"FINANCING INFRASTRUCTURE Breaking the Barriers to Sustainable"
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 2 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 Cash management Our Global Presence Trade Finance Bilateral Credit FTSE 100 and Hong Kong Stock Exchange listed Long term credit rating A2 (Moody‟s) and A (S&P) 550 locations serving 56 countries Raising Capital and Strategy and Equity Risk Management Our Local Presence Forfaiting M&A On the ground expertise in Asia, Africa, the Middle East, India region and Latin America FX, Derivatives LBO/MBO Facilitates delivery of innovative products, supported by Structured Trade Finance Equity Private quality delivery systems and excellent customer service Securitisation Placement Our Value Proposition and Product delivery Fixed Income Private Equity Loan syndication Investing Strong on-shore presence and in-depth local knowledge Project & Export Finance Relationship and leverage with key corporates and Arranging & Advisory institutions Coupled with a deep understanding of the local markets, our product capabilities are tailored to suit client‟s needs. 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 DP World Port -Senegal, Main One Telecoms Cable Project-Nigeria, $120m Tullow Jubilee Oilfields project Ghana Viva Methanol, $1.2billion Tata: Itezhi-Itezhi Power project-Zambia, Natural Gas Liquids supplemental financing, $220m Sasol Inzalo- South Africa NNPC /ExxonMobil Satellite Oilfields, $680m Kosmos Energy-Ghana, Lafarge Euro 225m Expansion facility Kengen- Kenya . Addax Izombe LPG Project 5 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 7 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: limited cashflow in Emerging mkts- viewed as the ultimate “public good”. 8 Global Infrastructure Coverage & the Africa Situation 9 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 10 Evolution of Private Infrastructure Investment in Africa (1990 – 2007) 11 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 13 Critical Investment Barriers & Enablers CASHFLOW FINANCING Regulatory Framework Equity and Management and Macro Stability Bank Debt (Loans) and Tariffs / Fees / Tolls Capital Markets Debts (Bonds) Credit enhancements Govt Supplements possible? (MYTO?) 14 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 15 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 16 16 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 17 17 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 18 Power & Infrastructure Credentials Notable Deals Confidential IBOM IPP AES Ebute Energia Azteca x Energia (Nigeria) (Nigeria) de Baja California Bujagali Hydro (Mexico) (Uganda) Independent Power Plant Independent Power Plant USD 804 M Project Financing Project financing for a 1,060 MW natural gas power plant Mandated Lead Arranger & Off-take Credit Support Modelling Bank Mandated Lead Arranger Provider Arranger Ongoing Ongoing Ongoing On-going Itezhi-Tezhi IPP Empresa Electrica (Zambia) Ventanas Marrafiq IWPP PT Indonesia Power (Chile) (Saudi Arabia) Proejct Financing of IPP (Indonesia) USD 55 M USD 440 M US$ 3,300 M SBLC for Gas Purchase Project financing for a 242 Project Financing MW greenfield coal-fired Arranger & Documentation plant Financial Adviser Lead Arranger Agent Mandated Lead Arranger Ongoing Ongoing 2007 2007 19 Power & Infrastructure Credentials Notable Deals AES Sonel Shuqaiq IWPP (Saudi Arabia) (Cameroon) Fujairah IWPP Al-Hidd IPP (UAE) (Bahrain) USD 1,400 M Capex Programme Financing USD 1,500 M Project Financing Project Financing Security Trustee & Facility Project Financing Agent for IFC, Proparco, Mandated Lead Arranger Mandated Lead Arranger EIB, AfDB, DEG & FMO Mandated Lead Arranger and Hedging Bank 2007 2006 2006 2006 MALAKOFF PENDEKAR POWER (LABUAN) Taweelah B IWPP Shuaibah IWPP Nam Theun 2 Hydropower Taweelah A-1 10 (Abu Dhabi) (Saudi Arabia) Project (Abu Dhabi) (Laos) US$ 2,670 M Project US$ 2,542 M Project USD 1,100 M Financing Financing US$ 1,581 M Project Mandated Lead Arranger Project Financing Structuring Bank, Insurance Bank Financing Documentation Bank, Joint Mandated Lead Arranger Bookrunner, JBIC Co-ordinator, Mandated Lead Arranger Mandated Lead Arranger Hedging Bank Hedge provider 2006 2005 2005 2005 20 Regional Infrastructure Deals (I) (U.A.E) Umm-Al-Naar IWPP Suez Gulf Power Mesaieed IWPP (U.A.E) Sohar Power (Oman) Port Said East USD 855m Power (Egypt) (Qatar) Project Financing USD 855m USD 446M (Egypt) Project Financing Project Re-Financing USD 296M USD 2.2 bn USD 302M Project Financing Project Financing Bookrunner and Mandated Lead Arranger Mandated Lead Arranger Project Financing Mandated Lead Arranger Mandated Lead Arranger Mandated Lead Arranger Umm-Al-Naar IWPP Umm-Al-Naar IWPP Umm-Al-Naar IWPP (U.A.E) Umm-Al-Naar IWPP (U.A.E) Umm-Al-Naar IWPP Qasim International (U.A.E) Umm-Al-Naar IWPP (U.A.E) XXX (U.A.E) Masdar USD 855m Container USD 855m Terminal Dolareh (U.A.E) Container Terminal USD 855m Emirates Cement Company (U.A.E) (Pakistan) (Djibouti) (XXX) (U.A.E.) Project Financing USD 855m Project Financing USD 855m Project Financing USD 855m Project Financing USD 500M USD 100M Project Financing Project Financing USD XXX USD 290M USD 300M Islamic Project Project Financing Project Financing Project Financing (Current) Islamic Project Financing Mandated Lead Arranger Financing (Current) Mandated Lead Arranger Mandated Lead Arranger Financial Advisor, Financial Advisor, Mandated Lead Arranger Financial Advisor Mandated Lead Arranger Mandated Lead Arranger 21 Regional Infrastructure Deals (II) Umm-Al-Naar IWPP (U.A.E) Umm-Al-Naar IWPP Disi-Mudawwara Water ADWEA Sewage (U.A.E) XXX Shuqaiq IWPP XXX Marafiq IWPP Conveyance Pipeline USD 855m Treatment Plant (U.A.E) (XXX) (Saudi Arabia) (XXX) (Saudi Arabia) (Jordan) Project Financing USD 855m Confidential Project Financing 2.0B USD XXX USD XXX USD 2.2B USD 1,000M Project Financing Project Financing Project Financing Project Financing Project Financing Mandated Lead Arranger Mandated Lead Arranger Mandated Lead Arranger Financial Advisor Financial Advisor Financial Advisor Financial Advisor XXX Shuaibah IWPP Taweelah-B Rousch Rousch Power Ras Laffan XXX Al Ezzel Power (XXX) (Saudi Arabia) (U.A.E) (Pakistan) (Qatar) (XXX) (Bahrain) Power USD XXX USD 1.9B USD 2,056M 328M USD 712m USD XXX USD 372M Project Financing Project Financing Interest Rate Swaps Project Financing Project Financing Project Financing Financial Adviser Mandated Lead Arranger Pre-bid Underwriter and Structuring & Hedging Bank Mandated Lead Arranger Mandated Lead Arranger Mandated Lead Arranger Mandated Lead Arranger 22 Regional Infrastructure Deals (III) Umm-Al-Naar IWPP Tihama Power Sohar IWPP National District Cooling (U.A.E) (Saudi Arabia) (Oman) (U.A.E) USD 855M USD 510M USD 414M AED 700M Project Financing Project Financing Project Financing Project Financing Lead Arranger Pre-bid Underwriter and Lead Arranger Mandated Lead Arranger Mandated Lead Arranger Ministry of Finance Ghana Ministry of Finance Ghana Ghana Telecom Thuraya Satellite Re: Korle Lagoon Ecological Re: Korle Lagoon Ecological Restoration Project (Ghana) (U.A.E) Restoration Project (Ghana) (Ghana) USD 30 Million USD 37 million USD 37 million ECA Facility Project Financing ECA Buyer Credit Facility ECA Buyer Credit Facility Mandated Lead Arranger & Sole Sole Arranger/Lender Sole Arranger/Lender Lender Financial Advisor 2003 2003 2005 23