TAV Tunisie: A lesson in government and IFC flexibility

The Eu397.5 million ($605 million) project facility backing TAV's 40-year combined Enfidha and Monastir airports PPP concession owes much to the participation of the IFC, which not only provided longer-term debt than was available from the commercial banks but also helped TAV resolve a number of legal hurdles in getting the deal to financial close.

The project is two linked concessions, one for the design, building, financing and operation (DBFO) of a new international airport at Enfidha (for an initial capacity of 7 million passengers) and the second for the operation and upgrade of the existing Monastir International Airport (4.2 million passengers in 2006). The total project cost is Eu563 million.

The tender was originally launched in 2004 as a single greenfield airport concession for Enfidha Zine El Abidine Ben Ali International Airport. The auction pulled in seven prequalified bidders but was suspended when it became clear that the close proximity of Monastir International Airport – both airports serve the tourism areas of Monastir, Sousse and Hammamet on the Mediterranean coast – made a combined concession the best solution. The tender for both concessions was re-launched in 2006 and pulled in offers in January 2007. TAV won the tender in March 2007, beating the last remaining bidding group – Hochtief and SNC Lavalin.

TAV Airports Holding created special purpose company TAV Tunisie S.A. – established under Tunisian Laws and domiciled in Tunisia – to manage the concession. The Monastir concession started on 1 January 2008, the date on which TAV Tunisie took over the existing operations at Monastir Airport. Initial construction work at Enfidha Airport started in July 2007 and is scheduled to be complete by 1 October 2009.

TAV Tunisie is the first real PPP transaction in Tunisia. Although the combined concessions made for complexity, the inclusion of Monastir gives TAV an existing income stream, some of which will be directed into the Enfidha greenfield project.

Lead arranged by ABN Amro, IFC, Société Générale and Standard Bank, the deal is financed on a 70:30 debt-to-equity ratio (including sub-debt) and comprises a Eu102.5 million IFC A loan, a Eu255 million IFC B loan underwritten by the commercial banks, a Eu30 million IFC C loan and a Eu10 million standby facility. Tenor on the A and C loans is 20 years, and the subordinated tranche have a 15-year capital grace period that strengthens the projects robustness. Tenor on the B loan is 14 years with a 2.5-year grace period and a margin of 205bp over Euribor. Minimum debt service coverage ratio is 1.4x.

The deal started as a commercial bank facility but it became "clear that the concession needed a longer maturity than the maximum 14 years the banks could offer," says Burcu Geris, project and structured finance manager at TAV Airports Holding. "By January 2008 the difficulties were becoming issues and we decided to approach the IFC for key pieces of longer-term debt and their help in resolving a number of legal hurdles." It had also become apparent in due diligence that the concession agreement was not clear enough on the tariff structure or termination issues.

The flexibility and backing of the Tunisian government was also a major impetus in getting the deal done. "From March 2007 we always had the government by our side," says Geris. By April 2008 TAV had a letter of comfort from the government, the longer-term A loan and sub-debt from the IFC, clarification of legal issues and certainty that termination payments would cover the debt.

One of the biggest hurdles was tax and foreign exchange. Tunisia is investment grade but heavily regulated and does not allow for offshore accounts. Again, Tunisian government flexibility enabled the arrangers to put in place currency risk mitigation techniques that provided greater protection to investors and allowed for lower lending margins.

For the first time the Central Bank approved certain revenue streams to be billed and collected in Euros, resulting in the major portion of project revenues being Euro-denominated and substantially mitigating risk for Euro-loan providers. The borrower was also allowed to maintain onshore Euro accounts and convert Tunisian dinars to Euros at any time. IFC participation and the A/B loan structure further mitigates currency convertibility risk through the IFC's preferred creditor status

The arrangers also negotiated authorisation to re-insure the project outside Tunisia and access re-insurance proceeds via a cut-through provision.

The deal was based on conservative forecasting, with a very tight focus on traffic and revenue risks to deliver a strong banking base case. The lead arrangers conducted a careful review of non-aeronautical/commercial revenues to ensure they reflected the real socio-economic profile of visitors and their spending profile, and put in place conservative assumptions on aeronautical tariff adjustments which are revised by decree.

The financing also includes a cost contingency in the base case model and a tranched standby funding structure to cover cost overruns and/or revenue shortfalls during construction and ramp-up The deal comes with no pre-completion guarantees but features the usual construction bonding.

TAV syndication is ongoing, but is expected to close by end of February. 

TAV Tunisie: Enfidha and Monastir Airport
Status: Financial close 20 June 2008
Description: First Tunisian airport PPP concession financing
Sponsor: TAV Airports Holding
Total project cost: Eu563 million
Total debt: Eu397.5 million
Lead arrangers: Standard Bank; ABN Amro; Société Générale; International Finance Corporation
Financial adviser to government: Rothschild
Borrower legal counsel: Clifford Chance
Lender legal counsel: Allen & Overy
Lender technical consultant: Mott MacDonald
EPC contractor: TAV Construction