VEOLIA PPP FINANCE: A

1
VEOLIA PPP FINANCEA  société de crédit
foncier in Veolia Environnement

• Denis DAUMAL
• Markets and Analysis Director

2

Veolia Environnements current risk profile

• Veolia Environnement is a global leader in
  environment services in the concessionary
  companies sector.
• Veolia Environnement is involved in
• water distribution,
• waste treatment sector,
• Energy services,
• Public transportation.
• Concessionary contracts with state, regional and
  local authorities account for two thirds of VEs
  turnover. Exposure to emerging markets is
  limited, with less than 10 of sales originating
  from countries with a credit rating lower than A3.

3
The conversion to IFRS standards

• The implementation of the new international
  accounting standards (IFRS) led to a
  reconsideration of a number of tangible assets
  within the Veolia Environnement (VE) group that
  have been used under concession agreements.
• Where VE has to construct infrastructure and
  subsequently manage it, at the end of the
  agreement the infrastructure becomes the asset of
  the contractor. As a consequence, these
  infrastructures are registered as financial
  assets instead of a tangible assets
• VE therefore operates as a financial intermediary
  and this business activity is undertaken across
  the group.
• It is predominant in areas that generate stable,
  recurring cash-flows.
• This accounting position, which is a true
  reflection of the business situation, led the
  group to reconsider the presentation of its
  assets and liabilities statement it substituted
  a line of financial receivables owed by public
  authorities or large companies, for 2 billion in
  tangible assets. This situation has also
  enabled the group to communicate to shareholders
  and investors a more realistic overview of the
  risk profile and balance sheet position,
  principally by reducing the groups financial
  debt.

4
Issues relating to financing VEs financial
receivables

• The group undertook a study on financing these
  receivables
• 3 options were studied
• Securitisation of some part of the activities and
  their dedicated assets
•  anglo-saxon  Covered Bond issue
• Creation of a  société de crédit foncier , wich
  will issue  obligations foncières 
• Quickly the Société de Crédit Foncier ,  SCF ,
  appeared as the good way to follow.

5
The VE Finance Project a credit institution
( Société de Crédit Foncier , SCF)

• A SCF is a regulated credit institution, which
  can only hold receivables from public sector
  entities (or mortgages that are not included in
  this project) and which may issue  obligations
  foncières  for these receivables.
•  Obligations foncières  benefit from special,
  prudent treatment (10 weighting for the ESR) and
  belong to the very large class of European
  securitized assets, totalling 1,700bn.
• SCFs operate under the dual supervision of the
  French banking regulatory body (Commission
  Bancaire, CB) and a "specific supervisor",
  approved by the CB and primarily responsible for
  certifying the eligibility of receivables and
  adherence to specific SCF regulations.
• Furthermore, the SCF must be managed (via an
  agreement) by a first tier credit institution,
  which must ensure banking regulations are adhered
  to and ALM management (currency risk, interest
  rate risk, early redemption risk, etc.) is of the
  requisite quality.

6
The SCF a secure, competitive financing vehicle

• The reform of SCFs in 1999 aimed to establish
  Paris as a more attractive location and to create
  a new refinancing tool for long-term credit as an
  alternative to FCCs, the French securitisation
  vehicle, which does not rely on the credit
  quality of its shareholders.
• The SCF is an extremely safe vehicle, offering
• a targeted purpose,
• asset quality governed by law,
• a strengthened, prudent scheme (specific
  monitoring and over collateralization),
• covered bond privileges,
• a special scheme for public authority procedures
  at all stages (agreement extensions,
  non-extensions of shareholder bankruptcies, with
  the exception of optional nullification during
  the suspect period, etc.).

7
Where are we on the project

• On 28 November 2006, Veolia PPP Finance was
  granted a license by the Banque de Frances
  Credit Institution and Investment Firms Committee
  (Comité des Etablissements de Crédit et des
  Entreprises dInvestissements - CECEI) to operate
  as a société de crédit foncier (SCF).
• The management agreement between Veolia PPP
  Finance and Société Générale is finalised, and
  also approved by the CECEI.
• We are now working on the presentation of the
  project to the rating agencies, which is a
  specific job because of the strong innovative
  aspect of the project.
• Veolia PPP Finance is actually the first SCF out
  of the financial system, as long as its main
  shareholder is a corporate
• The subject is for us to demonstrate that the
  flows capted by the SCF is absolutely immune from
  an operational risk.

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Veolia PPP Finance conclusion

• To summarize, VEOLIA PPP FINANCE is
• A French Credit Institution, which benefits of
  the strength of the French Banking System
• A Société de Crédit Foncier, agreed, supervised
  by a specific controller, and protected by a
  super privilege
• Finally, A subsidiary of Veolia, a French Group
  listed on the New-York Stock Exchange, and by
  that forced to be Sarbannes Oxley compliant.
• For all these reasons, Veolia PPP Finance will
  offer to its bonds holders, a very high level of
  security, totally delinked from Veolias risk
  profile

9
Veolia Environnement at a glance 2006 key
figures (in m and at current exchange rates)
(1) Excludes discontinued operations.
28,620
25,570
22,792
11.9
Consolidated revenue
2,222
1,904
1,629
16.7
21
Recurring net income
Recurring operating income