New dimensions of the public private partnership private equity options in developing countries
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New Dimensions of the Public-Private Partnership: Private Equity Options in Developing Countries. Alan G. Straus Skadden, Arps, Slate, Meagher & Flom LLP Istanbul November 8, 2006. Investigating New Dimensions. Meaning of “infrastructure” Meaning of “private equity”

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New Dimensions of the Public-Private Partnership: Private Equity Options in Developing Countries

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New dimensions of the public private partnership private equity options in developing countries

New Dimensions of thePublic-Private Partnership:Private Equity Options in Developing Countries

Alan G. Straus

Skadden, Arps, Slate, Meagher & Flom LLP

Istanbul

November 8, 2006


Investigating new dimensions

Investigating New Dimensions

  • Meaning of “infrastructure”

  • Meaning of “private equity”

  • Reasonable targets of private investment in a developing economy

  • How the public sector can assist

  • Investing in a “bottoms-up” manner instead of from the top down


Traditional private equity

Traditional Private Equity

  • High-profile financial investor/ major corporation

  • Taking target operations “private”, no public reporting

  • Stock market exit at high multiple


Infrastructure investment in developing countries urgently needed

Infrastructure Investment in Developing Countries Urgently Needed

  • Infrastructure investment can directly assist the poor by

    • Enhancing economic activity

    • Removing bottlenecks in a local economy

    • Generating distributional effects by increasing the access of the poor to product markets


Infrastructure

Infrastructure

  • OECD defines as power, telecoms, roads, and water supply

  • More really constitutes “infrastructure” that is suitable for PPP investment

    • Political and social constraints


Expanded infrastructure

Expanded Infrastructure

  • Small and medium sized businesses where a relatively small, targeted private equity investment can have a general multiplier effect

  • More targets for investment

  • Maintains local ownership of resources in the host country


Sme targeted private equity investment

SME-targeted Private Equity Investment

  • Stresses the importance of small and medium sized enterprises (SMEs) to produce economic growth and human security

  • Portfolio investment

  • Jumpstart a business that needs development capital but for various reasons can’t access more traditional capital

  • Stimulate growth in the SME sector that in itself will be able to have a greater opportunity to expand and build infrastructure, as widely defined


Sme targeted model

SME-Targeted Model

  • Not a controlling investment

  • High risk

  • Ties to Management Training

  • Usable with Islamic Financing Techniques

  • Lower Leverage


Afghanistan renewal fund

Afghanistan Renewal Fund

  • Mix of European and Afghan management

  • $20 million committed

    • High-net worth individuals

    • Development finance institutions and donors

  • Pipeline: over 200 potential deals

    • Entrepreneurs seeking total investment of $380 million

    • Deal-pipeline growing at 10-20 deals/month


Effective public sector participation

Effective Public Sector Participation

  • May come in various forms

  • Public sector participates as investor

    • Publicly funded development finance institutions can partner with private sector in investing

  • Public Sector as asset owner

    • Private sector participates with low capital and investment risk through service or management contracts


Effective public sector participation1

Effective Public Sector Participation

  • Public sector participation in the form of financial project support, such as guarantees and insurance, can mitigate investment risk

  • Public sector participation, through tax or concession incentives, might encourage packaging of investment in infrastructure that has sectoral or regional significance with business licenses for tradable opportunities

  • Public and private interests to create a fundamental utility (for example, water, power and sewage treatment and development rights) might support


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