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What is OPIC - The Foundation for Democracy in Africa

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What is OPIC - The Foundation for Democracy in Africa Powered By Docstoc
					USAfrica Air Transportation Summit
           Miami, Florida
             June 6, 2007
                    What is OPIC?
• Self sustaining, U.S. Government Agency that
   – Promotes development
   – Supports U.S. private investment abroad where political risk
     insurance and financing not commercially available
   – Promotes best practices; projects abide by World Bank
     environmental and ILO standards

• Three main product lines
   – Political Risk Insurance
   – Loans or Guarantees to projects through Structured Finance and
     SME Departments
   – Investment Funds for fund seed capital



                                                                      2
       OPIC Eligible Countries in Africa
• Africa is priority region for OPIC with special focus on North
  Africa
• Examples of recent commitments in Africa:
   – $200 mm for desalination project (Algeria)
   – $18 mm for rehabilitation of railway (Mozambique)
   – $15 mm for low-income housing (South Africa)
   – $250 mm for natural gas liquids facility (Nigeria)
   – $250 mm for mortgage insurance for homeowners with HIV (South
     Africa)
   – $20 mm for pharmaceutical manufacturing (Ghana)

• Africa portfolio currently represents approximately 10% of
  total finance portfolio
                                                                     3
  OPIC Finance Support for Airports

• Financings
   – Airports; greenfield and expansions
   – Cargo and maintenance facilities
   – Regional airlines

• Examples of airport projects
   – $106 mm privatization and expansion of Jorge Chavez
     International Airport, Lima, Peru (2004)
   – $200 mm new international airport for Quito, Ecuador (2005)
   – Airport financing for Punta Cana, Dominican Republic (1989)




                                                                   4
       OPIC Statutory Requirements
• Projects must meet OPIC policies during construction and
  operational phases
   –   Human rights
   –   Worker rights consistent with International Labor Organization
   –   Environment follows World Bank Guidelines for applicable sectors
   –   U.S. and host country economic effects
        • No loss of U.S. jobs or harm to U.S. economy
        • Must have positive host country developmental impact

• Requirements are embedded in relevant project contracts



                                                                     5
         OPIC Insurance Programs

  Coverage to U.S. Equity, Lenders, Capital Markets
• Inconvertibility and Transfer Risk
   – inability to convert local currency into U.S. dollars
• Expropriation Risk
   – losses from expropriation, nationalization, or confiscation by a
     foreign government
• Political Violence Risk
   – losses from war, revolution, insurrection, or politically-motivated
     civil strife



                                                                           6
            OPIC SME Finance Program

• Direct loans to commercially viable, private sector businesses in
  emerging markets (no oil and gas)

• SME Direct Loan Eligibility
    · U.S. corporation with less than $250 million in revenues
    · U.S. individual or investment entity with less than $67 million in equity

• SBC loan Eligibility (expedited approval process)
    · US corporation with less than $35 million in revenues
    · Individuals or investment entities with less than
      $27 million in equity



                                                                                  7
       OPIC Structured Finance Program
• Private sector projects (no government control) with an appropriate
  U.S. connection, which includes
     · U.S. equity at risk (minimum of 25% of total shareholding)
     · U.S. debt at risk (U.S. lending institution taking project risk)
     · Significant involvement of U.S. entity over life of project (such as U.S. hotel
       operator)

•   Greenfield or expansion projects
•   Refinancing or recapitalization loans if with significant CAPEX
•   Multi-year capital expenditure programs
•   Privatizations with improvement requirements
•   Longer-term working capital requirements


                                                                                  8
     OPIC Structured Finance Program
                        Flexible Structures
• Corporate or project financing
• Up to $250 million per per project; $350 million for U.S. dollar
  commodity
• Tenors of up to 20 years
• Fixed or floating rate generally over U.S. Treasuries
• Primarily a U.S. dollar lender with no B-loan risk
• Tailored, flexible disbursements and amortization
• Subordinated structures in unusual circumstances
• Added flexibility via 3rd party funding intermediary


                                                                     9
     OPIC Structured Finance Program
                Risk Sharing with U.S. Lenders
• OPIC lends to projects with no U.S. equity if U.S. entity co-lends and
  shares in loan repayment risk
• Terms and pricing reflect OPIC and U.S. lender requirements
• Deals structured pari-passu or with OPIC in a “first loss” position
  relative to U.S. lender
• U.S. commercial bank on-lending agreements
• Working capital financing
• Reinsurance of U.S. bond insurers



                                                                    10
           OPIC Structured Finance
             Flexible Structures
•   Corporate or project finance lending
•   Up to $250 million per project; $350 million in oil and gas
•   Long tenors possible – 15-20 years – longer if needed
•   Fixed or floating rate generally over U.S. Treasuries
•   Primarily a U.S. dollar lender
•   Subordination structures in unusual circumstances
•   Added flexibility via 3rd party funding intermediary
    – local currency loan with dollar reimbursement to OPIC for
      payment under guaranty
    – revolving facilities


                                                                  11
        Project Finance Basics
•   Definition of Project Finance
•   Parties in a Project Financing
•   Addressing risks in Project Finance
•   Methods of evaluating projects
•   Sharing the risks



                                          12
         Corporate Lending
• All company cash flows and earnings are
  available for debt service repayment
• Any corporate assets could serve as
  collateral
• Company’s history serves as basis of credit
  analysis


                                                13
         Project Financing
• Project cash flows are the primary source of
  debt service repayment
• Project assets serve as collateral
• Projections of project’s future performance
  serve as basis for credit analysis
• Project Financing is limited recourse to the
  Project sponsors.


                                            14
Reasons for Project Financing
• Risk Sharing
• Debt capacity considerations
• Covenant restrictions on existing debt




                                           15
    Parties to a Project Financing
•   The Sponsors
•   The Lenders
•   The Construction Contractor
•   Financial Advisors
•   Technical Consultants
•   Lawyers and Accountants
•   Host Country Governments
•   Multilateral Agencies
                                     16
        Addressing Risks in
         Project Finance
• Identify all Project risks
• Assess best method of mitigating risks
• Negotiate risk sharing among parties




                                           17
              Risk Analysis

• Controllable vs. Uncontrollable Risks
• Risk Periods




                                          18
Controllable vs. Uncontrollable
             Risks
       Economic and Political Risks

          Industry or Business
           Environment Risks

             Company or
            Project specific
                 risks




                                      19
          Controllable vs.
        Uncontrollable Risks
• Company-specific risks
   – Financial Risks
   – Marketing Risks
   – Management Risks
• Industry or Business environment risk
   – Seasonality
   – Cyclicality
   – Competition
   – Tax benefits/penalties
                                          20
       Controllable vs.
  Uncontrollable Risks (cont.)
• Economic and Political Risks
  –   Inflation
  –   Host country legal and regulatory policies
  –   Foreign exchange availability
  –   Foreign exchange rates
  –   Interest rates
  –   Political embargo
  –   Insurrection

                                                   21
             Risk Periods
• Engineering and construction risk
• Start-up risk
• Operating risk




                                      22
Methods of Evaluating Projects
• Cash Flow Analysis
• Sensitivity Analysis
• Internal Rates of Return




                             23
           Cash Flow Analysis
•   Detailed analysis of projections
•   Due diligence on all assumptions
•   Determine “Base Case” scenario
•   Assess project’s ability to repay debt




                                             24
         Sensitivity Analysis
• Combines results of Risk Evaluation and
  Cash Flow Analysis
• Determine areas of possible variances in the
  projections
• Define a “Worst Case” scenario
• Assess ability to repay debt under negative
  conditions

                                             25
     Internal Rate of Return
• Use discounted cash flows to estimate
  Sponsors’ return
• Assess Sponsors’ likely commitment given
  such return




                                             26
          Sharing the Risks
• Create a workable loan structure
• Define credit support and loan security
• Document all agreements with great
  specificity




                                            27
         Support and Security
•   Completion support
•   Mortgage of Project Assets
•   Assignment of project contracts
•   Assignment of insurance proceeds
•   Pledge of Shares



                                       28
 Project Completion Support
• Guarantees from Sponsors
• Amount and duration based upon risks and
  projections
• Completion tests are defined:
  –   Physical completion
  –   Operational completion
  –   Financial completion
  –   Legal completion


                                             29
  Vanilla Direct Loan Structure
                            Collateral/
                            Assignment of contracts
             $60 m debt
 OPIC

                               Project Company
     Completion
     Guarantees
                                               Construction
                             $100 m
                                               Guarantees
Sponsors
             $40 m equity         Contractor

                                                       30
  www.opic.gov


      Geoffrey Tan
Senior Investment Officer
   Structured Finance
      202-336-8519
     getan@opic.gov



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