIB) and started in 2012, suitable projects need to reach financial close by the end of 2016.

According to the EU, PBI aims to “attract institutional investors to the capital market financing of projects, with stable and predictable cash flow generation potential by enhancing the credit quality of project bonds issued by private companies”.

The pilot phase of PBI is funded by €230 million of EU budgetary resources from unused budget lines for existing programmes. The EIB said this should enable it to provide financing to infrastructure projects worth more than €4 billion.

To date, the EIB said it had approved nine PBI projects in six EU member states. The first transaction under the EIB’s ‘project bond credit enhancement’ (PBCE) initiative was in July 2013 in Spain, for the Castor underground gas storage project in Valencia, to provide storage for 30% of Spain’s daily gas consumption.

In an interim report on the pilot phase of PBI published in December 2013 (12-page / 192 KB PDF), the European Commission said: “The importance of infrastructure investment for future growth potential and job creation remains unchallenged... Europe needs substantial infrastructure investment volume and diversity of funding models.” The Commission said PBI had been “successful in playing a catalytic role in re-invigorating the infrastructure investment market”.

The Commission said: “The PBCE provided by the EIB through the PBI aims to bridge the gap between the typically low investment grade ratings of privately financed infrastructure projects and the higher target ratings of investors. This would broaden financing sources and should help support the tenor and reduce costs of financing.”

The Commission said the PBCE can be provided in the form of a funded facility, a direct loan to the project to be repaid only after the senior bonds have been serviced, or an unfunded facility, a contingent credit line that, once claimed, converts into a subordinated loan.

PBI is designed to stimulate investment in EU infrastructure in transport, energy and broadband and establishing debt capital markets as an additional source of financing for infrastructure projects.

Padoan has said that Italy will also use its EU presidency to encourage the pursuit of growth-oriented investments.

He told the annual conference of Italy's banking lobby, the ABI, that “growth must be the top priority of the newly-elected European Parliament and Commission”, according to a report by Deutsche Boerse Group subsidiary Market News International.

Padoan said he was confident that Italy's European leadership “will have a positive impact” and that the government was focused on moving along an ambitious reform path.