Transcript Document 7253949

Energy Infrastructure and
New Sources of Capital
Hugo Verdegaal, Managing Director
Citi Oil & Gas Banking Banking
June 25th, 2008
Strictly Private and Confidential
Table of Contents
1. Emerging Market Context
2. Privatization Trends
3. Private Equity in U.S. Energy Infrastructure
4. Major Infrastructure Funds
5. Case Study: BORCO
1. Emerging Market Context
Global Infrastructure Market
“Infrastructure” broadly defined comprises assets in Transportation, Energy, Power, Water, Waste, Telecom
and some other sectors that offer stable, comparably low-risk, long-term cash flows, that are often inflationprotected, contractually secured and regulated by state and/or federal authorities.
 Massive need for global infrastructure investment
– The OECD estimates a $53 trillion need for infrastructure investment through 20301
 Constitutes approximately 2.5% of world GDP
 Rising social costs are increasing the need for private investment
 Growth of public sector debt and deficits are spurring privatizations
 Increasingly greater awareness and appreciation of private sector contributions
Estimated Average Annual World Infrastructure Expenditure
($ in billions)
2000 - 2010
Approximate %
of World GDP
2010 - 2020
Approximate %
of World GDP
2020 - 2030
Approximate %
of World GDP
$220
0.38%
$245
0.32%
$292
0.29%
49
0.09%
54
0.07%
58
0.06%
Telecoms
654
1.14%
646
0.85%
171
0.17%
Transmission & Distribution
127
0.22%
180
0.24%
241
0.24%
576
1.01%
772
1.01%
1,037
1.03%
$1,626
2.84%
$1,897
2.49%
$1,799
1.79%
Type of infrastructure
Road
Rail
Water
Total
2
Source: OECD
1 1: Excludes ports and airports
2: OECD countries, Russia, China, India and Brazil only
GDP Growth in Major Emerging Markets
14%
12%
GDP(% real change pa)
10%
8%
6%
4%
2%
0%
2003
2005
2007
Source: Economist Intelligence Unit.
2
2009
2011
2013
Brazil
2015
China
2017
India
2019
2021
Russia
2023
2025
2027
2029
Per Capita Energy Consumption
Energy consumption (kg oil equivalent per capita)
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1992
1993
1994
1995
1996
1997
1998
1999
Russia
Source: Economist Intelligence Unit
3
2000
China
2001
2002
Brazil
2003
India
2004
2005
U.S.
2006
2007
W. Europe
2008
2009
2010
2011
2012
Energy Infrastructure Requirements in Emerging Markets
International Energy Agency World Economic Outlook 2006:
Energy Investment
Cumulative Investment in Energy Supply Infrastructure
(using the IEA's Reference Scenario for 2005-30)
US$ bn in year 2005-dollars
Coal
Oil
Gas
Power
OECD
156
1,149
1,744
4,240
North America
80
856
1,189
1,979
Europe
34
246
417
1,680
Pacific
42
47
139
582
Total
7,289
4,104
2,376
809
Transition Economies
Russia
33
15
639
478
589
440
590
263
1,850
1,195
Developing Countries
Developing Asia
China
India
Indonesia
Middle East
Africa
Latin America
Brazil
330
298
238
38
13
1
20
12
1
2,223
662
351
48
49
698
485
378
138
1,516
457
124
55
86
381
413
265
48
6,446
4,847
3,007
967
187
396
484
719
252
10,515
6,264
3,720
1,108
335
1,476
1,402
1,374
439
45
256
76
Inter-regional Transport
N/A
World*
563
4,266
3,925
11,276
*World Total Includes US$161 billlion of investment in biofuels
Source:International Energy Agency World Economic Outlook 2006
4
376
20,192
2. Privatization Trends
Infrastructure Demand – Why Private Investors Are Piling Up
Risk mitigated by
regulation/contract
High Entry
Barriers
High gearing
capacity
Often
monopolies
Inflation
hedged
Inelastic
demand
Long
maturity
Stable equity
return
Higher return compared to similar risk profile
assets
Low Correlation with other asset classes
5
Infrastructure Supply – From Public to Private
Typical Government Dynamics
Fiscal discipline
Search for efficiency
Previous underinvestment
Stimulate growth
Privatization
- trade sale
- IPO
PFI / PPP style
projects
Contracting out
Infrastructure
activity in the
private sector
Typical Sector Dynamics
Stage of
market
development
Banking
Products
Demanded
Public sector or
traditional
private sector
Bonds
Export
Credit
GTS
Private
projects
Asset sales
PPP Deals
Expanding
portfolios
Secondary market
Development plus
Corporate privatization
Project/asset
Advice
Equity and
debt
Portfolio
gearing
Asset and corporate
Equity / debt. Small
and sporadic M&A
Full private Sector
activity
Public and private
equity and debt.
Full scale M&A
A larger proportion of infrastructure moves to the private sector, the secondary market becomes more efficient,
and the sector develops until it demands the full range of banking services.
6
Private Capital Invested in Infrastructure
2006/2007 Estimated Cumulative Investments in Infrastructure
(Transaction Value in $ billions)
United
Utilities
Puget Energy
TXU Corp
ICA
Farac package I
$140
$128
$124
Peel Holdings
$120
Kinder Morgan
Midstream Energy Companies
$104
$111
$108 $110 $110
$106 $108
$113
$100
Associated
British Ports
$80
PD Ports
$60
$54
$42
$44
$44
$45
$55
$56
$45
$36
$40
$20
$8
$1
$8
$1
$Jan-06
7
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Private Sector - Infrastructure Options for Government
Governments have several ways to involve the private sector. Each method would meet specific government
needs and objectives.
Conventional
Procurement
 Procurement of
assets by the
public sector using
government
funding
Public Private
Partnerships (PPP)
PPP
 Umbrella term covering a variety of
procurement initiatives
 Often Government shareholders
 Corporate or strategic reasons
 May not involve investment. May be
source of funds for Government;
monetisation of assets
PFI
 One form of PPP is PFI
 Essentially a concession / project
finance where investment is required
Privatisation
Asset Sales
 Sale of Public
Sector infrastructure
assets
 Statutory regulation
 Assets privately
owned for fixed
period or in
perpetuity
PPP/PFIs is a method of procurement of services that is more efficient than traditional
procurement (i.e. that delivers “value for money”), while retaining government
ownership of infrastructure assets
8
3. Private Equity in U.S. Energy Infrastructure
Where Private Capital Invested in the U.S. in 2007 / 08
The surge of private capital raised for infrastructure investments led to a number of successful transactions in
the U.S. last year. Investments were made in Power/Energy, Ports, Rail, Roads, Telecom & Water/Waste.
Gas T&D
Power
Source Gas
Cogentrix
Arkansas Western Gas
Northern Star Generation
Infrastructure
CNG Holdings
TXU*
Colonial Pipeline (USA)
Puget Energy
NGPL
ConEd
Ports
Black Hills
Carrix, Inc (US, International)
Roads
MTC
Northwestern Parkway
AmPorts (US, Latin America)
Capital Beltway HOT Lanes
Maher Terminals (US, Canada)
Miami Tunnel
Telecom
Water / Waste
Global Towers – Communication Towers
Synagro
Waste Industries
Railroads
Other
Florida East Coast
UE Waterheater
9
*Significant merchant generation
4. Major Infrastructure Funds
Recent Private Funds Raised Testimony to Market Strength
A number of new private infrastructure funds – primarily managed by investment banks and private equity groups – have been
announced since the start of 2006. A shortlist below already accounts for over $150 billion in new capital
By Banks
Geography
ABN AMRO Renewable energy Fund
ABN Australia
ABN AMRO Infrastructure Capital
Citi Infrastructure Investors
Credit Suisse
Dexia (20%) / GIMV (20%)
ECP MENA Fund I
Franklin Templeton/ Hana Bank
Global Infrastructure Partners (GE /Credit Suisse)
Goldman Sachs Infrastructure Partners
Gulf One Infrastructure Fund I
HBG Infrastructure
HSBC/Dubai International Capital
ICICI Bank
IDFC/Citi/Blackstone/IIFCL/3i
ING Atlas Infrastructure Fund
Ithmar, Abraaj Capital, Deutsche Bank
Kookmin Bank/ ING
Korean Emerging Infrastructure Fund (Darby
Overseas / Hana Bank)
Macquarie Infrastructure Partners I and II
Macquarie Korea Opportunities Fund
Macquarie-Equity Partners Infrastructure Fund No.1
(EPIC)
Macquarie Telecommunications Infrastructure
Merrill Lynch
Morgan Stanley
NIBC European Infrastructure Fund I
Prudential M&G Infrastructure Fund
RREEF (Deutsche Bank) European Infrastructure, NA
Santander
Thomas Weisel India Infrastructure Fund
UBS/ADIC Infrastructure Fund I
UBS Infrastructure Fund
NA
NA
Global
Global
Asia, EM
Benelux
MENA
Korea
Global
Global
GCC
India/Pakistan
MENA
India
India
Europe
MENA, SE Asia
Korea
South Korea
10
Source: Citi estimates, Probitas Partners.
(*) Notes fund raising in progress.
US, Canada
S.Korea
Global
Global
Global
Global
EU
Europe
Europe, N.America
Latin America
India
MENA
Global
Size
(US$bn)
0.3
0.3-0.4
1.47
3.0
1.0
0.14
0.52
0.6
5.6
6.5
2.0
0.2
0.5
2.0
2.0
1.4
2.0
1.2
0.6
4.0 and 6.0
0.4
0.1
3.0
2.0
3.5
0.5
2.0
8.9
1.0
0.2
0.5
1.5
By Banks (continued)
Geography
Size
(US$bn)
UTI India Fund
Vietnam Infrastructure Ltd
ZonesCorp Infra Fund (Macquarie Bank / Abu Dhabi
Commercial Bank)
India
Vietnam
Middle East
0.5
0.4
0.3
By Private Equity Firms
Geography
AIG Highstar III
Alinda Infrastructure Fund I
Global
US, Canada,
EU
Global
US/Global
US/Global
Europe / Italy
Latin America
Indonesia
Scandinavia
Australia
India
India
MENA
W. Europe
Gulf MENA
Global
US
Indonesia
Europe, NA,
Asia
Apollo Infrastructure
Carlyle
Carlyle Riverstone Renewable Energy Infrastructure
Clessidra Capital Partners
Conduit Capital Partners Latin Power III
EMP Global
EOT Infrastructure Fund
Hastings Private Equity Fund II
IDFC Private Equity Fund II
IL&FS Urban Infrastructure Fund
IL&FS/Abu Dhabi Investment Company
Infracapital Partners
Instrata Capital – Kuwait Investment / Sage Capital
Julius Baer Infrastructure Fund
NGP Energy Infrastructure and Resource Partners
Saratoga Capital Indonesia Fund
3i Infrastructure
Size
(US$bn)
3.5
3.0
5.0
1.0
~1.0
1.5
0.3
1.0
1.4
~0.2
0.4
1.0
1.0
~2.0
1.0
TBC
1.5
0.5
1.0
By Operators
Geography
Size
(US$bn)
Brisa
Europe, US
0.7
TransUrban Infrastructure Fund
Global
2.0
Established Infrastructure Players
Greenfield
Risk Premium: 8–10%
Construction
Risk Premium: 6–8%
Growth
Risk Premium: 3–6%
Seasoned Operation
Risk Premium: 2–3%
Construction
Construction companies are
willing to assume
higher risk levels
Investors who desire lower
risk/more mature assets
Scope of Opportunity/Development
11
Leadership Capability
Risk Profile
Investors looking for more
stable cash flows and yield
Volume of Capital Increasing, Enabling Larger Deal Sizes
Volume of capital for infrastructure equity is expanding and larger deals can be achieved.
New and larger direct
investors
Increasing allocations to
infrastructure
Volume of capital for infrastructure has
increased significantly
 Equity raised or allocations to funds for direct investment estimated at US$330bn
 This capital is mostly targeted at developed markets infrastructure
 Historically dominated by Australian and Canadian investors
 There are strong signs of interest from European and Middle Eastern investors and we expect US interest to follow
Increasing volume of
capital
More experienced
investors
 Single ticket capacity has increased substantially
 Larger names can invest over US$1bn in a single transaction
 Reduces the number of parties required in an auction
12
Single deal
size capacity has
increased
Fewer investors required to
achieve a sale
Sovereign Wealth Funds – A New Source of Infrastructure Capital
•
Sovereign Wealth Funds (SWFs) are big, and getting bigger
•
As SWFs grow and multiply, more activity is moving to the aggressive end of the spectrum:
•
•
More direct acquisitions and strategic transactions
•
Growing involvement in the alternative investment industry
In most cases, SWFs are largely passive investors looking to take non-control minority stakes and simply earn a stable
return
•
•
Examples include the equity placements by Citigroup and Merrill Lynch as well as GIC’s involvement in Ferrovial’s bid
for BAA
Governments are weighing perceived threats of SWFs against potential benefits. Managing political risk in SWF-related
transactions is key
Sovereign Wealth Funds
Country
United Arab Emirates
Kuwait
China
Singapore
Singapore
Qatar
13
Fund Name
Abu Dhabi Investment Authority
Kuwait Investment Authority
China Investment Corp
GIC
Temasek Holdings
Qatar Investment Authority
Assets Managed
(US$mm)
875,000
300,000
200,000
128,000
100,000
60,000
Source of Funds
Oil
Oil
FX Reserves
Non-commodity
Non-commodity
Oil and gas
5. Case Study: BORCO
Case Study: BORCO Terminal Acquired by First Reserve
On February 2, 2008, Petroléos de Venezuela (“PDVSA”) signed an agreement to sell its wholly-owned
subsidiary, Bahamas Oil Refining Company (“BORCO”), to First Reserve Corporation (“FRC”) for US$900 mm.
Transaction Highlights
Acquisition Rationale


BORCO is a crude and products storage terminal located in
Freeport, Bahamas with an installed storage capacity of 19.7 million
barrels and 3 deep-water jetties

First Reserve has agreed to buy 100% of BORCO for US$900
million in cash, before any adjustments, to take over BORCO’s
operations

–
First Reserve has formed a strategic partnership with Shell

–
Shell has already agreed to a contract to occupy a significant
portion of the storage capacity


Vopak has reached agreement with First Reserve to form a strategic
joint venture
–
The terminal will be operated by Vopak
–
Vopak will acquire a 20% interest in the terminal, which will be
named Vopak Terminal Bahamas
Deal Multiples
–
Firm Value / 2008E EBITDA multiple of 19.1x
–
Firm Value / Storage Barrel of US$45.70

This transaction is part of PDVSA’s strategy to monetize its non-core
international assets

The transaction is expected to close in 1H2008

Citi acted as exclusive strategic & financial advisor to PDVSA in this
transaction
14


Strategic Geographic Location
– Within 80 miles of the Florida coastline
– One of the few deepwater marine terminals equipped to handle
VLCC’s and ULCC’s that can service the U.S. East Coast
Flexible Service Options
– Capability to receive, store, heat, blend and transfer crude oil, fuel oil,
diesel, gasoline, jet fuel, naphtha and ballast water
Significant Growth Opportunities
– Maximization of local, Florida and East Coast markets via
transshipment, bunkering, and tug & towing
– 208 acres of undeveloped land to build additional storage terminals
– Existing permit for development of an onsite refinery
Favorable Tax and Regulatory Environment
– No income or capital gains taxes
– Freeport is a bonded area with favorable import regulations
Strategic Positioning Going Forward
– First Reserve will be able to develop strong relationships with its
clients, primarily Shell, as operator of the terminal
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