Return of the king

The news of Bouygues’s appointment on the Nimes-Montpellier high-speed rail is important not because of the project itself but how the funding market will respond to negotiations in the coming weeks.

Financial close is expected in the first half of the year, but all the signs are indicating it will be a struggle to get to the finish line for the €1.8bn scheme.

Firstly, Turkey’s €5bn Marmara highway package received no bids last week due to lack of banking appetite. Similarly, Fraport has dropped out of Spain’s airport privatisation plan, blaming "market conditions".

So should we rule out bank financing of any European PPPs coming in over the €1bn mark this year?

As pointed out previously on this site, aside from the Nimes high-speed rail scheme, most projects in France’s pipeline are largely below €500m this year. One adviser points to the second wave of prisons due to launch and the Paris high school plan currently at the final stages of planning as examples of this.

But with France’s credit rating downgraded over the weekend, investors may now choose to focus more closely on Belgium and the Netherlands.

Or attention may turn to the UK, with its plan to bring pension funds onboard. Last week, monoline insurer Assured Guaranty also provided a wrap on a UK PFI bond refinancing – the first time since the credit crisis began in 2008 – and Chancellor George Osborne announced he has his sights set on Asian capital to fund infrastructure.

Lou Jiwei, chairman and chief executive of sovereign wealth fund China Investment Corporation, said in November that Chinese firms have moved from simply acting as a contractor in overseas infrastructure projects and are now looking to invest, develop and operate schemes.

Japanese banks such as SMBC are also playing a greater role in the European market, while being courted by emerging PPP markets such as the Philippines and Malaysia.

It is unlikely they will offset the retreat of the more familiar Western banking names but amid growing global unease it is trend to watch.

In the meantime, bidders are likely to be cautious on larger European schemes and we might see several more cancellations and postponements until sentiment improves.