The Ministry of Economy is expanding ways to raise funds for large projects

The Ministry of Economy continues to complete the “project financing factory” mechanism; the department has submitted new proposals to the government to expand it. Due to the closure of the ability to raise funds on external capital markets, it is proposed to allow project companies receiving support within the “factory” to issue bonds to attract more financing. Experts note that investment projects really need new ways to attract capital – both to diversify sources and to ensure the necessary volumes.

As Kommersant learned, the Ministry of Economy has submitted to the White House a draft government resolution on further expansion of the “project financing factory” mechanism. Let us remind you that it was created to finance large projects worth more than 3 billion rubles. through syndicated loans attracted by VEB.RF. These loans are provided at a preferential interest rate, which is calculated depending on the key rate. The constancy of the preferential rate is guaranteed throughout the entire implementation of the project.

The mechanism has been expanded more than once before. In particular, until the end of 2024, there is a rule on a reduced share of co-financing of projects from investors’ own funds (15% instead of 20%), there is also the possibility of reducing this share to 10% through the participation of equity funds (see “Kommersant” dated May 23, 2023). Now, according to VEB.RF, 27 projects are being implemented within the “factory”, 12 more have been approved, and one project has already been implemented. Their total cost exceeds 2.3 trillion rubles.

As First Deputy Head of the Ministry of Economy Ilya Torosov explained to Kommersant, the changes proposed by the department are aimed at “reducing the negative effect of the inability to attract financing on external capital markets.” To achieve this, project companies that receive loans under the “factory” will be allowed to issue their own bonds. VEB explained to Kommersant that the possibility of financing through a public borrowing instrument “will make it possible to attract a large amount of funds required for large-scale projects.”

The purpose of “factory” loans is also expanding – according to Mr. Torosov, they can be used to purchase bonds of project companies.

To ensure the possibility of simultaneous use of the “factory” with instruments of public-private partnership (PPP) and concessions, says Ilya Torosov, it is proposed to formulate the conditions that such projects must meet. This is done to speed up the process of approving projects – in particular, so as not to submit them to VEB’s supervisory board for consideration (currently PPP projects are approved in such a special order). As they say in VEB.RF, it is planned to establish the following requirements: the presence of commercial revenue from the implementation of the project and the absence in the concession agreement of duplication of reimbursement of expenses already compensated within the “factory”.

“The market for investment projects, especially in priority sectors of the economy, needs new ways to attract financing,” says Pavel Seleznev, General Director of the National PPP Center (VEB Group). According to him, directing loans from the “factory” to purchase bonds of project companies “is a kind of win-win.” The project company receives funds for the implementation of projects, bond holders receive a long-term investment instrument with liquidity and income.

Timur Iskandarov, head of ACRA’s project and structured finance ratings group, notes that with the increase in the number of infrastructure projects, diversification of funding sources is also important, as is ensuring the necessary volumes. “In this light, project finance bonds are one of the key ways to achieve volume while sharing risk among different classes of investors,” he says.

VTB believes that the changes meet the needs of the market: companies want to attract not only bank financing for projects, but also gain access to stock market instruments that could be placed among a wider range of investors. Obtaining ratings for bond issues also helps banks lending to the project. “A good rating reduces the capital requirements of the project’s creditor banks,” explains VTB.

Evgenia Kryuchkova