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FINANCING INFRASTRUCTURE : Breaking the Barriers to Sustainable Development
Ade Adeola Managing Director Project & Export Finance Standard Chartered Bank, London April 2009
Agenda
Introduction
Infrastructure Finance Trends
Breaking the Barriers to Sustainable Investment
Conclusions & Recommendations
Leveraging on Experience
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Standard Chartered Leading the Way in Africa, ME & Asia
Leading the way in Asia, Africa and the Middle East
Largest international bank in the Middle East & Africa Strong focus on China, Japan, Korea, and Africa top 3 foreign bank in each major market
Our Global Presence
FTSE 100 and Hong Kong Stock Exchange listed Long term credit rating A2 (Moody’s) and A (S&P) 550 locations serving 56 countries
Our Local Presence
On the ground expertise in Asia, Africa, the Middle East, India region and Latin America Facilitates delivery of innovative products, supported by quality delivery systems and excellent customer service
Our Value Proposition and Product delivery
Strong on-shore presence and in-depth local knowledge Relationship and leverage with key corporates and institutions Coupled with a deep understanding of the local markets, our product capabilities are tailored to suit client’s needs.
Cash management Trade Finance Bilateral Credit
Raising Capital and Risk Management Strategy and Equity
Forfaiting M & A FX, Derivatives LBO/MBO Structured Trade Finance Securitisation Equity Private Placement Fixed Income Loan syndication Private Equity Investing Project & Export Finance Arranging & Advisory
Providing banking solutions to meet the needs of our clients 3
2008 Financings & Current Mandates
NNPC/ExxonMobil NGL 2 Project- Nigeria-$220m
SCB acted as Financial Advisor and MLA in providing the NGL II project with US$220m add-on facility that was the first substantial oil and gas sector financing to come exclusively from Nigeria’s newly consolidated local banks.
ADDAX Petroleum-Gabon/Nigeria- $500m
In May, Addax Petroleum entered into a two-year, US$500 million senior revolving credit facility arranged by Calyon, Standard Chartered Bank and BNP Paribas. This was a hybrid corporate deal with a greenshoe option
OANDO plc- - Nigeria USD138m
Financial Advisor and Arranger for up to USD 140m facility to finance acquisition and upgrade of the Oilfields.
ALSCON-Rusal- - Nigeria USD130m
Sole Arranger for $130m bridge facility to finance acquisition and upgrade of the ALSCON aluminium smelter.
The bank has committed substantial resources to Africa . This is evidenced by the number of financial advisory and structuring mandates awarded by top tier sponsors in 2008. This includes:
1.
Lekki Port Nigeria, $1.1billion
2.
Main One Telecoms Cable Project-Nigeria, $120m 3.
Lafarge Euro 225m Expansion facility 4.
Viva Methanol Project, $1.2billion
5.
Natural Gas Liquids supplemental financing, $200m 6.
NNPC /ExxonMobil Satellite Oilfields Advisory, $680m 7.
Addax Izombe LPG Project 4
2008 Financings & Current Mandates
NNPC/ExxonMobil NGL 2 Project- Nigeria-$220m
SCB acted as Financial Advisor and MLA in providing the NGL II project with US$220m add-on facility that was the first substantial oil and gas sector financing to come exclusively from Nigeria’s newly consolidated local banks.
ADDAX Petroleum-Gabon/Nigeria- $500m
In May, Addax Petroleum entered into a two-year, US$500 million senior revolving credit facility arranged by Calyon, Standard Chartered Bank and BNP Paribas. This was a hybrid corporate deal with a greenshoe option
OANDO plc- - Nigeria USD138m
Financial Advisor and Arranger for up to USD 140m facility to finance acquisition and upgrade of the Oilfields.
ALSCON-Rusal- - Nigeria USD130m
Sole Arranger for $130m bridge facility to finance acquisition and upgrade of the ALSCON aluminium smelter.
The bank has committed substantial resources to Africa . This is evidenced by the number of financial advisory and structuring mandates awarded by top tier sponsors in 2008. This includes:
Lekki Port Nigeria, $1.1billion
Main One Telecoms Cable Project-Nigeria, $120m
Viva Methanol, $1.2billion
Natural Gas Liquids supplemental financing, $220m
NNPC /ExxonMobil Satellite Oilfields, $680m
Lafarge Euro 225m Expansion facility
Addax Izombe LPG Project
DP World Port -Senegal,
Tullow Jubilee Oilfields project Ghana
Tata: Itezhi-Itezhi Power project-Zambia,
Sasol Inzalo- South Africa
Kosmos Energy-Ghana,
Kengen- Kenya .
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Infrastructure Finance Trends: Statistics and Commentaries
Infrastructure Projects- Setting the Scene
Physical Infrastructure projects are ‘those services without which primary, secondary, and tertiary production activities cannot function’ Specifically capital-intensive facilities in: Electric power (generation and distribution) Energy (refineries, pipelines, processing facilities, etc.) Telecommunications Transportation (ports, toll roads,railways, etc.) Water / Sewerage The Input – technology, capital equipment, expertise are sourced mainly in the international markets and typically financed in international currencies. The output (e.g., electricity, petroleum products) is sold primarily in the domestic market and paid for in local currency The Debt/Bonds used to finance these projects are therefore exposed to 2 main risks Devaluation – Reduction of USD value of cashflows below debt service levels.
Convertibility – Risks that local authorities may block the exchange of local currency revenues into dollars or block currency transfers from the host country
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The Infrastructure Situation at a Glance
Infrastructure investment – a 15-25 + year proposition that requires insight & foresight!
Governments –
adopting concessions/greenfield projects , PPPs vs. asset privatisations
Sector Trends
Telecommunications:
strong cashflow from cellular services. Currently Private sector driven
Power:
Poor cashflows due to sub-economic tarrifs and under-investment Historically, cross-subsidised to benefit small residential consumers, implying politically difficult adjustment process to generate sustainable cashflows. Private sector involvement without govt capacity support may be limited to independent power producer (IPP) projects servicing large customers (industrials, distributors, etc.)
Transport:
airports and shipping ports generate strong cashflow today.
roads and rail networks generate limited revenues and may need govt transfers (shadow tolling).
Water and Sewerage:
good”.
limited cashflow in Emerging mkts viewed as the ultimate “public
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Global Infrastructure Coverage & the Africa Situation
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Infrastructure Finance Trends
Traditionally financed out of general government revenues Trend in recent years for infrastructure to be financed on a project basis or for infrastructure projects to be purchased or developed by the private sector.
Given the high initial capital costs of infrastructure projects, long-term financing is essential for privately owned infrastructure projects to be financially viable Financing is now available from the private sector – in many instances with foreign private investors and creditors playing a major role Key Growth Drivers Privatisation- Govts adopting concessions/ PPP greenfield projects vs. asset privatisations Commodity related infrastructure e.g. Mining, “Infrastructure enablers” offered by Resource players Improving Governance e.g. Pension fund and Policy reforms Private Equity Funds looking for higher yields (Reducing margins in Europe & Middle East Markets) Technology leverage
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Evolution of Private Infrastructure Investment in Africa (1990 – 2007)
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Breaking the Barriers to Sustainable Investment
Barriers to Sustainable Infrastructure Development
Macro & Regional Barriers The prevalence of inefficient monopoly providers (state owned) Scarcity of investment spend because prices have been held below cost Inadequate local expertise to structure long term Project financing Lack of depth and defined yield curves in local debt and capital markets Absence of incentive mechanism (fiscal tax etc) to encourage infrastructure financing Governance and Management Barriers Public Sector as equity holder is problematic. ( often essential to get other parties involved) Appointment of concession holder due to political considerations which may not have right management experience for difficult initial stages of the project May undertake project location and or management decisions on political considerations Increase perceived commercial risks for debt finance Sovereign and Cross-Border risks
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Critical Investment Barriers & Enablers CASHFLOW FINANCING Regulatory Framework and Macro Stability Equity and Management Tariffs / Fees / Tolls Bank Debt (Loans) and Capital Markets Debts (Bonds) Govt Supplements (MYTO?) Credit enhancements possible?
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What is required to achieve sustainable development?
Sponsors: Local parties to improve credit worthiness, corporate governance and management capacity Banks: Innovative structures to project, corporate, and sovereign financings, with the aim of improving credit ratings for transactions: Structures to mitigate the risk of devaluation, and Structure to facilitate the use of local debt and capital markets, which can provide financing denominated in the currency in which the project earns its revenues Structure to breach the sovereign ceiling, which therefore permit the transaction’s (global scale) local currency rating to become its foreign currency rating Governments: Strong institutional framework for protecting creditors rights and improved access to legal enforcement and remedy Development Finance Institutions and ECAs: – – Country risk mitigation instruments (PRI & Gtees) Deepen depth of Africa capital markets (Credit enhancement for Debts & Bonds, risk participations etc)
Need for diversification of funding sources( Equity, Debt & Capital Markets) and mobilisation of long term investment from local and international markets
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The Art of the Possible - Nigeria
Homework is key Generation Mix: existing capacity, existing IPPs,New IPPs Comprehensive policy for greenfield IPPs and privatisations Sector-wide Payment security mechanism and Nature of Sovereign Support Enabling Legislation, Permits and Approvals Ensure sector and tariff reforms lead to reduced reliance on payment support mechanisms Tie-in with Distribution Privatisation Process & Packaging Investor and Lender Roadshows Engage Advisors Comprehensive and transparent RFP Package Adherence to timeframe and deadlines Don’t expect too much from the very first deals Need to attract international investors and lenders Progressive shift in risk allocation
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How Can We Help?
Project Finance Advisory Financial Modeling & Evaluation Structuring multi-sourced and multi-phase financing plan Managing Due Diligence Process Risk Allocation and Project Agreements review / mark up Preparation of Proposal Negotiations with Offtakers and Financiers Commercial Debt, Export Credits, B Loans, Debt Capital Markets Underwriting, Lead Arranging and Financial Close Privatisation Advisory Sector Strategy Risk Allocation RFP Preparation and Packaging Roadshows in Europe , Middle East and Asia Bid Evaluation, Negotiation and Selection Monitoring Financial Close
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Summary
We believe that Nigeria has a huge scope for value creating investment in infrastructure But most African markets do not have sufficient tax and government revenues for pure public sector funding Funding is not the critical barrier Project finance remains available for well structured projects Credit markets can dealing with currency and political risks, for bankable projects Revenue is not generally the critical barrier The Governments in Nigeria have started the broad policies and regulatory changes to support stable revenue streams There are greater challenges associated with revenue transfer arrangements e.g. in water & sewerage, roads
A key management and institutional gap remains. This can be overcome by greater involvement of private equity and debt in financing of infrastructure
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Power & Infrastructure Credentials
Notable Deals
Confidential
IBOM IPP (Nigeria)
Independent Power Plant Mandated Lead Arranger & Modelling Bank Ongoing
AES Ebute (Nigeria) Bujagali Hydro (Uganda)
Independent Power Plant Project Financing Mandated Lead Arranger Off-take Credit Support Provider
Energia Azteca x Energia de Baja California (Mexico) USD 804 M
Project financing for a 1,060 MW natural gas power plant Arranger Ongoing Ongoing On-going
Itezhi-Tezhi IPP (Zambia)
Proejct Financing of IPP Financial Adviser
PT Indonesia Power (Indonesia)
USD 55 M SBLC for Gas Purchase
Empresa Electrica Ventanas (Chile) USD 440 M
Project financing for a 242 Lead Arranger MW greenfield coal-fired plant Agent Ongoing Ongoing 2007
Marrafiq IWPP (Saudi Arabia)
US$ 3,300 M Project Financing Mandated Lead Arranger 2007
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Power & Infrastructure Credentials
Notable Deals Shuqaiq IWPP (Saudi Arabia) USD 1,400 M
Project Financing Mandated Lead Arranger
AES Sonel (Cameroon)
Capex Programme Financing Security Trustee & Facility Agent for IFC, Proparco, EIB, AfDB, DEG & FMO
Fujairah IWPP (UAE)
USD 1,500 M Project Financing Mandated Lead Arranger and Hedging Bank
Al-Hidd IPP (Bahrain)
Project Financing Mandated Lead Arranger 2007 2006 2006 2006
MALAKOFF Shuaibah IWPP (Saudi Arabia) Nam Theun 2 Hydropower Project (Laos)
Mandated Lead Arranger US$ 1,581 M Project Financing Mandated Lead Arranger Hedging Bank 2006 2005
PENDEKAR POWER (LABUAN) Taweelah A-1 10 (Abu Dhabi)
USD 1,100 M Project Financing Mandated Lead Arranger
Taweelah B IWPP (Abu Dhabi)
US$ 2,670 M Project Financing Mandated Lead Arranger Structuring Bank, Insurance Bank Documentation Bank, Joint Bookrunner, JBIC Co-ordinator, Hedge provider 2005 2005
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Regional Infrastructure Deals (I)
Sohar Power (Oman)
USD 446M Project Re-Financing
Bookrunner and Mandated Lead Arranger Port Said East Power (Egypt)
USD 302M Project Financing
Mandated Lead Arranger Suez Gulf Power (Egypt)
USD 296M Project Financing
Mandated Lead Arranger
(U.A.E) (U.A.E) (Qatar)
Mandated Lead Arranger Umm-Al-Naar IWPP Masdar
Project Financing USD 500M Project Financing (Current)
Mandated Lead Arranger Financial Advisor Umm-Al-Naar IWPP
(U.A.E) USD 855m (Pakistan) Islamic Project
Financial Advisor, Mandated Lead Arranger Umm-Al-Naar IWPP
USD 855m Project Financing Islamic Project Financing
Mandated Lead Arranger Financial Advisor, Mandated Lead Arranger
USD XXX Project Financing
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Regional Infrastructure Deals (II)
ADWEA Sewage
Treatment Plant (U.A.E) Confidential Project Financing
Financial Advisor Umm-Al-Naar IWPP Disi-Mudawwara Water Conveyance Pipeline
Project Financing Project Financing USD 1,000M Project Financing
Financial Advisor XXX
(XXX) USD XXX Project Financing
Mandated Lead Arranger Financial Advisor
USD XXX Project Financing
Mandated Lead Arranger Mandated Lead Arranger Taweelah-B
(U.A.E) USD 2,056M Project Financing
Pre-bid Underwriter and Mandated Lead Arranger
Rousch Power USD 712m Project Financing
XXX
(XXX)
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Regional Infrastructure Deals (III)
Tihama Power
(Saudi Arabia) USD 510M Project Financing
Lead Arranger Sohar IWPP
(Oman) USD 414M Project Financing
Pre-bid Underwriter and Mandated Lead Arranger National District Cooling
(U.A.E) AED 700M Project Financing
Lead Arranger Umm-Al-Naar IWPP
(U.A.E) USD 855M Project Financing
Mandated Lead Arranger Ministry of Finance Ghana Re: Korle Lagoon Ecological Restoration Project (Ghana) USD 37 million
ECA Buyer Credit Facility Sole Arranger/Lender 2003
Ministry of Finance Ghana Re: Korle Lagoon Ecological Restoration Project (Ghana) USD 37 million
ECA Buyer Credit Facility Sole Arranger/Lender 2003
Ghana Telecom (Ghana)
USD 30 Million ECA Facility Mandated Lead Arranger & Sole Lender 2005
Thuraya Satellite
(U.A.E) Project Financing
Financial Advisor 23