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On 26 March, 2009, a round table was held on the subject “Infrastructure bonds as a promising financing instrument under the conditions of the crisis: current possibilities, problems and risks”.  The event was organised by the Federal Service for the Financial Markets and the law firm Vegas Lex under the auspices of the Ministry of Finance of the Russian Federation.  The round table was attended by over 150 representatives of business, the government and the media.  The experts at the event include ones from the Federal Service of the Financial Markets, the Ministry of Finance of the Russian Federation, the PPP Centre of Vnesheconombank, the State Duma of the Russian Federation, as well as Vegas Lex associates.       

The round table’s moderator was Albert Eganyan, Managing Partner of Vegas Lex: “Under the conditions of the global financial crisis, there is undoubtedly a need for financing of infrastructure products with ‘long-term” money.  The subject of infrastructure bonds is a very topical one and has found its reflection in a significant number of resolutions and instructions coming from the Government and appointment of various ministries and departments to deal with this matter”, Eganyan noted.  In his opinion, infrastructure bonds may become one of the key instruments for development of the regional and municipal infrastructure.

Vladimir Milovidov, Head of the Federal Service for the Financial Markets, commented in his speech that: “The instrument of infrastructure bonds is of a long-term strategic nature within the scope of implementation of public-private partnership projects and is designed to assist in strengthening the national economy.  Development of public-private partnership and the infrastructure in the branches of the Russian economy is a government policy priority and receives government support.”  Milovidov noted the need to create a mechanism for issuing infrastructure bonds that would differ in its structuring and trading characteristics from the other types of securities and added that: The given instrument must be structured in such a way that it satisfies the quite strict requirements of the Budget Code and the requirements imposed on instruments subject to state guarantee.”  He identified another condition for successful development of the institution of infrastructure bonds as their appeal for a broad range of investors, as well as the need to use this instrument on a liquid market, in particular repo transactions.

The key speech at the event was that given by the Deputy Head of the Federal Service for the Financial Markets, Alexander Sinenko.  He presented the key provisions of the draft law on infrastructure bonds, explaining the ideology of the new law, what is regulates and its basic provisions.  In his opinion, “the given law is called on to fulfil the task of boosting the inflow of long-term investments for construction and modernisation of infrastructure facilities and to create a new instrument for investment by conservative investors, develop the securities market and elaborate mechanisms for providing state guarantees within the scope of infrastructure projects.”  Sinenko also identified the paramount measures required for forming an institution of infrastructure bonds: “The first stage involved developing the concept for legal support for the trade in infrastructure bonds, including determining the range of legal relations, listing the risks on the part both the issuer and the state, and confirming the possibility of regulating the institution of infrastructure bonds within the framework of existing legal norms.”  The next stage, in his opinion, will be to draft the federal law itself and pass the requisite subjudicial acts.   Sinenko focused the audience’s attention on the time schedule for developing the legislative base for infrastructure bonds: “It is planned to present the drafted and agreed federal law on infrastructure obligations for consideration by the Government in July 2009”, he noted.   

The Deputy Director of the Department for budget policy in branches of the economy of the Ministry of Finance of the Russian Federation, Andrei Ivanov, offered the audience a speech entitled: “State guarantees of infrastructure bonds: the conditions for presenting them for project implementation”.  An important theme of his speech was recognition of the need for division of the risks and liability among all participants in the process of issuing infrastructure bonds.  Ivanov also named a number of the preconditions for emergence of a market for infrastructure bonds, including: serious structural changes on the rouble bonds market in connection with the crisis of the global financial system, higher interest rates and the fall in interest in rouble bonds on the part of both investors and potential issuers, and the limited opportunities for recourse-free financing of projects, including concession ones.  “Under the current circumstances,” he commented, “placement only of special debt instruments is possible -- ones that will be offered for purchase by the most conservative investors and will be accepted as surety for financing of repo transactions in the Central Bank of the Russian Federation and will provide investors with the optimal balance of risk and returns.”  According to Ivanov, infrastructure bonds meet the given criteria fully.  In his presentation, he also dwelt on the necessary conditions for successful development of the market for infrastructure bonds, among which he named “determination of the co-ordinator on the part of the state, creation of an organised mechanism for implementation of the project and, of course, introduction of amendments into the Russian legislation.”

The Director of the Public-Private Partnership Centre of SB Vnesheconombank, Alexander Bazhenov, gave a report on the subject: “Institutional investors: possibilities of raising funds from conservative investors for infrastructure projects.”  After confirming the current need for the institution of infrastructure bonds, Bazhenov noted, in particular, the necessity of distributing the risks in PPP projects between the government and the private sectors and offered different variants for more active participation by Vnesheconombank, as the biggest institutional investor, in developing infrastructure bonds, particularly the possibility of setting up an SPV with participation by VEB for securitisation of project risks.  He also supported the view put forward by other speakers that infrastructure bonds do not have to be issued under a state guarantee and could be an instrument for financing infrastructure project at all levels of the Russian economy, right down to municipal projects.   As Alexander Bazhenov put it, “the main thing today is to form effective legal constructs that would allow infrastructure bonds o be used not only in concession projects.”

Evgeniy Glumov, Head of the Vegas Lex Group for implementation of infrastructure projects, described in his speech the main organisational and legal form for structuring infrastructure projects at various levels, using infrastructure bonds: “There is great potential for using infrastructure bonds in different branches of the economy at the federal, regional and municipal levels and the most pressing task is to systematise the structure of such projects from the viewpoint of the interests of the investors, state authorities and financial institutions.”

The round table was concluded with a lively discussion of the potential for using the institution of infrastructure bonds and vitalising the market, in which State Duma Deputy Kira Lukyanova took part.  “At today’s meeting, we have got closer to an understanding of the increase in the role and significance, under the current financial crisis conditions, of infrastructure projects that require financing out of both government funds and private investments”, Lukyanova noted.  She is convinced that “a law on infrastructure bonds is overdue and, in this connection, an urgent question is that of setting up an inter-departmental group consisting of representatives of business, regulators and legal consultants for joint work on the law on infrastructure bonds”.