When Greece passed a new PPP law in 2005, claims that the country was about to become Europe's hottest PPP market seemed overblown. The interminable court cases threatening the country's flagship road deals did not bode well for the prospects of the new law making much practical difference.

Two years on, however, Greece looks like it will indeed shape into one of Europe's better PPP markets over the coming years. While Europe's biggest markets, the UK and Spain, have slowed down during this period, Greece has closed, and now almost completed syndication, all of its Eu7 billion ($10.2 billion) real toll programme. Concurrently, and almost unnoticed, it has built up a pipeline of approved PPP projects currently worth in excess of Eu4 billion.

Most of these future projects are still at the stage of seeking advisors, but tenders have been launched for six projects, including the Eu74 million University of the Peloponnese project.

Furthermore, in January the ministerial PPP committee approved 10 new projects with a cumulative value of Eu877 million. The projects should ensure that even as the documentation on the road projects that occupied project financiers for so long are filed away, Greece will continue providing material for those financiers' in-trays. Projects are developing at a satisfactory pace as a healthy volume builds up.

"Even in the most developed PPP markets like the UK it will usually take a year minimum between a project's conception and it being launched for tender," says Leonidas Korres, head of Greece's PPP taskforce. "We are starting from scratch but in two years we have a lot of major projects almost at the end of the process."

Traffic jams

For now, however, the focus remains on tying up the remaining loose ends on Greece's road deals. Four of these have now syndicated, of which two are awaiting confirmation of state aid clearance from the European Commission before all the CPs to be met. The final two will launch syndication in the coming weeks.

Five of the six projects comprise 30-year brown and greenfield concessions along the two critical axes of Greece road network, which form part of the Trans-European Road Network (TERN): the north-south PATHE (Patras-Athens-Thessaloniki-Evzoni) highway and the west-east Egnatia Odos. For most of the projects the level of traffic risk is small because of the importance of these roads for the country.

Aside from the TERN projects, the other project is the Eu472 million Thessaloniki Submerged Tunnel (TST), the only one out of the programme that is fully greenfield and the first to reach financial close, in August 2007. Sponsored by the Greek consortium Thermaiki Odos, the deal's financing – comprising Eu152 million of commercial debt with a 25-year tenor, and an equal amount of EIB debt, as well as subordinate facilities – was lead arranged by HVB/Unicredit, Millennium BCP and EFG Telesis Finance. Syndication, which closed in November and was 2x oversubscribed, saw the lead arrangers joined by Agricultural Bank of Greece, Attica Bank, National Bank of Greece, Europe Arab Bank, Fortis, LloydsTSB, Piraeus Bank, Depfa, HVB, Mizuho and Emporiki.

Greece's government of the time first launched the road programme in 2001, before it ran into trouble over poorly drafted documentation and had to be relaunched in 2004. The intention with the relaunch was that construction would begin in 2006. However, as preferred bidders were chosen for the first projects, losing bidders challenged the process on TST and Maliakos-Kleidi in Greece's courts, leading to long delays and much frustration. TST reached commercial close shortly before the end of 2006, quickly followed by the Eu1.1 billion Ionian Road (Ionia Odos), but there were to be further delays in 2007 as the process of obtaining state aid clearance from the European Commission dragged on longer than the anticipated four months.

After all the delays, Greece's remaining road deals ended up reaching commercial close within a relatively short time of each other by mid-summer last year. The timing was unfortunate in that it meant several billion euros of Greek road PPP debt hitting the syndications market in close proximity to each other just as the credit crunch was kicking in.

While the credit crunch has caused problems, the deals are getting syndicated without too much fuss. After the success of TST, Ionian Road closed in January in what was for the most part an all-Mediterranean affair. The project is sponsored by the Hellenic Autopistas consortium, two thirds owned by Spanish giants Cintra and ACS Dragados, and the mandated lead arranger group was Santander, BBVA, EFG, and Fortis Bank. Eu405 million of the project's financing came through a 25-year loan priced at between 95bp and 115bp over Euribor. The syndication saw around seven Greek, two Spanish and one Italian bank joining the deal.

Two more deals also agreed syndication in January, but are awaiting EU clearance, which is expected to be officially granted in March, before they can formally closed. The Eu702 million ($1.4 billion) debt backing the Eu1.1 billion Corinth-Tripoli-Kalamata highway sponsored by Hellenic Technodomiki is lead arranged by BNP Paribas, HVB and Royal Bank of Scotland, and will be sold to Greek and international banks. The 25-year debt includes a Eu395 million portion carrying traffic risk, pricing at 115bp moving up to 140bp, and Eu261 million to be serviced through state payments, priced at 105bp.

The Eu1.28 billion Maliakos-Kleidi project, sponsored by a consortium led by Hochtief, Hellenic Technodomiki and Vinci, includes Eu601 million of project debt lead arranged by Calyon, Dexia, ING and Piraeus Bank. Seven syndicated banks will join the arrangers once state aid clearance comes through. Although Maliakos was among the last of the deals to reach commercial close, it was the first to launch for tender and has subsequently benefited in syndication from having agreed a good price for the banks early on, thought to be around 125bp.

Loose ends

Bankers working on the two remaining projects – the Eu1.5 billion E16 Central Motorway and the Eu1.686 billion Athens-Corinth-Patras project – are looking to syndicate them in February. The volume of debt to be syndicated on these projects suggests they should be more tested by the illiquid market conditions than the deals that preceded them.

The same Spanish-led consortium that is on Ionian Road is sponsoring the E16, and though syndication will go wider than the mostly all-Mediteranean affair on the former deal, the strong relationship link between the Spanish sponsors and banks should see it through without too much pain.

Financing for the project includes Eu950 million of debt with a 25-year tenor, split between a Eu250 million loan that will repaid through toll revenues and a Eu700 million term loan to be repaid from state availability payments, so carrying no traffic risk. The debt with traffic risk is priced at 100bp, while that without has a 60bp margin. The MLAs on the project are BBVA, EFG, Fortis, Caja Madrid, Piraeusbank and Santander.

The Athens-Corinth-Patras highway potentially faces a tougher time of it when it goes to general syndication. Being the last of the projects to reach commercial close, it is thought that out of the six deals the margins on this one are tightest, and it is likely that successful syndication will require a price flex. Sponsored by Vinci, Hochtief and Hellenic Technodomiki, Senior debt on the project is Eu1.21 billion, with another Eu400 million from refinancing an initial government subsidy for the project and Eu75 million of standby debt. Alpha Bank, Calyon, Millennium BCP and Natixis are the lead arrangers.

Athens-Corinth-Patras is unusual among the road projects for having a short debt tenor of 15 years. One banker working on the syndication claims that this is what might give the project a sufficient fillip in syndication to safeguard against a flex.

"We are not concerned about pricing as we feel the pricing on the deal is high enough to get a good average cost of funding for the level of risk involved," says the banker. "Despite the liquidity troubles in the market, the banks still need to book deals and put assets to work. Don't underestimate the appeal of deals with this kind of proven traffic history and tenor. People may have become more selective in terms of what they're looking for, but within their selective criteria, these are the kinds of deals that are getting done."

Next generation

Irrespective of the state of global liquidity and negotiations between financiers, getting these projects banked remains a considerable achievement for Greece considering the problems that were encountered. And the experience of dealing with those problems has since 2005 been well harnessed for the wider benefit of Greek PPP.

The 2005 law created a central PPP committee and taskforce, modelled on the UK PPP taskforce, given the job of helping to spot potential PPP projects and working with the tendering bodies through the process. The law also standardised elements of risk allocation, sidestepping one of the failings of the road programme and other early Greek PPP deals, where tenders collapsed due to poorly drafted documentation.

The 10 additional projects approved in January takes the total number of PPP projects now approved to 34. Of these, 16 are tendering for advisors; and of the six projects that have already invited bids from contractors, two have now received submissions.

It is not just the deal volume building up that is impressive, but also the range of government departments that are tendering projects under the new framework. For example, the projects approved in January included several standard projects like student residence halls, government buildings and sports centres, but among them were also a waste management project and projects from the Defence Ministry, including the one for the DBFO of a flight simulator centre and another for the installation and maintenance of security systems in 23 ammunition dumps. Overall, approved projects include schools, hospitals, prisons, port security, fire and police stations and sewage treatment, among others.

"We should see the first projects signing after the summer," says Korres. "With the variety of projects being tendered, there will be big opportunities for both the Greek and the international markets."

The early indicators are that this is how things are perceived in the market. Whereas the large size on Greece's road projects led to the roads being tendered to a mix of Greek and international sponsors, when the PPP law was passed the smaller size of projects within its scope led some to speculate that the market that would emerge would be mostly composed of Greek companies. However, on the two projects to date that have launched for tender – a 20-year DBFO for seven fire stations and 20-year one for a conference centre costing Eu20 million – the pre-qualified bidders include Hochtief, Vinci and Inniesfree. The small size of both these concessions suggests the companies are positioning themselves to take advantage of larger projects in the future.

The big projects to come include an oncological hospital and a paedriatric hospital in Thessaloniki, each costing just over Eu300 million, and a general Hospital in Preveza and recovery centre in northern Greece, each worth just over Eu100 million. A 10-year project for the installation of security in 12 Greek ports is budgeted at Eu342 million. There are also three grouped school deals ranging in cost from between Eu63 million and Eu150 million and a project for the construction of three new prisons with an estimated cost of Eu198 million.

The signs are encouraging, but if past experience with roads is anything to go by, the big test for these projects is still to come, and that test will be the speed with which things progress once bidders have been selected. However, what the roads have also shown is that even if they come a bit late, Greece is able to deliver big projects to the market.