Transcript Pension Fund Investment in Nigeria

Strictly Private and Confidential
Pension Fund Infrastructure
Investments in Nigeria
Alternative, Impact and Growth
May 2009
Table of contents
2
1. Overview of Project Financing
2. Public Private Partnerships (PPPs)
3. Case study – Shuaibah IWPP, Saudi Arabia
Appendices
A. Introduction to Stanbic IBTC Bank
Section 1:
Overview of Project Financing
Project Financing Overview
4
Project Finance is the financing of long-term infrastructure and industrial projects based upon a complex
financial structure where project debt and equity are used to finance the project, rather than the balance
sheets of project sponsors
– providers of capital have full or limited recourse to the project’s cashflows, which are ring-fenced from its
parent company
– applicable in a variety of sectors including power & infrastructure, oil & gas, manufacturing & distribution,
telecoms & technology and property
Non-recourse
ADVANTAGES

 Loan repaid from project cashflows; assets are used as collateral
 Lenders get comfort in terms of credit supports from guarantees,
warranties and other covenants from the sponsor, its affiliates
and other third parties
Maximise
leverage
 Highly leveraged projects with c. 60 – 85% debt used to finance
the costs of development and construction of the project
Off-balance sheet
treatment
 Depends on the structure of the transaction
 Can help the borrower manage its debt portfolio to ensure it can
meet the covenants already in place with other lenders
Maximise tax
benefits
 Project can be structured to maximise tax benefits
Key features of infrastructure financing
5
COMMENTS

Long Tenor


High Leverage


Multi-source




Multi-currency



Security

Debt term varies from project to project and also depends on the
sector:
– Power: 8-25 year debt term
– Infrastructure: 20-30 year debt term
Bridge funding available where required
Amount of leverage is determined by what the project’s cashflows
can support
Debt tends to be c. 60 to 85% of total project cost
Local and international banks
Vendor financing
Export Credit Agencies
Bilateral and multi-lateral DFIs
Naira / USD mix recommended
Huge liquidity for Naira assets - US$1.6bn equiv. raised for MTN
Liquidity constraints for US$ funding given global credit and
liquidity crunch
Credit supports include guarantees, warranties and other
covenants from the sponsor, its affiliates and other third parties
including Federal and completion guarantees
Guarantee ensures transaction achieves optimal debt pricing and
tenor and demonstrates commitment from the Guarantor
Funding Sources
6
Local Banks
International Banks
Regional Banks
DEBT
ECAs
Capital Markets
Islamic Finance
Pension funds
Up to 90% for strong PPPs and 80% max for typical Project financings…
Government
Foreign Partners
Local Private Sector
EQUITY
Local Stock Market
Pension funds
Recent entries = Infrastructure Funds, Sovereign Wealth Funds,
Private Equity…
Project Finance Challenges
 Higher raw material prices
Capital costs
 Constrained contracting capacity
 Constrained sub-contractor and vendor capacity
 Higher profit margins for contractors and suppliers
 Governments keen to extract value from natural resources
Constrained economies
 Higher input costs impact cash flows
 Higher capital costs mean that cash flows are more thinly stretched
 Combined with limited debt capacity….ability to leverage has fallen
 Larger investments mean all funding sources now more important
Financing costs and
capacity
 Local commercial banks’ liquidity insufficient for many projects
 ECA and Regional Development Institutions critical – pace of due
diligence sometimes not aligned with sponsors timetable
 Substantial reliance on international debt capital
 Maturities getting longer
Others
 Demand for US$ borrowings
 Eroding Government support
7
Lessons learned
8
Government support critical for injecting confidence i.e. to get deals off the ground
Spend time putting together robust structures before approaching bank market
Market testing / sounding-out critical
Shareholders to demonstrate tangible commitment throughout the life of the project i.e. not
only pre-completion
Crucial to engage and accommodate issues pertaining to all funding sources from a very
early stage in the process (i) ECAs, (ii) Regional Developmental Institutions, (iii) Local
banks, (iv) Regional Banks, (v) International banks and (vi) Islamic Financial Institutions
Independent Opinions crucial (i.e. Market / Traffic, Technical, etc) – even on projects where
limited and / or no demand or technical risks are apparent
Tight / Bank friendly Term Sheets and Documentation - Generally relaxed terms possible
via refinancing post completion where project reaches steady state
Role of Stakeholders
9
 Policy formulation
Government
 Transparent bidding process
 Funding
 Operation
 Policy formulation and implementation
Regulators
 Transparent interactions with the various stakeholders
 Consistent policies
 Assist in the planning, design and construction phase
Operators
 May take on the role of sponsors and equity investors in the
underlying project
 Undertake maintenance and efficient operations of the public utility
 Assists in maintaining the utility through long term maintenance
contracts
 Advise of the feasibility and assess the financing needs of projects
 Assist in structuring projects to make them bankable
Financiers / Financial
Advisors
 Provide finance on a non or limited recourse lending basis
 Assist in management of project-related exchange rate risks
 DFIs helpful in stretching lending terms and tenor of financing
10
Section 2:
Public Private Partnerships (PPPs)
Definition and Rationale for PPPs
11

Contractual arrangement between public and private sector entities whereby the private sector performs a
government department’s function in accordance with an output based specification for a specified,
significant period of time in return for financial remuneration
–
The public sector retains a significant role in the partnership project either as the main purchaser of
the services provided or as the main enabler of the project

Projects may be self-sustaining (from user charges eg. ports, airports etc), or rely on a contracted state
payment (so-called unitary fee eg. hospitals, prisons) or a combination of both

Benefits of PPPs
–
Combine public interest / public good with private innovation, finance and implementation capacity
–
Government becomes a purchaser of services and/or enabler of the project, no longer an owner and
operator of assets
–
Substantial transfer of all forms of project lifecycle risk to private sector
–
Inefficiencies of capital rationing avoided
–
Lenders’ and investors’ due diligence ensures a viable and robust project
–
Profit motive over the project lifecycle drives adherence to programme, cost management, operating
efficiency
–
These factors can outweigh higher private sector cost of funds to enable value for money
Generic PPP Structure
12
Direct
Agreement
STATE
EQUITY INVESTORS
(20-40%)




Concession
Agreement
Project Sponsors
Passive Equity
Subordinated debt
Pension funds
DEBT INVESTORS
(60-80%)
SPV
DESIGN &
CONSTRUCTION




OPERATION &
MAINTENANCE
Development Banks
Commercial Banks
Capital Markets
Pension funds
Success Factors
13
 Notion of “the private sector providing a public service” must be understood
and accepted at both national and local government levels, as well as
traditional leadership
Political Support
 Willingness to overcome vested interests for the change in delivery mode,
and, in some cases, motivate a new charging regime
 Committed project champions in the concession granting authority to obtain
support and approvals across the range of public stakeholders
 State capital contributions and/or revenue support
 Legal capacity to grant concessions
Legal and
Institutional
Capacity
 Necessary ownership of existing asset to confer a concession over it
 Financial capacity to meet any financial liabilities under the concession (or
else bind the State)
 Institutional capacity to negotiate and manage concession agreements
 Need developers and contractors who respond to tenders with adequate
resources and commitment – to get value for money and delivery
Willing and Able
Developers
 Too many tenders attract too few bidders – why?
 A global boom in power and infrastructure – supply side constraints
 Quality and efficiency of tender process critical
Success Factors (continued)
 In some countries construction contracts often awarded on a negotiated
basis
Competitive
Contractors &
Operators
 Pricing of civil works is higher than many other emerging markets - a
challenge for project viability
 Persuade contractors to act as sponsors and equity investors
 Contractors get more influence over contracting terms and have greater
certainty of payment
 New business opportunities in maintenance and operations
 In a user-pay scheme like a toll road, the willingness and ability to pay is a
key issue
 Willingness can be influenced by political players - need national and local
leaders to give overt support for the user pay concept (where it is the
appropriate solution)
Willingness and
Ability to Pay
 Getting to the affordable charge for a user is a delicate process, and in
public transport often requires a public subsidy or capital grant
 Affordability also applies to take-or-pay PPPs such as waste, water or
power deals
 Off-taker’s credit-worthiness is key and may need to be enhanced
 But understand the status quo e.g. Stand-by generation now costs
US$0.42/kWh >> don’t underestimate end-user’s willingness to pay!
14
Success Factors (continued)
 Infrastructure needs long term finance on flexible terms, e.g. high gearing,
interest and capital grace periods, sculpted repayments, etc.
 Critically, non or limited recourse lending needed
 Ideally, exchange rate and interest rate risk need to be managed/hedged
Bank and Capital
Markets
 Pension Funds and Development Finance Institutions helpful in stretching
lending terms
 Depth and competitiveness of the banking market has improved e.g. Celtel
and Nairobi Toll Road
 Capital markets are the natural long-term investors
 But regulatory hurdles can be a problem e.g. bond listing requirements
exclude green-field projects
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Lessons Learned – Let’s move on!
Remember the “Partnership” in PPP? Infrastructure is everybody’s business!
Understand what risks developers and funders will take
Work out how to attract the right developers (LCC – Lagos State)
Encourage innovation, don’t over-specify inputs
Aid & development finance should supplement - not substitute - commercial lenders
Keep it simple!
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17
Section 3:
Case study – Shuaibah IWPP, Saudi Arabia
Project Overview
Groundbreaking IWPP
in Saudi Arabia laying
down the framework
for future IWPP
projects in the country

The first IWPP (Independent Water & Power Project) development in
Saudi Arabia, which laid out the framework for other IWPP transactions in
the Kingdom of Saudi Arabia
– framework mirrors that in UAE, Qatar and Oman

PPP: Build, Own and Operate (“BOO”)

20 year Power & Water Purchase Agreement (“PWPA”)

36.5 months construction schedule

Desalinated Water production (880k cm per day, using 12 units of Multi
Stage Flash technology)

Power generation (900 MW 3 units, light crude oil fired burners, back
pressure steam turbines)

100% of water and power capacity and output sold to Government-owned
entity for 20 years

Main project parties are Saudi & Malaysian sponsors (60%) and Kingdom
of Saudi Arabia (40%)
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Project summary
Project: Shuaibah IWPP
Sector: Power & Water
Total cost: US$2.45 billion
Debt term: 20 years
Finance Plan
19
400
HERMES
225
Islamic Tranche
418
KEXIM
Bank Debt
875
Pre-completion Revenues
233
Equity
496
0
100
200
300
400
500
600
700
800
(US$m)
$500
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
Equity Bridge Loan Drawdwns
Commercial Banks Drawdowns
Islamic Tranche Drawdowns
HERMES Drawdowns
KEXIM Drawdowns
900
1000
Ownership Structure
Combination of public
and private sector
ownership
20
PRIVATE SECTOR ENTITIES
Saudi
Sponsors
GOVERNMENT OWNED ENTITIES
Malaysia
Sponsors
Public Investment
Fund
Saudi Electricity
Company
50%
32%
8%
Saudi Malaysia Water & Electricity Co Ltd
(Project developer / Bidder)
60%
SHUAIBAH Water & Electricity Company
(Project Company / Borrower)
8%
6%
PIF
32%
12%
ACWA Power Projects
Khazanah
Malakoff
12%
SEC
30%
Tenega Nasional Berhad
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THANK YOU
Patrick Okey Mgbenwelu – Head, Project Finance – Stanbic IBTC Bank Plc.
[email protected]
Nigeria:
Stanbic IBTC Bank Plc,
IBTC Place, Walter Carrington
Crescent, P. O. Box 71707,
Victoria Island, Lagos State
Tel:
Fax:
Mob:
01 – 448 – 8900
01 – 448 – 8902
0703 – 413 – 6835
www.stanbicibtcbank.com
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Appendix A
Introduction to Stanbic IBTC Bank
Stanbic IBTC Bank
23
Overview
Stanbic IBTC Bank is
the parent of Stanbic
IBTC Pension
Managers, Nigeria’s
largest PFA and
Stanbic IBTC Asset
management Limited,
Nigeria’s largest nonpension asset
managers

Stanbic IBTC Bank, a product of the merger between IBTC Chartered Bank Plc and Stanbic Bank Nigeria Limited, is Nigeria’s
premier investment bank with a wealth of experience in advisory, privatisations and capital markets

The bank also has excellent corporate and retail banking capabilities and a network of over 60 branches in all the major cities and
commercials centres spread across the geo-political zones of Nigeria

Being a member of the Standard Bank Group means that Stanbic IBTC is part of a strong global banking network

Fitch recently upgraded Stanbic IBTC’s National Long and Short-term ratings to 'AAA(nga)' from 'A(nga)' and to 'F1+(nga)' from
'F1(nga)', respectively – only local bank with a Fitch AAA rating

Stanbic IBTC Bank is the parent of Stanbic IBTC Pension Managers, Nigeria’s largest PFA and Stanbic IBTC Asset management
Limited, Nigeria’s largest non-pension asset managers

Stanbic IBTC is among the 15 Primary Dealers / Market Makers recently appointed by the Debt Management Office to trade in
government securities and appointed along with 13 other banks to manage Nigeria’s foreign reserves
Selected Accolades
Stanbic IBTC is the
only local bank with
a Fitch AAA rating

Best Debt House: Euromoney Excellence Award 2008

Best Issuing House: Thisday Awards 2008

Best Issuing House in Africa: African Banker Awards 2007

Best Fund Manager, Nigeria: ThisDay 2005

Euromoney Project Finance Magazine ‘Deal of the Year’ Awards:
– African PPP: Lekki-Epe Expressway (2008)
– African Telecoms / Mobile: MTN Nigeria US$2bn Fund raising (2007)
Local knowledge supported by a global network and expertise
Stanbic IBTC ― Project Finance Credentials
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INDORAMA
GROUP
Stanbic IBTC has
experience in a wide
range of sectors
across Nigeria
2008
NGN 100bn
2008
US$ 300m
2007
US$ 2bn
2007
US$ 160m
2007
US$ 200m
Commercial Paper
Programme,
Nigeria
Primary Dealers
Toll Road,
Nigeria
Joint Financial Advisor /
Lender
Syndicated Credit
Facilities, Nigeria
Global Co-ordinator /
Mandated Lead Arranger
Project Finance,
Nigeria
Lead Arranger
Senior Secured
Borrowing Base Facility,
Nigeria
Mandated Lead Arranger
/ Underwriter
INDORAMA
2007
US$ 450m
2007
US$ 25m
2007
US$ 350m
2007
US$ 1.5bn
2006
US$ 595m
Syndicated Credit
Facilities, Nigeria
Mandated Lead Arranger
Bridge Finance,
Nigeria
Financial Arranger
NNPC Local Content
Support Fund,
Nigeria
Programme Manager
Senior Secured
Reducing Revolving
Credit Facility, Nigeria &
Gabon
Senior Lead Arranger
Medium Term
Syndicated Facilities,
Nigeria
Lead Advisor / Arranger
2006
US$ 10m
2005
US$ 100m
2004
US$ 300m
Uncommitted Revolving
Pre-offtake Finance,
Amni Intl, Nigeria
Sole Arranger / Lender /
Hedging Bank
Silent Payment
Guarantee Facility,
PPMC, Nigeria
Arranger
Revolving base term
facility, Nigeria
Senior Lead Arranger /
Co-Underwriter
Disclaimer
25
Confidentiality and disclaimer
This document is provided on the express understanding that the information contained herein will be regarded and treated as strictly confidential and proprietary to Stanbic IBTC Bank Plc
(“Stanbic IBTC”), its holding company Standard Bank of South Africa, and the subsidiaries of its holding company (“the Standard Bank Group”). By retaining it the recipient undertakes that
it is not to be delivered and nor shall its contents be disclosed to anyone other than the intended recipient, and nor shall it be reproduced or used, in whole or in part, for any purpose other
than for the purpose described herein, without the prior written consent of Standard Bank.
Whilst every effort has been made to ensure the accuracy and completeness of the information contained in this document, no responsibility is accepted by the Standard Bank group for
the treatment by any court of law, tax, banking or other authorities in any jurisdiction of any transaction based on the information contained herein. There may be tax implications to
consider in any transaction and these should be identified and understood before investing. Separate tax advice should therefore be sought when appropriate. Should anything contained
herein contribute to the acquisition of a financial product the following must be noted: there are intrinsic risks involved in transacting in any products; no guarantee is provided for the
investment value in a product; any forecasts based on hypothetical data are not guaranteed and are for illustrative purposes only; returns may vary as a result of their dependence on the
performance of underlying assets and other variable market factors and past performances are not necessarily indicative of future performances. Any client that is not a merchant banking
client as defined in the Financial Advisory and Intermediary Services Act must note that unless a financial needs analysis has been conducted to assess the appropriateness of any
product, investment or structure to its circumstances, there may be limitations on the appropriateness of any information provided by a member of the Standard Bank group and careful
consideration must be given to the implications of entering into any transaction, with or without the assistance of an investment professional.