Intesa sanpaolo response to the commission public consultation on the

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Intesa Sanpaolo S.p.A. Via Monte di Pietà, 8 - 20121 Milano Italy 













Intesa Sanpaolo is one of the largest European banking groups active on different 

European and emerging markets through its subsidiaries based in the new Member 


It is also the leading banking group in Italy, with 6,679 branches dealing with about 19.9 

million customers, a market capitalisation of 31.8 bn Euro and a strong international 

presence focused on Central-Eastern Europe and the Mediterranean area through more 

than 1,800 branches dealing with about 8.6 million commercial and retail customers. 


Banca IMI is a leading Italian investment bank of the Intesa Sanpaolo Group with a solid 

expertise and a significant track record. 

As far as its Structured Finance Department is concerned, Banca IMI is the leader in the 

Italian market providing a wide range of Acquisition Finance, Project Finance & Industry 

Specialised Lending, Corporate Solutions and Real Estate products and services.  

Banca IMI Structured Finance Department operates through four locations in the world: 

Milan, London, New York and Hong Kong (Intesa Sanpaolo Group). It offers advanced 

solutions with a global approach to structured projects with reliable Sponsors, with 

'investment grade' profile and Equator Principles compliant. 


The Project & Industry Specialised Lending Team provides debt financing and advisory 

products with focus on the following sectors: Energy (Power & Utilities, Oil & Gas), TMT, 

Transportation and Infrastructure (related to these  industries).  


Banca Infrastrutture Innovazione e Sviluppo (BIIS) is the Intesa Sanpaolo Group's 

bank for all public and private entities involved in developing major infrastructures and in 

providing essential public services. With more than 370 highly qualified professionals 

and a complete set  of traditional and innovative financial solutions, the bank provides its 

private and public sector clients with a whole range of services and products specifically 

geared to private/public partnerships. 

BIIS is the leader in public finance in Italy and one of the main specialist banks in this 

sector in Europe. BIIS mission is the promotion and development of economic growth in 

the countries in which it operates, focusing on six priority areas: 

  Financing major infrastructures; 

  Assistance to public healthcare services, universities and scientific research; 



public utility services; 

  Financial support for public sector budgets; 

  Financing of urban development projects; 

Intesa Sanpaolo S.p.A. Via Monte di Pietà, 8 - 20121 Milano Italy 


  Structuring of innovative solutions for the efficient management of banking 

services performed by public entities. 

The Bank also operates through its representative offices in London, Paris, Istanbul and  

through a Public Finance Desk in Cairo part of a joint venture with the Egyptian Alex 

Bank, a 70% owned subsidiary of Intesa Sanpaolo. 


Intesa Sanpaolo has been supported by its International Regulatory and Antitrust Affairs 

Office and by Intesa Sanpaolo Eurodesk S.p.r.l


 in working out this paper. 




The Intesa Sanpaolo Group welcomes the opportunity to comment on the Commission’s 

consultation paper on “Europe 2020 Project Bond Initiative” and greatly supports the 

Commission’s initiative to spur a debate on the important issue of financing EU 

infrastructures. The Project Bond mechanism is likely to attract private sector institutional 

investors. We believe that demand from selected categories of institutional investors 

(such as insurance companies and pension funds) for long dated paper with predictable 

annuities is increasing. These bond investors have long term liabilities that could be 

matched by long term assets such as transport, energy or ICT projects.  


The need to finance a large number of sizeable projects in the EU in the next ten years 

requires also the active involvement of equity investors, debt providers and capital 

markets in the most efficient way. The proposed initiative goes somehow in the direction 

of attempting to merge these different financial sources in project development in the 

European context, a very challenging effort indeed. 


One remarkable aspect is that the infrastructure sector has significant capital 

requirements, equity or quasi equity contributions, which can seldom be provided  by the 

sponsors active in this field. The financial product proposed by this initiative deals with 

the satisfactory reduction of this shortfall that should be made available to all entities 

involved in the financing of an infrastructure project. 


We would like to highlight that we are responding to the consultation in our capacity as 

banking group which finances public works, infrastructures, public private partnership 

structures and private projects and as arranger of debt as its core activity, but also in our 

capacity as financial and market advisors. It is well known that rating, yield and liquidity, 

probability of default, guarantee instruments, predictability and certainty of cash flows 

are perceived differently by capital market investors or senior financiers even if they 

provide financing for the same infrastructure project. 


Our contribution therefore, does not reflect the perspective of a capital market investor 

(under the same market conditions), but that of a senior lender. 







IntesaSanpaolo Eurodesk S.p.r.l. (ISPE) is a special purpose vehicle with the mission of providing companies with a 

wide range of tailored services on the contents and the working of the EU Programmes and policies. ISPE offers 

institutional consultancy services in dealing with EU Institutions, in structuring European partnerships and in monitoring 

business opportunities stemming from EU Programmes. 


Intesa Sanpaolo S.p.A. Via Monte di Pietà, 8 - 20121 Milano Italy 




General questions 



Q. 1. Is the chosen mechanism likely to attract private sector institutional 

investors to the sectors of transport, energy and ICT in particular? If you are an 

investor, would you be prepared to buy such project bonds? 



Project Bonds are an interesting opportunity for enhancing the project finance market. 

The credit enhancement provided by the EIB’s guarantee mitigates the risk profile for all 

lenders (bondholders and bank lenders) and, by catalysing further sources of finance, it 

increases the availability of capital for further investments.  


From the investor’s point of view, there are still product features requiring further 

explanation. We believe that demand from a selected number of institutional investors 

(such as insurance companies and pension funds) for long dated paper with predictable 

annuities is increasing. Some bond investors have long term liabilities that could be 

matched by long term assets such as transport, energy or ICT projects. However, very 

often though, these investors are not in a position to buy loans (for regulatory or 

statutory reasons) and have to comply with minimum rating requirements.  


The chosen mechanism should offer the opportunity to buy securities with the required 

rating level. Given the right level of return, the proposed product has significant potential 

to attract private sector investors, in particular if the guarantee is structured in a way so 

as to substantially mitigate the construction risk. 


Other factors that should be properly addressed are: 

  the lack of cash-flows during the construction period and consequently no 

interest paid (i.e. no debt service during this period); 

  the tax regime applicable to the bonds (e.g. withholding tax rules). 



Q. 2. Are there other sectors with large-scale infrastructure financing needs that 

should be included? 



In our opinion all sectors where prices and revenues are regulated could reasonably be 

included; more specifically all those projects in these sectors which provide certainty of 

cash flows through availability based payments. In addition to transport, energy and 

ICT/TMT (including the related infrastructure, such as roads, transmission lines, 

storages, broadband networks), the following sectors might be included: 









Intesa Sanpaolo S.p.A. Via Monte di Pietà, 8 - 20121 Milano Italy 


Specific questions 


Q. 3. Would the credit enhancement facilitate/accelerate the conclusion of 

financing packages? 



The Intesa Sanpaolo Group believes that the proposed credit enhancement product will 

make it easier to find investors, although there are still issues that need to be resolved; 

e.g. the risk profile and the maximum achievable rating level. 


More specifically, it all depends on the rating level secured by the relevant financing 

instrument and on the ability/appetite of bondholders to invest in this financial 

instrument. It would be useful however to understand whether the proposed guarantee 

will operate as a full financial payment guarantee (e.g. the old monoline type) or only as 

a partial payment guarantee to cover specific project risks. 


Depending on the considered sector different levels of investment grade rating are 

achievable and this might attract different types of capital market investors. 


It is well known that Energy or Infrastructures projects do not display always the same 

profitability. E.g. in the Energy sector the credit enhancement will make it possible to 

achieve an investment grade rating for the most senior tranches. Some institutional 

investors have internal or regulatory limits and can only buy investment grade securities 

rated in the ‘As’ range. Some others have less binding limits and are free to buy 

securities of lower rating brackets.



Wrapping would ease the conclusion of financing packaging because it would provide 

access to a much wider group of investors. Wrapping moreover could  contribute to 

mitigate construction risks together with equity cushions and EPC contracts.




Q. 4. What minimum rating of the bonds would be sufficient to attract investors? 



In order to make a project bond more successful for the market bonds should be rated at 

least investment grade. In our experience this is already a significant achievement in 

infrastructure project financing. 



Q. 5. What degree of credit enhancement would be necessary to achieve this 




It is hard to indicate a general rule: this depends on the nature of each project, its risk 

profile and its quantitative and qualitative features (e.g. construction risk, counterparty 

risk associated with relevant project contracts, liquidity of the market, country risk, 

regulatory risk associated with the local legislative framework, etc.) 


With reference to par.5.2 of the Consultation Paper, in technical terms a funded 

subordinated debt tranche (“layer of debt at subordinated level”) reduces the loss given 

Intesa Sanpaolo S.p.A. Via Monte di Pietà, 8 - 20121 Milano Italy 


default (LGD) when compared to an unfunded subordinated debt tranche (“debt service 



Funded subordination may be considered more appropriate for high-leveraged projects 

with more predictable cash flows, while unfunded subordination may be more supportive 

for projects with uncertain cash flows and consequently higher DSCR, or for projects 

which require contingent funds availability. 


Q. 6. Which impact would the Initiative have on financing costs and on maturities? 



In the Intesa Sanpaolo’s view this initiative should definitely reduce the total average 

financing costs for the project as a result of the credit enhancement. There might also be 

a positive impact on maturities (average life of the whole debt package), because bonds 

usually have a longer tenor than bank debt. 



Q. 7. Is it essential that a single entity acts as controlling creditor? 



Even though private institutional investors would have a less proactive approach than 

banks, considering the project finance nature of the project bond and the frequency of 

contractual amendments and waivers that characterize project finance, from a credit 

perspective we believe that bondholders should be more represented than in the case of 

usual bonds. 


Therefore one controlling creditor acting on behalf of bondholders is definitely needed 

and the relative relevance of different classes of debt will determine the most appropriate 

controlling creditor (the Bond Paying Agent, with an administrative role, will usually be a 

different entity from the Controlling Creditor). 


Where bank loans and bonds are present in the financing of a project, they usually are 

pari passu in terms of security. As long as bank loans exceed an agreed threshold, bank 

lender approval to waivers or consents will frequently be binding on bondholders as well. 

In any case it is important that the inter-creditor agreement provides for alignment of 

interests among senior creditors and, most of all, make sure that any possible risk of 

deadlock between different classes of creditors is avoided. 


The experience of the Intesa Sanpaolo Group so far leads to believe that, if bank finance 

coexists with bond finance in the same project, the former has higher levels of decision 



Intesa Sanpaolo S.p.A. Via Monte di Pietà, 8 - 20121 Milano Italy 



For any further comments or questions, please contact Intesa Sanpaolo’s International 

Regulatory and Antitrust Affairs Office: 


Mrs Alessandra Perrazzelli 

Head of International Regulatory and Antitrust Affairs 


Mrs Francesca Passamonti 

Regulatory Advisor - International Regulatory and Antitrust Affairs 


Mrs Cristina Piai 

Business Advisor - Intesa Sanpaolo Eurodesk S.p.r.l.  – International Regulatory and Antitrust 




Intesa Sanpaolo S.p.A. 

International Regulatory and Antitrust Affairs 

Square de Meeûs, 35 - B - 1000 – Bruxelles - Tel. + 32 2 640 00 80 

Via Monte di Pietà, 8 - I - 20121 Milano - Tel. + 39 02 87962258


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