Cebu airport expansion clears path for future large-scale PPPs in Philippines
Distinguished as 2015 Transport Deal of the Year by Project Finance International magazine, the project is a milestone for the government's PPP program.
Distinguished last month as 2015 Transport Deal of the Year by Project Finance International, the PHP33 billion ($747 million), the Mactan Cebu international airport terminal expansion in the Philippines is a significant milestone for the Aquino government's public-private partnership (PPP) program. The groundbreaking in June 2015 marked the culmination of many months of persistent efforts by investors, lenders and advisors.
The first large-scale PPP project to reach financial close under the current administration's PPP program, it has also been the only one so far to attract significant levels of foreign investment as well as the highest number of bid participants.
The need to upgrade the airport’s facilities has been recognized for some time, leading to a situation where Mactan Cebu—originally built as a US Air Force runway in the 1950s—is severely overstretched. The current terminal was designed to accommodate 4.5 million passengers a year, but now serves close to 7 million annually, straining the infrastructure to its limits, and leading the Philippine government to earmark the project as a top priority for development under its flagship PPP program.
Once the expansion is completed in 2019, the airport’s capacity is expected to triple to 15 million passengers a year, and the significant improvements to the facilities are expected to greatly enhance passengers' in-airport experience. These will include the construction of a new passenger terminal and associated apron, the renovation and upgrade of the existing passenger terminal, the development of commercial facilities.
After winning a bidding process that including several of the world’s leading airport operators, full operation and management over the 25-year concession period was awarded to GMR Megawide Cebu Airport Corporation, a consortium between Megawide Construction and GMR Infrastructure. Megawide is an established Filipino construction company that has won four other PPP projects in the country, while GMR is a holding firm based in Bangalore, India that develops a wide range of infrastructure projects and is considered the fourth largest private airport operator in the world.
The project raised financing from a mix of local and offshore sources in both pesos and dollars in a ratio matching the expected portion of peso to dollar revenues. The loan tenor for both the onshore and offshore portion of the debt is among the longest raised for project finance transactions in the country. The financing benefits from a relatively standard security package, including step-in rights over the main project documents. Financial close for the full debt package was achieved at the end of January 2015.
ADB provided the $75 million dollar portion of the debt, while a consortium of seven local banks contributed the remaining PHP20 billion ($438 million) in a deal arranged by local firm BDO Capital. ADB and BDO Capital also led the legal, financial and technical due diligence, including the negotiations of the financing agreements.
Contrary to perceptions from some quarters that the Philippine PPP market is closed to international sponsors and lenders (given the predominance of the local conglomerates and the liquidity of the local banks), the Mactan Cebu project has proven that there are opportunities in the Philippines for international sponsors, multilaterals, local and international banks. Its successful financial close should boost confidence in the market and provide a clearer path ahead for future PPPs in the country.