Chile - Chilean Infraestructure Industry Overview - ABN Amro (Zavala) (2006)

Chilean Infrastructure Industry Overview Fernando Zavala November, 2006 Brief Overview of the Chilean Toll Roads Industry Introduction  The urban toll road infrastructure business in Chile has been extremely active  Project Financing and the formation of consortiums were critical aspects during the first phase of the industry  Original investors/sponsors are looking for options to monetize the capital gains originated from investments  Groups specialised in toll roads operation becoming increasingly interested in the sector  Specialised investment funds monitoring the evolution of the sector – difficulties to exit investments in the short term  Costanera Norte is the first successful M&A transaction where the original investors exit the company, and a global toll road operator enters into the country  ABN AMRO has been a leader in this industry in Chile since its origins Chile Macro Overview – High growth combined with moderate risk  Excellent economic performance     Investment grade status since 1992 Average 6% real GDP growth over the last 20 years Well controlled inflation-targeting regime averaging a 4.1% inflation rate over the last 10 years Chile is the most stable, most transparent and best performing economy in Latin America Key Facts  Positive macroeconomic outlook  Strong real GDP growth forecasted for 2006 (4.9%) and 2007 (5.6%)  Stable inflation forecasts for 2006 (2.9%) and 2007 (3.0%) GDP PC (US$) and real GDP growth Inflation (CPI y-o-y changes) 10,000 6.2% 6.3% 4.9% 8,000 6,000 4,000 5.6% 6.0% 3.4% 2.2% 3.9% 4.0% 3.7% 2.6% 2.8% 2.0% 2,000 8.0% 01 02 03 GDP per Capita 04 05 06F 07 F Real GDP growth 2.4% 2.9% 3.0% 06F 07 F 1.1% 0.0% 01 02 03 04 05 Chile Macro Overview – High growth combined with moderate risk  Key pillars of the model:  Balanced public accounts  Independent Central Bank  Solid financial system  Stable & transparent politics  Open and developed local capital markets  Strong and diversified mix of exports; increasing imports following GDP per capita growth  Free Trade Agreements: EU, USA, Korea, Canada and Mexico Presently negotiating with China and India, among other Key Facts Sovereign Risk (EMBI) Argentina 286 Brazil 218 Chile 81 Colombia 172 Mexico 111 Peru 142 50 100 150 200 250 300 Concessions Awarded to Private Sector in Chile Total awarded volume of business over US$ 6.3 Billion 48 Projects Awarded to Private Companies  20 Highways: US$3,805M  10 Airports: US$272M  Urban Projects  − Highways: US$1,722M − Public Transportation (Intermodal Stations): US$50M Prison Infrastructure Programs (8 prison precincts): US$205M  Dam: US$140M  Public Edification: US$114M Source: MOP Total Concession Investments Penitentiaries 3% Public Transportation 1% Dams 2% Public Edification 2% Urban Highways 27% Airports 4% Interurban Highways 61% Concession Projects 2006 - 2008 35 Projects to be awarded totaling more than US$ 3.6 Billion in investments Project Portfolio 2006 - 2008  Road infrastructure projects (10): US$1,621M  Hospitals (3): US$300M  Airports (4): US$100M  Dam (2): US$390M  Penitentiaries projects (2), Railroads (1) & Others (2): US$344 M  Other road infrastructure projects under study (11): US$884M Source: MOP Expected Concession Investments Other road infrastructure projects under evaluation 24% Road infrastructure projects 45% Penitentiaries, Railroads & others 9% Dams 11% Airports 3% Hospitals 8% Toll Road Concession Operators in Chile URBANTOLL TOLLROADS ROADSOwnership Ownership URBAN There will be players either divesting noncore investments or partially monetizing / recycling equity investments Autopista Central Vespucio Norte 48% 46% Anillo El Salto-Kennedy 50% Vespucio Sur 50% Radial nor-Oriente 100% Vespucio Norte Anillo El Salto-Kennedy Vespucio Sur 50% Costanera Norte 100% Autopista Central 48% 45% 50% Toll Road Concession Operators in Chile INTERURBANTOLL TOLLROADS ROADSOwnership Ownership INTERURBAN There will be players either divesting noncore investments or partially monetizing / recycling equity investments Los Libertadores Los Andes 100% 100% Rutas del Pacifico 50% Elqui Litoral Central 72% 50% 100% Los Lagos Rutas del Pacifico 88% 50% 100% Nogales Puchuncavi Autopista del Maipo 100% Ruta de la Araucanía 100% Litoral Central Autopista del Sol Talca Chillan Ruta de los Ríos 50% Autopista del Itata Autopista del Aconcagua 100% 100% Autopista del Bosque 100% Melipilla 100% 76% 76% Central Chile – Metropolitan Region Concession Highways Autopista Valle Chacabuco (Radial Nor-Oriente)  Sacyr  ACS 46%, Hochtief 45%, Cofide 8%  21.5 km highway  29 Km highway 40-yr concession 30-yr concession San Cristobal Express (Anillo El SaltoKennedy)  Hochtief 50%, ACS 50%  Urban tunnel 30-yr concession Costanera Norte  Autostrade 50%, SIAS 50%  42.3 km highway 30-yr concession Vespucio Norte Autopista Central  ACS 48%, Skanska 48%, Belfi 2%, Brotec 2%  60.5 km highway  30-yr concession Vespucio Sur Vespucio Sur  Acciona 50%, Sacyr 50%  23.5 Km highway 30-yr concession Source: MOP, Coordinación General de Concesiones Recent M&A Transaction: Costanera Norte Case Study - Chile  ABN AMRO executed the whole M&A process performing several tasks that included, among others: – Valuation: using DCF, Trading and Transaction methods – Preparation of investment teaser – Selection and contact with potential strategic and financial investors in Chile and globally – Development of the Information Memorandum for the transaction – Negotiation of Confidentiality Agreements with short-listed potential bidders – Guidance to Bidders to presenting a Non-Binding Offer – Selection of investors for the final phase of the process – Negotiation with group of short listed potential buyers – Coordination of Management Presentations and Visits to the facilities – Guidance of Bidders through preparation and presentation of Binding Offers – Preparation of Bid Analysis reports to facilitate client decision making process – Assistance in preparation of Sale & Purchase Agreement in conjunction with the legal advisors – Preparation and coordination of the Due Diligence process – Advisory assistance through Closing Overview of Transelec Transaction Key Considerations  Transelec is a regulated transmission business that owns high voltage lines  On June 16, 2006 Brookfield Asset Management and its partners agreed to acquire 92% of Transelec for $1.55 bn plus the assumption of debt  The consortium acquired the remaining 8% of Transelec in a separate transaction from IFC  ABN AMRO believed that that most bidders would have been comfortable paying up to 10.5x EBITDA This led to an IRR of approximately 11-13%  In our view, the bid for Transelec is an outlier and led to an ROE below 10%  Other bidders for Hydro-Quebec’s stake were: GE/First Reserve, Abengoa, ISA, Canadian pension funds (Ontario Teachers’ Pension Fund, Borealis), Terna, Celfin (Chilean investors) Transaction multiples Transaction multiple ABN AMRO's estimates EV / EBITDA 2005 2006E P/E 12.6x 12.2x 24.7 10.5x 10.2x 18.3 Brief Overview Infrastructure M&A worldwide Overview of Infrastructure related transactions worldwide Infrastructure M&A transactions volume 1998 - 2006 YTD Infrastructure deals peaked at US $ 145 Bln in 2006 reflecting increasing investor appetite for investments capable of generating stable returns in the long term US$ Bln 160 140 120 100 80 60 40 20 1998 1999 Source: ABN AMRO 2000 2001 2002 2003 2004 2005 2006 Overview of Infrastructure related transactions worldwide Largest Infrastructure M&A transactions 1998 - 2006 YTD Date Target Acquirer Feb 2006 Apr 23 2006 May 29 2006 Jan 18 2000 Feb 27 2006 Jun 27 2002 Oct 2006 BAA (UK) Autostrade (Italy) Kinder Morgan (US) Coastal (US) KeySpan (US) Railtrack (UK) AWG (UK) Ferrovial (Spain) Abertis Infrastructuras (Spain) Private equity consortium (US) El Paso Energy (US) National Grid (UK) Network Rail (UK) Osprey Acquisitions (Canada) Deal Value (US Bln) 30.2 28.4 27.5 15.7 11.9 11.5 10.3 Source: Thomson Financial  Private equity funds showed increasing involvement in infrastructure related transactions, accounting for more than 50% of deal volumes in 2006 (comparing positively with the % involvement recorded in 1998) Toll road operators valuation – Trading Multiples Toll Road Operators Trading Multiples EV/EBITDA Company name Mkt Cap EV (EURm, 11/7/'06) AUTOSTRADE 12,789 22,446 Autoroute du Sud de la France 11,503 19,325 Abertis 10,489 14,793 Macquarie Infrastructure Group 8,243 10,942 APPR 6,059 11,170 Cintra 4,921 12,380 BRISA 4,333 6,414 2005 12.1x 12.3x 12.7x 9.6x 11.5x 26.7x 15.3x 2006 11.5x 11.5x 7.1x 10.0x 10.7x 23.9x 14.6x 2007 10.8x 10.9x 6.7x 12.2x 10.2x 21.8x 13.8x 2008 10.1x 10.2x 6.4x 11.3x 9.7x 18.2x 13.2x Average 12.3x 10.9x 10.8x 10.2x Note: Numbers in grey have been excluded from average International listed toll road operators are trading at 10x - 11x EBITDA on average Toll road operators valuation – Transaction Analysis Toll Roads M&A Company Transactions Completion Target name Acquiror name Stake Purchase acquired(%) (%) price (EURm) Date Pending Autostrade Abertis 100% 14,714 25/04/2006 SANEF Abertis/ AXA / CreditAgricole 100% Abertis 5,324 09/03/2006 AutorouteSud de France Vinci 50% 5,821 20/02/2006 APRR Eiffage Macquarie Infr Eiffage/ 81% 5,551 20/05/2005 Hills Motorway Group Transurban 92% 1,074 19/04/2004 Hills Motorway Group Transurban 8% 57 01/01/2003 Aurea Acesa (Abertis) 100% 3,102 16/09/2002 ACESA Brisa 6% 219 05/04/2002 AutorouteSud de France Vinci 14% 771 16/01/2002 Cintra Concesiones Macquarie Infrastructure 40% 741 EV Turnover 8.27x 8.54x 7.83x 7.64x 25.45x 22.90x 11.96x 7.34x 7.10x 19.70x Average 8.38x Note: Numbers in grey have been excluded from average EV EBITDA 13.19x 13.26x 12.35x 12.33x na na na 10.52x na na 12.33x Toll road operators valuation – Transaction Analysis (cont’d) Toll Roads M&A Asset Transactions Transaction Date 30/06/2006 19/12/2005 29/09/2005 29/09/2005 20/06/2005 22/11/2004 26/10/2004 23/05/2003 23/05/2003 31/03/2002 29/11/2002 01/10/2002 29/04/2002 20/12/2000 20/12/2000 Target Name Acquirer Name Indiana Toll Road (US) Westlink M7 (AU) Dulles Greenway Toll Road (US) Dulles Greenway Toll Road (US) Midland Expressway Ltd (UK) Mitcham- Frankston Project (AU) 407 International Inc (CAN) San Diego Expressway (US) San Diego Expressway (US) 407 International Inc (CAN) Lusoponte (POR) Aucat (SP) 407 International Inc (CAN) Statewide Roads Ltd (AU) Airport Motorway Group (AU) Cintra/Macquarie Infrastructure Macquarie Infrastructure Group Macquarie Infrastructure Group Macquarie Infrastructure Group Macquarie Infrastructure Group Investor Group Macquarie Infrastructure Group Macquarie Infrastructure Group Macquarie Infrastructure Group Cintra Concesiones de Infr Macquarie Infrastructure Group Abertis Infraestructuras Macquarie Infrastructure Group Macquarie Infrastructure Group Macquarie Infrastructure Group Stake Purchase acquired % Price EURm 100.0% 5.0% 86.7% 13.3% 25.0% 100.0% 13.9% 82.0% 16.0% 6.0% 5.7% 8.8% 16.1% 50.6% 10.5% 3,040 29 443 70 73 na 443 46 na 126 16 48 350 93 33 New generation of potential investors Three main types of potential investors  Local Investment Funds: – Clear – Local buyers  exit strategies within to years Would require IRRs in the range of 12 to 20% depending on the risks associated to the projected cash-flows Local Conglomerates: – Would normally seek a strong influence position in the Board – Would require IRRs ranging from 12 to 20% CMB Prime Celfin Capital Southern Cross IM Trust Independencia Consorcio Copec Group Quiñenco Group Bancard Solari Group Three main types of potential investors (cont’d)  Specialized Infrastructure Funds: – These investors seek assets providing stable, predictable, long-term, monopoly type, inflation-linked returns – Their International Infrastructure funds investment profile allows them to avoid focusing on short-tomedium term exit strategies – Would  normally require IRRs ranging from 11 to 18% Long-term Direct Financial Investors: – Seeking larger investment tickets (usually +US$100 m) in infrastructure, real estate and infrastructure type of energy assets – This category groups Canadian investors that invest pension funds moneys Macquarie Carlyle ABN AMRO GE Deutsche AM Ontario Teachers Borealis Brookfield CPP KKR Three main types of potential investors (cont’d) Other (strategic) OHL  Concession operating holdings pursuing a portfolio strategy:  Pursue the opportunity as a way of gaining volume in the regional concession’s market  Focused on positioning the holding for an IPO in the medium term Autostrade/ Costanera Norte Acciona ACS Abertis Final Remarks – Infrastructure Industry Pending Issues Final Remarks  Some lessons from the Costanera Norte’s Experience: – Authorization resolution mechanisms – Better response time-frame to allow trading of these shares – Change of investments rules governing local insurance companies and AFPs Chilean Infrastructure Industry Overview ... a global toll road operator enters into the country  ABN AMRO has been a leader in this industry in Chile since its origins Chile Macro Overview – High growth combined with moderate risk  Excellent... deal is the largest M&A transaction in Chile in the new concession road industry up to date, Recent M&A Transaction: Costanera Norte Case Study - Chile  ABN AMRO executed the whole M&A process... Financial Adviser to Impregilo SpA Chile, June 2006  Deal closed in June 2006  ABN AMRO acted as sole financial advisor to Impregilo SpA, TECSA and Fe Grande  ABN AMRO executed this complex project