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Principles Project Finance

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					                           Structured and Project Finance

                           Lessons for African Projects

                                Name of Conference
E XPORT-IMPORT B ANK
  of the U NITED S TATES        September 30, 2004
      Financing
    Opportunity
     Worldwide
Overview: Structured & Project Finance

 Introduction: Overview of Ex-Im Bank
  Structured Finance
    Products
    History and Activity

 Project v. Structured Finance:

    Distinctions
    Deal Appropriateness


                                  E XPORT-IMPORT BANK o f t h e UNITED S TATES
            Products – What We Do


 Comprehensive guarantee

 Direct Loan

 Political risk only guarantee

 Role is as Senior Lender

 Participation limited by U.S. content

                              E XPORT-IMPORT BANK o f t h e UNITED S TATES
History: Where We’ve Been

Late 80s,   Oil/gas finance on limited recourse basis,
Early 90s   formal project finance considered
1993        1st formal project finance, Pagbilao
1994        Project Finance Division started
1998        Comprehensive pre-completion coverage
1999        Division renamed Structured Finance Division
            (SFD); scope expanded to long-term
            corporate/structured deals
Today       Current deal flow of about $2 billion/year, most
            of which is structured finance



                                         E XPORT-IMPORT BANK o f t h e UNITED S TATES
 Activity: What We’ve Done
Structured finance has been dominating our portfolio.




                                                        E XPORT-IMPORT BANK o f t h e UNITED S TATES
 Authorizations By Sector, Project and Structured Finance, 1995-2004
                               ($MM)
Together, power & oil/gas deals comprise 80% of our authorizations.




                                                   E XPORT-IMPORT BANK o f t h e UNITED S TATES
Authorizations By Sector, Project and Structured Finance, 1995-2004
                              ($MM)

Latin America and Asia comprise over ¾ of deals, Africa only 6%




                                                E XPORT-IMPORT BANK o f t h e UNITED S TATES
      Structured & Project Finance: What is the
                     Difference?
   Structured (Typical)           Project Finance
 Full recourse to sponsor    Limited recourse
 Expansion of operation
  in existence for 3+years    Greenfield or project
                               expansion
 Analysis of historic &
  projected cash flows
 Limited “perfection of      Analyze project’s future
  security”                    cash flows
                              Complex
                               documentation to
                               perfect security


                                    E XPORT-IMPORT BANK o f t h e UNITED S TATES
 Terms: Project v. Structured Finance

     Structured Finance                     Project Finance
 Pay interest during               Capitalize IDC
   construction (IDC)
 Maximum Repayment Term            Repayment up to 14 years
   10 years/12 years power
 Equal semi-annual principal       Flexible amortization

 1st principal 6 months post-      Grace periods available
   completion
 Finance for: local costs          Local costs 15% of contract
   connected to export contract,        value, special ancillary
   ancillary fees                       services




                                            E XPORT-IMPORT BANK o f t h e UNITED S TATES
Deal Appropriateness-Structured v. Project Finance


  The Trade-off
  What Not to Do
  Issues
      Structure and Core Principles
      Co-finance
  Example




                                              E XPORT-IMPORT BANK o f t h e UNITED S TATES
  Project Finance: Trade-off

 Whether to use project finance is often a
  trade-off between:

                                  Advisory &
 Balance Sheet                  Legal Expenses
 Considerations                Time to close & fund
                     and




                                  E XPORT-IMPORT BANK o f t h e UNITED S TATES
Other Considerations

 For Project Finance:
   Expertise

 For Structured Finance:
   Existing credit source

 For either:
   Existence of more than an idea and a site



                                E XPORT-IMPORT BANK o f t h e UNITED S TATES
What Not to Do

 Don’t:
   Use project finance due to lack of
    supporting balance sheet strength.
   Assume “micro project finance” takes as
    long as big deals – it takes more!
   Use structured finance to get lower credit
    standards.




                                E XPORT-IMPORT BANK o f t h e UNITED S TATES
           Project Finance: Structure
Essential structure can appear simple, but shows that a contract must support every
relationship.

                                Host Government


   Supply                       SPV “Sponsors”                         Sales Contracts
  Contracts




               Construction                              Operation &
                Contracts                                Maintenance
                                                          Contracts
                                                                 E XPORT-IMPORT BANK o f t h e UNITED S TATES
             Core Concepts of Project Finance

 Reasonable Assurance of Repayment
 Equity at Risk
    Long-term investors

    “Real” cash equity investments

    Proper incentives

 Sound Regulatory & Legal Framework
    Non-interference & lenders’ rights

    Government support

    Clear regulation and transparent, enforceable contracts



                                          E XPORT-IMPORT BANK o f t h e UNITED S TATES
Structured Finance: Structure

 Degree of structuring can vary

 Elements tend to include:
    Reserve & other accounts
    Payment priorities & cash control

    Funding tied to milestones
    Dividend release conditions




                                  E XPORT-IMPORT BANK o f t h e UNITED S TATES
Example Structure Finance: Off-shore Trust

    “Externalize” risk by:
        Placing secure revenues off-shore
        In a trust for the lenders


       Project                                              Off-Shore
      Company                Product
                                                             Buyer

                                1. Operations
                               & Maintenance                             $
                                  Expenses

          2. Lender Debt                        $
              Payments                 $                 Off-shore Trust
                3. Dividends            $
                                                E XPORT-IMPORT BANK o f t h e UNITED S TATES
Structure Finance Core Principles

 Same as for project finance:
    Reasonable Assurance of Repayment
    Equity at risk
    Sound Regulatory & Legal Framework


 Structured finance can save money & time, but
  not at the expense of credit principles.




                                    E XPORT-IMPORT BANK o f t h e UNITED S TATES
Co-Finance

 Reinsurance of lead ECA by follower

 Used mostly for straight-forward credits

 Not suited for project finance
    Too complex for “passive” following
    Little cost savings

 Use in structured finance being considered.



                                    E XPORT-IMPORT BANK o f t h e UNITED S TATES
Examples: Project Finance in Africa

Success       Chad Cameroon           Strong sponsors
Stories       Pipeline
                                      Good equity support
              Jorf Lasfar Power
                                      Favorable economics
              Project

Not        Olkaria Geothermal          Questionable off-taker
Guaranteed
                                       Inadequate government
                                        support

Under         EBIC Ammonia            Equity & other issues
Review                                 under review
              Intaba Marriot




                                         E XPORT-IMPORT BANK o f t h e UNITED S TATES
Examples: Project Finance in Africa

Success       Nigerian LNG            Strong sponsors
Stories
                                      Good equity support

                                      Favorable economics


Not        Multilinks                  Unclear economics
Guaranteed
           Econet


Under         Sirius Wireless         Issues under review
Review
              Dangote




                                         E XPORT-IMPORT BANK o f t h e UNITED S TATES
Conclusions

 Structured finance increasingly an option, especially for
  small deals

 African activity has been less than hoped

 Project finance requires equity support & expertise

 Structured finance can save time & money but not at
  expense of credit

 Ex-Im Bank committed to being flexible in finding deal-
  specific approaches



                                      E XPORT-IMPORT BANK o f t h e UNITED S TATES

				
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