By now, it has become clear that for some well-placed investors the pandemic has not only been manageable, but potentially fruitful. Meridiam, the French emerging markets infrastructure investor, has seen continued growth over the past two years and is showing no signs of slowing. PFI spoke with CEO and founder Thierry Deau about 2021 and beyond. By Peter Collins.
The company has this year been involved in a series of landmark and pioneering deals across Europe, Latin America and Africa. It raised more than US$6bn in new capital across five funds, including two successor funds: Meridiam Sustainable Infrastructure Europe IV (MSIE IV), its fourth-generation European flagship fund, which reached its hard cap at €2.3bn this summer, five months after launch; and Meridiam Infrastructure Africa Fund II (MIAF II), its second Africa-focused fund, had raised more than €500m by September and is expected to reach its €750m target.
Meridiam has raised capital for three brand new initiatives.
The Urban Resilience Fund (TURF) is a global blended finance, impact fund launched in partnership with the Rockefeller Foundation and the United Nations Capital Development Fund (UNCDF) to deliver critical resilient infrastructure projects in cities. TURF, which has reached a first close of €290m, will invest in both Europe and Africa.
The Green Impact Growth Fund (GIGF) is a growth equity fund providing capital to SMEs, “which are to become the champions of the ecological transition in Europe”. GIGF has already raised more than €150m, and will invest across the low carbon economy, circular economy, sustainable cities and smart buildings, clean mobility and sustainable agriculture and food sectors.
Third, Meridiam’s Sustainable Waste & Water Fund is being set up to acquire New Suez. Together with Global Infrastructure Partners (GIP), and Caisse des Depots (CDC) with CNP Assurances, it submitted a binding offer this summer for New Suez at an enterprise value of €10.4bn. New Suez is being created by larger peer Veolia’s takeover of French water management company Suez.
All in all, then, not a bad year.
“For Meridiam, the pandemic was an acceleration of our investments, particularly in emerging markets,” Thierry Deau, Meridiam’s CEO and founder, told PFI. “It increased a lot of countries’ awareness in the importance of critical infrastructure to their economic rebound.”
Neither were construction-stage projects overly affected by supply chain delays caused by Covid-19. “We were lucky to have locked in a lot of construction pricing pre-pandemic. There were a few supply chain delays but nothing we couldn’t cope with. Some of it wasn’t material as much as logistical,” said Deau.
Meridiam’s boss cited a couple of incidents – such as late crane delivery on the US$310m Nouakchott port container terminal in Mauritania, but overall deems the company to have been relatively unscathed. Much of the potential effects had been mitigated by pre-ordering, and the expectation is now that the global supply chain will return to normal.
Any sort of perceived return to normality from a development perspective is not an issue for Meridiam’s Deau. “We didn’t need to adapt back to a new normal because we were able to keep up the pace,” he explained.
Indeed, there was no shortage of deal flow, made more impressive by Meridiam’s approach to financing and the profiles of some of the projects. The company was involved in some notable “firsts” across the world and made good use of an array of financing instruments to get projects over the line.
The investor began its string of 2021 achievements by reaching financial close on the €520m D4 motorway PPP in the Czech Republic. The all-commercial €475m 27.5-year debt features multi-currency tranches – local currency tranche, euro tranche, and equity bridge – and aggressive gearing of around 90%. This, on the first successful transport PPP in the country’s history.
Meridiam’s tenacity in Eastern Europe bore fruit at the end of spring. A host of legal challenges and political delays – global pandemic notwithstanding – were eventually overcome in Bulgaria to finance the Sofia Airport PPP with co-sponsors Munich Airport and Strabag.
The sponsors took over operations of the airport in April following satisfaction of conditions precedent and the signing of an addendum to their concession contract with Bulgarian transport minister Rossen Zhekyazkov. The Minister said at the time that the addendum, which postponed the consortium’s annual fee payments, a minimum of €24.5m, for the first 10 years of the concession, was granted to “restore the economic balance of the concession, disrupted by Covid-19”.
Meridiam’s experience in the region enabled it to anticipate the likely legal challenge to its 2019 tender win by a rival consortium. A lack of best practices and clear guidelines on the matter mean legal challenges can often be made without much hindrance or oversight – which can have a chilling effect on the market. Nevertheless, a solid commercial and development finance institution-backed project financing secured the future of the airport, which was handling around 7.1m passengers and 24,000 tonnes of freight pre-pandemic and has held up comparably well since.
In Africa, Meridiam is co-sponsor of the first large-scale biomass plant in Africa – Biovea, a 46MW scheme in Ivory Coast financed in June – and of the 34.1MW Kinguele Aval hydropower plant on the Mbei river in Gabon, the country’s first project-financed IPP.
French multilateral Proparco led the €165m financing for Biovea with a €135m concessional loan and €5m investment grant, EAIF provided a €30m loan and its parent PIDG is involved with an €8m grant. Capex was €228m, of which 72.3% is paid for by debt, 22% through sponsor equity and 5.7% with grants.
For Kinguele, IFC provided a €33m senior loan and up to €20m in the form of a concessional loan from its Canada-IFC Africa Renewable Energy Program, as well as mobilising €98m from the three other multilaterals.
EAIF provided €25m while AfDB's involvement is split between €20m from its own account alongside €10m from the People's Bank of China-sponsored and AfDB-administered Africa Growing Together Fund (AGTF), while the Sustainable Energy Fund for Africa (SEFA), a special multi-donor fund managed by the bank, provided €9m of concessional financing.
The crown in the jewel – or the cherry on the sundae – might perhaps be the first-in-market West Guianan Power Plant (CEOG) hydrogen-based power plant in French Guiana, on which Meridiam is leading development with Hydrogene de France. A consortium of commercial and development banks provided the debt on the US$200m scheme.
The innovative project, which involves solar photovoltaic, lithium-ion storage, electrolysers and fuel cells, seeks to solve the issue of intermittency in renewables and the combination of short-term battery storage and longer-term hydrogen storage has essentially created baseload renewables. While still somewhat expensive – and understandably so – it appears the sponsors have cracked an important code in the energy transition campaign.
Attention now turns to the €1.3bn Summit Road highway PPP it is developing with Vinci in Kenya, expected to close in early 2022. Debt will total more than €1bn and feature a World Bank-covered development finance institution (DFI) tranche featuring the IFC, EIB, CDC, Proparco and DEG; a Bpi-covered commercial tranche featuring many of South Africa’s commercial banks; and a long-term commercial bond tranche as well.
Summit Road consists of construction, widening and renovation of a 175km highway, and operating and maintaining it on a 30-year concession, with revenues derived from availability payments. The road will be tolled and those revenues kept by Kenyan authorities to pay for future road projects, something that stands out when dealing with African transport deals, according to Deau.
“It’s always a dilemma when countries try to establish a critical transport network. It needs a lot of initial subsidy because of developmental issues,” he explained. “The whole thing with these big road projects is they often don’t have the traffic demand to support full investment, but the structure in Kenya gives them time for revenues, wherein they keep revenue risk to be able to pay in the long-run – giving them a real resource to socially manage.”
Summit Road was compared, or rather contrasted, with Kampala-Jinja in Uganda, which is still stuck in limbo, and Accra-Tema in Ghana, which was eventually awarded to Portugal’s Mota-Engil on a design-and-build contract. Meridiam is one of the bidders, together with Vinci and Mota-Engil, for Kampala, but clearly views Summit Road through a different lens. “Kenya realises that value creation, in terms of for country, will be economic before financial, and they will try to bridge that gap,” said Deau.
PFI asked Deau about the challenges he perceived for Meridiam’s future, with an explosion of deals, lots of on-going and upcoming construction, and a trove of future opportunities to reckon with.
“It’s just about managing growth,” he answered simply. “We’re experiencing about 20% growth year-on-year and have reached a peak in terms of offices and people,” he added, referencing the two new offices recently opened in Africa. Meridiam now has a presence on the ground in Senegal, Gabon, South Africa and Ethiopia.
For Deau, like many in the infrastructure game, the energy transition will provide most new deals and projects to develop and acquire. “We are expecting a continued and increased focus on the energy transition in 2022 and a lot of our opportunities will come from there,” he said.
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