FINANCING INFRASTRUCTURE Breaking the Barriers to Sustainable by jeq15539

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									               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



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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



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 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”.

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Global Infrastructure Coverage & the Africa Situation




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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




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Evolution of Private Infrastructure Investment in Africa (1990 – 2007)




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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?)




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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
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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

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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


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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
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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



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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



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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




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