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Infrastructure - January 26, 2015

More institutions will be convinced to make the extra effort to contribute their data - an interview with Benjamin Sirgue

In this month's interview, we speak with Benjamin Sirgue, Global Head of Aviation, Export & Infrastructure Finance within the Structured & Asset Finance business line of Natixis Wholesale Bank, about the most recent publication from the Natixis research chair at EDHEC-Risk Institute, on unlisted infrastructure debt valuation and performance measurement, the challenges raised by data collection, and future research on the valuation and regulation of infrastructure debt products.

Benjamin Sirgue

The most recent publication from the Natixis research chair at EDHEC-Risk Institute, on unlisted infrastructure debt valuation and performance measurement, was a response to the challenge of pricing long-term infrastructure debt. Could you explain more about this challenge and tell us how the research has responded to it?

Benjamin Sirgue: Infrastructure debt was largely provided by banks until the recent emergence of institutional investors for the infrastructure debt market in the last two years. Banks do not have the same reporting and regulatory constraints as institutional investors and in particular they do not need to value the loan in their books (bank loans are mostly held to maturity and Basel III regulation is based on rating and expected loss and not on asset valuation). This explains why three years ago there was no proper valuation methodology in place in the industry.

Natixis seeks to support the involvement of institutional investors in the infrastructure debt market and as such decided to support the research required to develop a sound academic valuation model. The valuation of infrastructure debt is complex as it mainly consists of unlisted instruments (bank loans) for which there is no “market” price and no index to benchmark transactions. Right from its inception, the research chair has defined a clear path (“the roadmap”) toward the development of a benchmark for infrastructure debt. After more than two years of research, the chair has provided a clear definition of infrastructure debt consisting of project finance loans, has proposed a valuation methodology based on the most widely used and disclosed ratio in the project finance world the Debt Service Coverage Ratio (“DSCR”) and has defined a standard for reporting and data collection.

Another important issue raised by the report is data collection. Where do you think the industry now stands on this issue?

Benjamin Sirgue: Indeed, now that we have a robust valuation model, it needs to be calibrated with real observations of planned projects and reported DSCR. Historical performance data for projects are mostly within banks. We therefore need other banks in addition to Natixis to participate in a data-sharing exercise with EDHEC. Two years ago, data collection for infrastructure debt was not a topic of discussion. This issue is now much more on institutions’ radars, and for example was on the agenda of the G20 in Brisbane last year. It was also recognised by the European Commission green paper as a significant impediment to European infrastructure investment and this issue will be incorporated into the third pillar of the Juncker Plan’s future regulation. We think that with a methodology in place and a strong consensus on the need to increase the transparency of the asset class, more institutions (banks and investors) will be convinced to make the extra effort to contribute their data in order to further develop the private infrastructure debt market.

The next topic of research within the research chair will be the valuation and regulation of infrastructure debt products. What are the key questions that need to be addressed in these areas?

Benjamin Sirgue: When the chair has sufficient data to cover the infrastructure debt universe with sufficient accuracy, a favourable regulatory treatment for infrastructure debt under Solvency II will be much more straightforward. The work of the chair was welcomed in particular by EIOPA in its “technical report on Standard Formula Design and Calibration for Certain Long Term Investments” as an “initiative to address the lack of comprehensive and publicly available performance data for unlisted infrastructure assets”. The development of a benchmark will also be of great interest for investors in order to compare the performance of their infrastructure debt portfolio. At a later stage, this exercise could even be extended by incorporating Environmental and Social Impact reporting to measure the impact on financial performance of those positive indicators attached to infrastructure finance.

Could you tell us more about the Natixis Global Infrastructure & Projects division's plans for the infrastructure space?

Benjamin Sirgue: The goal of Natixis Global Infrastructure & Projects is to continue to facilitate the intervention of institutional investors in the infrastructure debt space through our well established infrastructure debt platform and servicing capacity. Our infrastructure debt platform offers direct access to the infrastructure debt market with associated downstream services to monitor the performance of the debt instruments over time. Asset monitoring and debt restructuring are key elements of the long-term performance of an infrastructure debt portfolio.

In the EMEA region, we have achieved a significant stage in our development with our co-lending partnerships with Ageas and CNP and with an increasing list of deals advised and/or structured for infrastructure investors, including the first project bonds in France and Italy, closed in 2014.

We are currently opening our platform to all our regions. We have already achieved significant success in the Americas in the project bond market and we expect to open a dollar servicing capacity in the course of 2015 with new investors joining the Natixis infrastructure debt platform. With this combination of product expertise and local relationships with investors and sponsors, we are willing to play a key interface role between projects sponsors and institutional investors in the global infrastructure debt market (more details available on http://cib.natixis.com/infrastructure/).

About Benjamin Sirgue

Benjamin Sirgue is the Global Head of Aviation, Export & Infrastructure Finance within the Structured & Asset Finance business line of Natixis Wholesale Bank. The group is active in financial advisory services, debt arranging, distribution and servicing across the aviation and infrastructure sectors. Benjamin began his career in 1997, in Russia, at the Saint Petersburg office of the European Bank for Reconstruction and Development. He then joined Caisse des Dépôts et Consignations in Paris to act as project finance advisor. In 2004, he was placed in charge of IXIS CIB Project & Infrastructure Finance for Europe, the Middle East, and Africa, before being appointed Global Head of Project Finance of Natixis in 2009. Benjamin is a graduate of HEC.