Tunisia's first major PPP project sets a precedent in the transport sector for North Africa and establishes a shop window for future private financing of infrastructure in the region.

Not only does this project stand out as a first of its kind, it also opens up the financing model for deals on two levels - greenfield construction followed by an operations and maintenance contract, as well as refurbishment followed by a concession.

The Tunisian airports deal was a complex transaction with two different but inter-dependent concessions and was successfully brought to financial close in a tight market.

It sees the financing of the construction of new Enfidha International Airport as well as the upgrade of Monastir International Airport and the operation of both under a 40-year concession, for a total project cost of around €565 million (US$785m).

The new and refurbished airports will help meet the needs of Tunisia's growing tourism industry on which the country has relied since the mid-1980s as a major foreign currency generator and employment creator.

In 2007, tourism accounted for almost 10 per cent of Tunisia's GDP and contributed to 15 per cent of the country's employment.

To date, the main point of entry to the country was Monastir International Airport which had fallen into a state of disrepair since its inauguration 40 years ago in 1968.

To keep pace with change and to provide tourists with the sort of welcome that a major tourist centre has to offer the world, it was deemed essential to upgrade the existing facility, build a new one to cope with growing demand as well as taking much of the pressure off the over-burdened Monastir which had reached saturation.

The Project

The tender process was staged successfully by Tunisia and the concession agreements for Monastir and Enfidha airports were signed in 2007 for a duration of 40 years with TAV Tunisie, the local subsidiary of Turkish transport giant TAV Airports.

TAV Airports was established in 1997 as a joint venture between two leading conglomerates - Tepe and Akfen - to bid for the Istanbul Airport concession. Since then it has grown considerably and by 2007 had six airports (including Istanbul, Ankara, Izmir and Tblisi) in its stable, handling around 30 million passengers.

TAV Tunisie took over the operation of Monastir on 1 October 2008 and the new facility - Enfidha Airport - is scheduled to be commissioned on 1 October 2009.

The finance, concession and project documentation span French, Turkish, English and Tunisian corporate and public law and financial close came about as a result of intense efforts to strengthen the concession agreements in a record time, amending signed concessions in 30 days.

The financial structure that was put in place for this latest project is robust and designed to withstand the most adverse possible air transport and economic scenarios.

Financing

The financing package features €135 million in equity - 30 per cent of the total project value - and €390 million of debt (US$540m) structured in four tranches of senior and subordinated debt.

The debt was provided by a team of four MLAs including:

• International Finance Corporation (IFC)
• ABN Amro
• Société Générale
• Standard Bank

It was arranged in four tranches:

• €105 million in 20-year senior debt (IFC)
• €30 million in 20-year subordinated debt - 15-year grace (IFC)
• €255 million in 14-year senior debt underwritten by ABN Amro, Société Générale and Standard Bank
• €10 million in standby debt underwritten by the arrangers

The debt was divided up as follows:

• IFC: €135 million (senior + subordinated debt)
• ABN Amro: €85 million (senior debt)
• Société Générale: €85 million (senior debt)
• Standard Bank: €85 million (senior debt)

Conclusion

This transaction provides innovative currency risk mitigation measures which set a benchmark for future projects in the region, provided greater protection to investors and allowed for lower lending margins which benefited the project and sponsors.

It also included 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 project's financial robustness was strengthened by introducing participation of a long-tenor subordinated tranche of IFC funding with a 15-year capital grace period

In addition, application of Equator Principles and highest standards of social responsibility help push this deal up to being a market-leader.

The project at a glance