Transcript Document

Introduction to Project
Finance
Presenter:
PROJECT FINANCE
• Introduction to Project Financing
– Project Financing
• Public Finance
• Corporate Finance (B/S or Secured Assets or Preferential
Claims outside the ring-fenced project structure)
• Limited/non recourse
• Hybrid
– Ring-fenced or not
– Limited recourse (limited recourse to sponsor B/S or
Assets) and
– Non-recourse Project Finance (Cash flushed projects
”from a bank’s perspective”)
FINANCING OF PPP
PROJECTS - Public Finance
• Raising and contributing funds from the
public either through :
– Taxes and tariffs
– Public Borrowing (Sovereign
guarantees/bonds/notes)
– Both
• To finance asset creation (infrastructure)
• Service provision
Public Finance
LENDERS / DEBT
•Sovereign guarantee
Loan
TAX PAYERS/
TARIFFS
GOVERNMENT
PRIVATE
CONSTRUCTION
CONTRACTOR
FINANCING OF PPP
PROJECTS - Corporate Finance
• Financing of PPP projects
– Corporate Finance (B/S)
• Security
Recourse to the Balance Sheet of a Participant
Assets outside of the Project
Preferential Claims
Corporate Finance
• Raising finance on the basis of a Company’s existing
financial strength, also termed as ‘direct lending’ or
‘balance sheet financing’ – could be rolled over into PF
Lenders
Repayment
Government
Concession
Corporate
B/Sheet
Loans
Private
Company
Construction
Operation,
Maintenance &
Service Provision
School
Fees
Service
Taxes
Tax Payers
FINANCING OF PPP PROJECTS Limited Recourse Project Finance
• PPPs
–
–
–
–
Capital intensive
Leverages private sector money (debt and equity)
PF structure optimises private sector participation
Allows high debt levels - Cash Flow driven
• Cash flow determines debt levels
• Debt vs Equity risks
– Robust due diligence by Financing Institutions
– Project Cash flow/Cession of Rights/Legal
Documentation = Security
– Recourse to B/S of Participants for Limited Period
– Managerial skills and other Efficiencies
FINANCING OF PPP PROJECTS –
Limited Recourse Project Finance
(continue)
• Logical and simple approach
– KIS
• Efficient way of mobilising private sector
investment for large infrastructure projects – no
wants B/S hooked-up
• Efficient way of mobilising the debt financing
from Financing Institutions
– Banks
– Institutional financiers
– DFIs
FINANCING OF PPP PROJECTS –
Limited Recourse Project Finance
(continue)
• Project Finance (Limited recourse/non-recourse)
–
–
–
–
–
–
–
Off-Balance Sheet
Limited / non-recourse project finance
Balance Sheets only until Project Completion
Ring-fenced project cash flow
Complex legal structures, but very logical approach
Cash-flow driven
Ratios – D:E / DSCR / LLCR / PLCR and ALL
Generic Project Structure
GOVERNMENT
•Concession Contract
•Licence Agreement
DEBT
•DFIs
•ECAs
•Commercial Banks
•Capital Markets
90 - 50 %
DESIGN
SPV
CONSTRUCTION
BEE/HDIs
EQUITY INVESTORS
•Project Sponsors
•Passive Equity
•Subordinated debt
10 - 50 %
OPERATIONS
Performance based delivery and
supported by Sponsors
MAINTENANCE
GENERIC PROJECT STRUCTURE
EQUIT
Y
DEBT
GOVERNMENT
PROJECT SPONSORS
SPONSORS
SENIOR DEBT
SPV
SUBORDINATED DEBT
MEZZANINE DEBT
DESIGN
PASSIVE EQUITY
SHAREHOLDERS LOAN
SUB/DEBT
CONSTRUCTION
OPERATIONS
MAINTENANCE
GENERIC PROJECT STRUCTURE
RISK ALLOCATION - EQUITY PARTICIPANTS
BIDDING AND
DEVELOPMENT
COST
PROJECT SPONSORS
SPONSORS
COMPLETIO
N
RISK
PASSIVE EQUITY
RETURN on
INVESTMENT
SHAREHOLDERS LOAN
SUB/DEBT
PARTICIPANT RISK i.e.
OPERATOR FAILURE /
BEE
ALLOCATION
AND MITIGATION
OF RISKS
TECHNOLOGY
AND
TECHNICAL
ASSISTANCE
FINANCING COST i.e.
CHANGES TO
INTEREST
RATES/HEDGING
GENERIC PROJECT STRUCTURE
RISK ALLOCATION - LENDERS
Syndication
Risk
Foreign
Exchange
Interest
Rate/Hedging
SENIOR DEBT
SUBORDINATED DEBT
MEZZANINE DEBT
Participant
s Risk
Political
Risk
Contract Risk
GENERIC PROJECT STRUCTURE
RISK ALLOCATION - D&C PARTICIPANTS
Completiontime /cost
Site
DESIGN
Management
CONSTRUCTION
Technology
Environmental i.e.
pollution
Engineering
GENERIC PROJECT STRUCTURE
RISK ALLOCATION - O&M/FM PARTICIPANTS
Cost
Management
OPERATIONS
Technical
Technology
Labour
Relations
MAINTENANCE
BEE/
HDI
GENERIC PROJECT STRUCTURE
RISK ALLOCATION - GOVERNMENT
Force
Majeure
Supporting
Infrastructure
GOVERNMENT
Political
Risk
Changes in
Law/Enabling
Environment
Public Sector
Inefficiencies
Foreign
Exchange
GENERIC PROJECT STRUCTURE
RISK ALLOCATION - SPV
?
?
?
SPV
?
?
?
SPV is left with Risks not
allocated or mitigated
WATER TREATMENT PLANT - BOT
Vivendi
Diagram of Contractual Structure
100% Equity
CGE
100% Equity
5
1% Equity
51%
Equ
ity
ply
supents
ter e
a
m
W gre
A
- Concessionaire -
DBSA
- R17,464 mil -
DBSA
French Treasury
- FF7,5 mil DBSA
Buyer Credit
- FF7,9 mil -
Performance guarantee
for off-shore contract
Operati
onal p
guarant erformance
ee - R1
,8 ml
OM &
M
Contra
ct
EPC
Con
trac
ts
Con
s
per tructio
form n w
anc orks
eb
ond
- R3
,6m
t
OTV – RSA
- Contractor - Operator -
b
De
l
or
100% Equity
RMB
- R23,637 mil -
Debt
ni
Se
Marubeni
10%
Umgeni
12%
Zethachem
2%
Khulani
12,75%
Celtic
12,25%
r
Senio
Senio
r Deb
t
DWR
ity
Equ
%
49
Mondi
30Ml/day
Off-shore foreign design, equipment
and technical assistance contract
OTV
France SA
– sponsor -
SAPREF
3,3Ml/day
Ta
ke
-o
r-p
ay
Concession contract
OTV Group
Performance Guarantee
R3,6 mil & R1,8 mil)
DTMC
- Implementing Agent -
100% Equity
Sponsor Support for project completion
Off-take Agreement
Shareholding
Design and construction contracts
Operations and maintenance contracts
Financing Agreements
Sponsor Support Agreement
Concession Agreement
Performance guarantee
FINANCING STRUCTURE
ANNEXURE 6
DIAGRAM : FRENCH EXPORT
CREDIT FACILITY
French Government
FRANCE
ice
Invo
French Buyer
Credit Facility - FF,7,860mil
- SOC GEN -
SOUTH AFRICA
Agreement
Off-shore foreign design,
equipment & technical assistance
agreement (FF15,4mil)
Invoic
e
uro
or E
F
mil
in F
860
,
t
7
n
FF
me
an
pay
r Lo
Re
o
i
Sen
DWR
- Concessionaire -
DBSA
- Buyer Credit
FF7,860mil
DBSA
- French Treasury
Facility FF7,5mil
Repayment in
FF or Euro
Senior Loan FF7,5mil
Guarantee
South African
Government
Protocol
50% Payment
Agreement - Payment FF or Euro
French Treasury
Facility - FF7,5 mil
- NATEXIS -
t
aymen
50% P
Payment FF or Euro
OTV France SA
- Supplier of Goods
and Services -
LIMITED RECOURSE PF4PPPs
• Are you confused?
• It is difficult …..but
• Logical – 25% financial, 25% legal, 25%
technical, and 25% common senese
• Keep it Simple “Stupid” (KISS) – vanilla
structure, no complicated other structuring
Questions???
Presenters Details