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Bydgoszcz Water taps a new source of financing
EBRD supports revenue bonds issue to attract new investors
Miejskie Wodociągi i Kanalizacja w Bydgoszczy Sp. z o.o. (MWiK), which is
owned by and servicing Poland’s eighth largest city Bydgoszcz, will be the
first municipal water company in central and eastern Europe to issue revenue
bonds to finance its investment programme.
The EBRD is supporting MWiK’s Revenue Bond programme through an option to
purchase as an anchor investor bonds worth up to PLN 160 million (approx. €40
million) in several tranches. The total issue of the First Series will be up
to PLN 400 million (approx. €100 million) and targeted at pension funds (on a
private placement basis) which have so far lacked an investment grade local
instrument to invest in infrastructure.
Pension funds are potentially the greatest sources of long-term capital in
Poland. At present PLN 100 billion (€25 billion) are managed by pension funds
and life insurers, while long-term loans provided by banks amount to PLN 32
billion (€8 billion).
With the proceeds from the bond issue the company seeks to finance an
ambitious investment programme to bring water services in Bydgoszcz fully into
line with EU directives, improve service quality and protect water sources.
The European Commission has approved a Cohesion Fund grant of nearly €100
million to co-finance this project. EBRD Donor Countries contributed some
€140,000 to partially fund project preparation.
Using an innovative and new financing instrument will enable a new class of
investors to finance infrastructure for the first time in Poland, said Alain
Pilloux, Business Group Director Central Europe and Specialised Industries.
This has already generated strong interest in other Polish cities and could
stimulate a review of legal frameworks in other countries in central and
eastern Europe. The EBRD’s role as an anchor investor will help build
confidence in revenue bonds in a new market.
Revenue bonds are major sources of municipal finance in the United States and
other developed capital markets. They are typically issued by municipal
companies and provide for a security structure over an identified revenue
stream. For their repayment they rely on specific identified revenue streams
as opposed to standard municipal bonds which rely on the general budget of the
municipality.
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