‘It's a mistake to wait until 2014 for project bonds’

Philippe Maystadt, the president of the European Investment Bank (EIB), told Infrastructure Investor that he is eager to launch the bank’s and the European Commission’s Europe 2020 Project Bond initiative – a project that aims to bring the capital markets back into European infrastructure financing by credit-enhancing private sector infrastructure bonds.
 
“Personally, I think that it would be a mistake to wait until 2014 to launch the first [project bond] initiatives. I think that if we are to have this project bond initiative fully up and running in 2014, it would be in our common interest to apply this instrument to real projects before that date,” Maystadt said.
 
The Europe 2020 Project Bond initiative proposes to enhance a bond’s credit rating by providing either a fully funded subordinated debt tranche or an unfunded subordinated debt guarantee. Both mechanisms should be able to cover up to 20 percent of a project’s senior debt and will be provided by the EIB. Subordinated debt ranks below senior debt and above equity.
 
The credit enhancement mechanism’s objective is to lift European private sector infrastructure bonds out of the lower echelons of the investment grade category (BBB) to A-rating territory, where a larger number of institutional investors will be, in theory, more comfortable buying these bonds. 
 
Currently in public consultation, the project bond initiative has been well received by the market, but its 2014 launch deadline threatens to derail the positive momentum generated by its announcement earlier this year.
 
“There is a lot of interest from investors, but there is also a fear that this is a project for beyond 2014,” Maystadt acknowledges. Investors would prefer to be invited to assess some offers of project development earlier,” he explains.
 
Of course, the 2014 launch deadline is not completely arbitrary. To apply the project bond mechanism as it is currently described in the consultation documents requires some change to the European Union’s financial regulations, all of which takes time.
 
But Maystadt is undeterred: “I still think it might be possible to try some pilot projects with the current financial regulations,” he says, before adding: “But this is my personal view – I can’t speak for the European Commission.”
 
To read the full interview with Philippe Maystadt on project bonds, the EIB’s role in keeping the European PPP market afloat during the crisis, and the main obstacles to long-term infrastructure investment, check out Infrastructure Investor’s July/August 2011 issue.