The long-awaited closing of the Singapore Sports Hub Public-Private Partnership (PPP) Project in August 2010 represents a new chapter both in terms of the Singapore government’s wider goals for a “Sporting Singapore” and also for the country’s (and indeed the wider Southeast Asian region’s) nascent PPP market. From a government perspective, the stated aim was to create a fully integrated land and water sports and lifestyle hub, in central Singapore, with both state-of-the-art sporting facilities capable of hosting major events as well as commercial mall and retail space. From the wider market perspective, achieving financial close represented the commencement of a pathfinder deal in an emerging project finance market/region as well as the world’s largest sports infrastructure PPP project.
The project specifics
The project is based on a 25-year PPP concession agreement, pursuant to which the Singapore Sports Council (SSC) as procuring authority engaged the Singapore Sports Hub Consortium (SSHC) to design, build, finance and operate the project. SSHC is a consortium comprising major international sponsors, including Dragages Singapore (the subsidiary of European contractor, Bouygues), HSBC Infrastructure, Global Spectrum Pico and United Premas.
Located on a 35-hectare site on the Marina Bay waterfront, in the heart of the city, the Sports Hub will include the following facilities:
a new 55,000-seat state-of-the-art national stadium with a retractable roof, moveable tiered seating and spot-cooling;
a 6,000-seat capacity indoor aquatic centre capable of meeting global tournament standards;
a 3,000-seat capacity multi-purpose arena that will be scalable and flexible in layout to enable the holding of different events;
a water sports centre;
41,000 square metres of commercial mall space;
sporting and leisure developments; and
the existing 12,000-seat capacity Singapore Indoor Stadium (SIS) (originally built in 1989).
Innovative structuring arrangements
The project was always going to be a complex one. It involves a comprehensive suite of new buildings and facilities (including a new national stadium) on a large, central site, integrated with an existing events stadium, an extremely detailed service offering and relationship among the service providers and very significant third-party revenue. All this is combined with an availability payment PPP structure — such an availability-based structure integrated with a comprehensive event, commercial and retail element is unique among global PPPs.
As SSC had always sought project operations to complement its broader social objectives of facilitating and encouraging interest in sports in Singapore, the project had to implement a unique contractual structure for a PPP. A sports infrastructure project of this nature had not been closed before, so SSC had to establish an output-based specification designed to fully capture government’s desired goals and objectives for the project, including the usual facilities management-type PPP services, as well as the other activities such as managing key sports infrastructure, attracting and running major sporting and other events, running a retail mall and commercial space, and generally maximising third-party revenue. This multi-faceted service requirement meant the consortium itself represented a more diverse group than usual for a PPP and it also meant the consortium had to put in place very complex interface arrangements with a wide group of key subcontractors.
While there is an availability-based payment (based on pre-determined availability and performance criteria) common to many PPP projects, there is, additionally, an innovative payment mechanism in which both SSC and the consortium (in varying percentages) share the profits and third-party revenue generated from the various sources of the project. SSHC is incentivised to bring vibrancy to the project as its base case return is dependent upon realisation of third-party revenue targets, generated through various sources such as events, F&B, naming rights, advertising rights and commercial rental, as well as through marketing major sports and marquee events at the Sports Hub to create and implement a strong year-round event calendar.
Another key element is the transfer of the existing 15-year-old SIS building. As the SIS remained a fully operational facility throughout the procurement process, a key challenge was to manage the transfer process (including monitoring of continuing event bookings at the SIS, analysing and novating all the existing contractual obligations and structuring an appropriate risk allocation regime to deal with the transfer of such a significant existing asset in a manner that did not disrupt continuing and future events).
The funding arrangements
While SSHC was announced as preferred bidder in 2008, the onset of the liquidity crisis and the collapse of Lehman Brothers in September 2008, which culminated in the drying up of long-term debt markets globally, resulted in project delays while the government assessed how best to proceed.
Ultimately, the government requested the consortium run a funding competition at the end of 2009, pursuant to which a club of 11 banks were appointed to provide the S$1.8 billion ($1.4 billion) 10-year senior debt facility. The margin has been reported to be 250bp over Sibor for the first five years, increasing to 275bp in the remaining five years. The debt-to-equity basis remained largely constant throughout the procurement at approximately 85:15, shared in differing proportions among the consortium sponsors.
The project is the first of this size in Singapore to use a full interest-rate hedge of 24 years and a sculpted repayment profile — this is especially significant given the initial loan tenor of 10 years. A limited form of refinancing guarantee was put in place whereby the public and private sector share elements of refinancing risk.
A PPP legacy?
The project had to overcome a lot of hurdles as a ground-breaking deal in a new PPP market and region generally, with a significant proportion of the return on the project reliant on third-party revenues generated by the facilities. Furthermore, with financial close having been initially targeted for mid to late 2008, this was a project that was always going to be affected by the global financial downturn. So there is no doubt that the closing of the project is a remarkable achievement, given additionally the still relatively subdued post global crisis lender appetite for large capital-intensive, long-term infrastructure projects.
For the PPP and project finance market generally, Sports Hub is and always will be a very unique project, so its relevance to the wider Southeast Asian projects market needs to be viewed in that perspective, but it does show that even the most complex of PPP projects can be procured and implemented in this region. Achieving financial close for a project of this nature and size is certainly a very good indication that there is still liquidity and risk appetite among lenders for well-structured projects that have strong business cases.
James Harris heads Hogan Lovells’ infrastructure and project finance practice for Asia, based in Singapore. He has experience in advising governments, corporates and lenders across Asia, Middle East, UK and Australia on PPP and infrastructure transactions. He also heads the Hogan Lovells’ Asia Infrastructure Group.James is Chairman (Asia) of the International Project Finance Association. He is widely recognised as a leading project finance lawyer in the region and a regular speaker at conferences throughout Southeast Asia.
Julien Reidy is an Of Counsel in Hogan Lovells’ Singapore office. Julien has advised public and private sector participants on PPP and infrastructure projects in Asia, the Middle East and Europe and he acted as the lead counsel advising government on the Sports Hub project. In Southeast Asia, Julien is currently working on PPP and project finance deals in Indonesia, Philippines, Singapore and is advising several regional governments on updating of existing PPP frameworks and regulations.
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