Financing for the implementation of infrastructure projects


By Christina Faitakis, Attorney at Law, Partner at Karatzas & Partners Law Firm

Financing for the implementation of infrastructure projects

How can an infrastructure project be financed?

Private infrastructure projects can be freely financed by equity, shareholders’ loans, bank debt and other means of private debt and investments.
Public funding of eligible sectors of activity can be achieved through the Investment Incentives Law 4399/2016 which consists a statutory framework for the establishment of Private Investments Aid Schemes for the regional and economic development of the country.

In recent years and due to the financial crisis in Greece, International Financial Institution (IFIs) have become active in Greece to support reforms and the return of Greece to economic growth. European Investment Bank (EIB) provides direct lending in infrastructure projects and also is a part to various funding initiatives such as the JESSICA, the Guarantee Fund for Greek SMEs and the European Fund for Strategic Investments (EFSI) Financing instruments are offered with the support of the EIB Group through the direct financing of Greek banks.

The European Band of Reconstruction and Development (EBRD) has an approved plan to invest in Greece until the end of 2020 and currently offers in Greece support in project development through direct financing in the form of loans, equity and guarantees. The Black Sea Trade and Development Bank (BSTDB), an international financial institution with headquarters in Thessaloniki, Greece, is also active in Greece co-financing with commercial banks and other IFIs.


Are there any investment laws in Greece?

The Incentives Development Law 4399/2016 (the IDL) provided the framework on which the state aid schemes are based and has been implemented by various ministerial decisions setting the areas and thresholds. The law was based and is compatible with the EU General Block Exemption Regulation 651/2014, thus guaranteeing ex-ante compliance with EU state aid rules. All legal entities which are eligible to develop an investment plan in accordance with the policies and the rules of the IDL are eligible beneficiaries.
Types of aid include a) grants for supporting part of eligible expenditure; b) leasing subsidies up to 7 years for the acquisition of new machinery and equipment; c) tax exemptions (exemption from the payment of corporate income tax on profits, before taxes, generated 56 from the total business activity of the company, following the deduction of the corporate income tax which corresponds to the profits distributed to the company’s shareholders) and fixed corporate income tax rate for a period of 12 years from the completion of the investment project (exclusively for investment projects of large size); d) subsidy of new employment cost; and last e) funding of corporate risk through equity funds. Based on the determination of the actual size of aid approved for a project, aid can be provided either under one type of support or in combination thereof. The subsidy of funds and the leasing subsidy are not granted to companies that did not generate any profits in any of the seven (7) tax years prior to the year in which the relevant application was filed. A decision of eligibility and approval of subsidies is issued but the actual support becomes available, in principle, only after completion and issuance of the decision certifying operation commencement of the project. The minimum investment amount ranges from EUR 50,000 (for Social Cooperative Companies) to EUR 500,000.00 (for large companies).

The investment projects that are covered by the new Law relate, in principal, to all economic sectors, subject to certain exceptions (sector of steel, coal, synthetic fibers, shipbuilding, etc.).
With the Law “Acceleration and Transparency of Implementation of Strategic Investments” or Fast Track Law (3894/2010) as amended by the law “Creation of a Development Friendly Environment for Strategic and Private Investments” (4146/2013), the Greek Government attempted to provide to the international and local investors enhanced and simplified rules, procedures and administrative structures for the implementation of large-scale public and private projects. The intention is to fight the obstacles of bureaucracy, the complexity of legislation, and the lack of transparency, which has demotivated investors and significantly delayed the implementation of large-scale projects.

What is a public-private partnership (PPP)?

PPPs under Greek law 3389/2005 (the PPP Law) are contracts between a public body (the “Authority”) and a private entity, acting through a special purpose vehicle (the”SPV”) for the implementation of projects falling within the competencies of the Authority, except for those for which the state has sole responsibility, such as national defense, justice, and public safety. The financing and construction risk for a PPP project is undertaken by the SPV against consideration payable by the Authority (such as availability payments) or the end users of the project, either as a lump sum or in installments.
Projects that should proceed to implementation through the Greek PPP framework are approved by the Inter-Ministerial Committee for Public-Private Partnerships (the ICPPP). The ICPPP is responsible for approving the provision of the any contractual consideration to the private partner in the Public Investments Programme and the level of the public sector’s participation in the financing of a PPP project.
Strategy and implementation of the PPPs in Greece is confided to the Special Secretariat for PPPs which was set up by the PPP law to provide support and assistance to the ICPPP and also to Authorities wishing to develop projects under the PPP Law. Its main tasks are to identify projects, evaluate proposals submitted by the various Authorities and suggest to the ICPPP the approval of the same, facilitate and support the public entities in pursuing the tender procedures, as defined in Law 3389/2005, for the selection of the private entities and monitor of the implementation of Partnership Contracts.


How do public entities participate in the financing?

Either with money or in-kind contributions (i.e. concession of use of property or rights in rem over real estate or project exploitation rights through the duration of the concession or the partnership). In types of PPPs with a social character, where the end-users are not directly charged and their cost must be covered by the State, such as schools, the State pays availability payments (payments to the private partners for the availability of infrastructure) to the private partners. The profit and return of the investment of the Private Entities are included in the availability payments paid by the State.


How can a PPP project become bankable?

Private Entities are obliged to secure the financing of the projects, through own resources and bank debt. Financing is structured as a typical project financing and any profits (either direct payments by end-users or availability payments) are assigned to the lenders. PPPs lenders are granted rights under the partnership agreement such as to monitor the project and to intervene with remedy plans (e.g. substitution of the private party). Furthermore, to facilitate financing of the project, the State may guarantee the payment of the contractual consideration by the Authority against the SPV, following a relevant request by the Authority and granting of the required approval.


Are there any other allowances available?

VAT credit are available on eligible construction costs and according to the PPP Law VAT should be returned within 90 days from submitting a request.

Why use the bond loan structure under Greek Law 3156/2003 for financing infrastructure projects?

Implementation of project finance structures in Greece has been repeating the classic model whereby lenders will seek to take security over revenues and assets of the project company and have limited recourse to the shareholders. It should be noted that, given the cost of registering security, combined with the fact that the notion of security agent and security trustee is not provided in the Greek legal system, project financing has been structured through bond loans under Law 3156/2003 (the Bond Law) which regulates the issue of bond loans and which has been extensively used in structuring bilateral and multi-party bank lending in Greece since 2004. Before the enactment of the Bond Law, as well as today in syndicated project financing not using the Bond Law, it is necessary to introduce a parallel debt structure, whereby the security agent is a joint and several creditor with all the rest of the secured parties and thus it takes security in its name and on behalf of the lenders for the whole of the debt. If the parallel debt structure is not introduced, each finance party must take security separately for securing its own claims.

Moreover, the Bond Law introduces tax benefits and a reduction in security costs. Namely, bond loans and any agreement or document ancillary to it (eg a mortgage or a pledge) are exempt from (amongst other things): (i) stamp duty; (ii) contribution/levy of Law 128/1975 (currently at 0.6% per annum on the principal amount of a loan which will be applicable if any Greek entity receives financing, even from international lenders); and (iii) notarial and lawyer fees, security registration fees and charges are capped to low amounts.
The new law on societies anonymes (Law 4548/2018) which will apply as of 01.01.2019 has further developed the regime of bonds loans by introducing and explicitly allowing issuance of PIK Notes, subordination clauses and registering security for all finance parties participating in the financing (e.g. hedging banks).


Can I use movable assets or a group of assets as collateral to get financing while keeping possession of the asset?

Yes. Pursuant to Greek Law 2844/2000, pledge over movable assets can be granted without delivery of the asset following a written agreement between the pledgor and the pledgee and subject to publication requirements, provided, however, that the parties are businesses or professionals and the security is granted for the needs of the enterprise or the profession of the debtor.
The same law provides for a floating charge over current or future assets, group of assets, inventory or receivables (other than consumer receivables), without delivery of the possession and the composition of which may be constantly changed. If the project is subsidized, can subsidies be assigned to the lenders to secure financing?

According to the IDL, it is possible to assign the claim to the amount of the grant to the banks for the purpose of providing bridge financing of an amount equal to the grant assigned. In these cases, the payment of the grant is made directly to the bank provided that, each time, at least an equivalent amount to the grant paid will have been withdrawn by the short-term loan.


What other types of collateral can be granted to facilitate financing of the project by credit institutions?

As a general rule, all assets owned by a borrower are available for collateral to lenders. A third party can also provide security over its assets to the benefit of a borrower without the need of that third party to be a guarantor or co-borrower, but in this case the liability of the third party will be limited only to the assets which are subject to security.
With regard to security over a right, only those rights which have a financial value, or which by law are considered as assignable rights, may be granted as security, thus personal rights or family rights cannot validly be the object of security. In Greece, lenders seek to acquire security in the form of in rem security, which gives them the privilege of preferred priority to the liquidation proceeds of the pledged assets or mortgaged property in all cases and an absolute right of collection in case of receivables, claims and rights, even post proclamation of bankruptcy.

The notion of assignment of claims/rights by way of security (“katapisteftiki ekhorisi”) also exists under Greek law, but is rarely used as it does not entail the same privileges of the in rem security. The types of in rem security rights that a lender can acquire are exhaustively provided under Greek law (the numerus clausus principle); real estate is subject to a mortgage or prenotation of mortgage and movable and intangible assets of the borrower (inventory, equipment, shares, trademarks, securities, bank accounts, all kind of trade receivables, rights etc) are subject to a pledge. As regards real estate, the constant practice in Greece is for lenders to obtain a pre-notation of a mortgage, which is established pursuant to a court decision and which gives its beneficiary the pre-emptive right to obtain a mortgage established as of the date of registration of the pre-notation, once its claim becomes final. This is the most common way of establishing security over land due to lower costs if compared to the mortgage registration. The beneficiary of a pre-notation of mortgage is treated as a mortgagee but will collect proceeds from an auction only after its claim has become final.
Law 3301/2004 transposing into Greek law Directive 2002/47/EC on financial collateral arrangements, both as amended and in force (the Financial Collateral Law), creates security rights which benefit from the appropriation right over the asset on which security has been granted, provided the parties specifically agree to it in the relevant arrangements.
For the purpose of the Greek Collateral Law, the term “financial collateral arrangement” means “a title transfer financial collateral arrangement or a security financial collateral arrangement notwithstanding whether these are covered by a master agreement or general terms and conditions”. The financial collateral to be provided must consist of cash, financial instruments (including listed shares (but excluding non-listed shares) or other listed securities) or credit claims. The Financial Collateral Law prevails over all previous laws in its field of application, including all general and specific insolvency law provisions.

Can Downstream, Upstream and Cross-stream Guarantees be provided by other group companies for the financing of the project by credit institutions?

Currently downstream guarantees are allowed under Greek law, with no limitations if those guarantees serve the corporate purpose of the guarantee grantor. The general rule is that public limited companies (SAs) are not allowed to provide a guarantee or security in favor of members of the board of directors, persons exercising control over the company and their relatives, as well as in favor of legal entities controlled by such persons unless certain provisions are met and certain provisions are followed. Upstream and cross-stream guaran- tees are permitted, as an exception to the general rule, if the grantor and the beneficiary issue financial statements which are subject to consolidation within the same group but a prior approval of the transaction by the general meeting of shareholders is required unless shareholders corresponding to at least one third of those represented in the meeting of paid-up share capital dissent. Such approval may also be granted following conclusion of the transaction, unless shareholders corresponding to at least one twentieth of those rep- resented in the meeting paid-up share capital have raised objections.

As of 01.01.2019 the new Law 4548/2018 on societies anonymes will apply which prohibits any related party transactions (including guarantees) without the prior explicit approval by the Board of Directors of the company. The board of directors’ approval is published in the General Commercial Registry and minority shareholders representing 1/20 of the share capital have the right, within ten (10) days from the publication, to ask for the approval to be deferred to the shareholders’ meeting. After the lapse of the 10 days the approval by the board is considered final. In principle transactions in the ordinary course of business and transactions with 100% subsidiaries shall not require any approval.