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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

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Financing infrastructure breaking the barriers to sustainable development l.jpg

FINANCING INFRASTRUCTURE :Breaking the Barriers to Sustainable Development

Ade Adeola

Managing Director

Project & Export Finance

Standard Chartered Bank, London

April 2009


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Agenda

  • Introduction

  • Infrastructure Finance Trends

  • Breaking the Barriers to Sustainable Investment

  • Conclusions & Recommendations

  • Leveraging on Experience


Standard chartered leading the way in africa me asia l.jpg

Corporate Banking

Cash management

Bilateral Credit

Trade Finance

Raising Capital and Risk Management

Strategy and Equity

M & A

Forfaiting

LBO/MBO

FX, Derivatives

Equity Private Placement

Structured Trade Finance

Securitisation

Private Equity Investing

Fixed Income

Loan syndication

Project & Export FinanceArranging & Advisory

Global Markets

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

  • Our Global Presence

    • FTSE 100 and Hong Kong Stock Exchange listed

    • Long term credit rating A2 (Moody’s) and A (S&P)

    • 550 locations serving 56 countries

  • Our Local Presence

    • On the ground expertise in Asia, Africa, the Middle East, India region and Latin America

    • Facilitates delivery of innovative products, supported by quality delivery systems and excellent customer service

  • Our Value Proposition and Product delivery

    • Strong on-shore presence and in-depth local knowledge

    • Relationship and leverage with key corporates and 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


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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

    • Main One Telecoms Cable Project-Nigeria, $120m

    • Lafarge Euro 225m Expansion facility

    • Viva Methanol Project, $1.2billion

    • Natural Gas Liquids supplemental financing, $200m

    • NNPC /ExxonMobil Satellite Oilfields Advisory, $680m

    • Addax Izombe LPG Project-


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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:


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Infrastructure Finance Trends:Statistics and Commentaries


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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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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”.

The Infrastructure Situation at a Glance



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InfrastructureFinance 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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Barriers to Sustainable Infrastructure Development (1990 – 2007)

  • 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


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CASHFLOW (1990 – 2007)

Regulatory Framework and Macro Stability

Tariffs / Fees / Tolls

Govt Supplements (MYTO?)

Critical Investment Barriers & Enablers

FINANCING

Equity and Management

Bank Debt (Loans) and Capital Markets Debts (Bonds)

Credit enhancements possible?


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What is required to achieve sustainable development? (1990 – 2007)

  • 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 (1990 – 2007)

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


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How Can We Help? (1990 – 2007)

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


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Summary (1990 – 2007)

  • 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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Confidential (1990 – 2007)

Energia Azteca x Energia de Baja California (Mexico)

USD 804 M Project financing for a 1,060 MW natural gas power plant

Marrafiq IWPP (Saudi Arabia)

US$ 3,300 M

Project Financing

IBOM IPP (Nigeria)

Independent Power Plant

AES Ebute (Nigeria)

Independent Power Plant

Itezhi-Tezhi IPP (Zambia)

Proejct Financing of IPP

PT Indonesia Power (Indonesia)

USD 55 M

SBLC for Gas Purchase

Bujagali Hydro (Uganda)

Project Financing

Arranger

Mandated Lead Arranger & Modelling Bank

Off-take Credit Support Provider

Mandated Lead Arranger

Lead Arranger

Financial Adviser

Mandated Lead Arranger

On-going

Ongoing

2007

Ongoing

Ongoing

Ongoing

Ongoing

Empresa Electrica Ventanas (Chile)

USD 440 M

Project financing for a 242 MW greenfield coal-fired plant

Arranger & Documentation Agent

2007

Power & Infrastructure CredentialsNotable Deals


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MALAKOFF (1990 – 2007)

Shuqaiq IWPP (Saudi Arabia)

USD 1,400 M

Project Financing

Al-Hidd IPP (Bahrain)

Project Financing

Fujairah IWPP (UAE)

USD 1,500 M

Project Financing

Taweelah A-1 10 (Abu Dhabi)

USD 1,100 M

Project Financing

Shuaibah IWPP (Saudi Arabia)

US$ 2,542 M Project Financing

Mandated Lead Arranger and Hedging Bank

Mandated Lead Arranger

Mandated Lead Arranger

Mandated Lead Arranger

Mandated Lead Arranger

2006

2007

2005

2006

2006

PENDEKAR POWER (LABUAN)

AES Sonel (Cameroon)

Capex Programme

Financing

Taweelah B IWPP (Abu Dhabi)

US$ 2,670 M Project Financing

Nam Theun 2 Hydropower Project (Laos)

US$ 1,581 M Project Financing

Mandated Lead Arranger

Structuring Bank, Insurance Bank

Documentation Bank, Joint Bookrunner, JBIC Co-ordinator, Hedge provider

Security Trustee & Facility Agent for IFC, Proparco, EIB, AfDB, DEG & FMO

Mandated Lead Arranger Hedging Bank

2006

2005

2005

Power & Infrastructure CredentialsNotable Deals


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Regional Infrastructure Deals (I) (1990 – 2007)

(U.A.E)

Umm-Al-Naar IWPP

Mesaieed IWPP

Suez Gulf Power

(Egypt)

USD 296M

Project Financing

(U.A.E)

Port Said East Power

(Egypt)

USD 302M

Project Financing

USD 855m

Sohar Power (Oman)

(Qatar)

Project Financing

USD 855m

USD 446M

Project Financing

USD 2.2 bn

Project Re-Financing

Project Financing

Mandated Lead Arranger

Bookrunner and

Mandated Lead Arranger

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

Container Terminal

(Pakistan)

(U.A.E)

Dolareh Container Terminal

(U.A.E)

Masdar

Emirates Cement Company

USD 855m

USD 855m

USD 855m

(XXX)

(Djibouti)

(U.A.E)

(U.A.E.)

Project Financing

USD 855m

Project Financing

USD 855m

Project Financing

USD 855m

USD 100M

Project Financing

USD XXX

Project Financing

Project Financing

USD 500M

USD 290M

USD 300M

Islamic Project Financing (Current)

Project Financing

Project Financing

Islamic Project Financing

Project Financing (Current)

Mandated Lead Arranger

Mandated Lead Arranger

Mandated Lead Arranger

Financial Advisor,

Mandated Lead Arranger

Financial Advisor,

Mandated Lead Arranger

Mandated Lead Arranger

Mandated Lead Arranger

Financial Advisor


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Regional Infrastructure Deals (II) (1990 – 2007)

Umm-Al-Naar IWPP

(U.A.E)

Umm-Al-Naar IWPP

Disi-Mudawwara Water

Shuqaiq IWPP

XXX

(U.A.E)

ADWEA Sewage

Marafiq IWPP

XXX

Conveyance Pipeline

(Jordan)

USD 855m

(Saudi Arabia)

(XXX)

Treatment Plant (U.A.E)

(Saudi Arabia)

(XXX)

Project Financing

USD 855m

Project Financing

USD 2.0B

USD XXX

USD 2.2B

USD XXX

Confidential

USD 1,000M

Project Financing

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

Rousch Power

Al Ezzel Power

XXX

Rousch Power

Ras Laffan

Shuaibah IWPP

XXX

Taweelah-B

(Bahrain)

(XXX)

(Pakistan)

(Qatar)

(Saudi Arabia)

(XXX)

(U.A.E)

USD 372M

USD XXX

USD 328M

USD 712m

USD 1.9B

USD XXX

USD 2,056M

Project Financing

Project Financing

Interest Rate Swaps

Project Financing

Project Financing

Project Financing

Project Financing

Financial Adviser

Mandated Lead Arranger

Pre-bid Underwriter and

Mandated Lead Arranger

Mandated Lead Arranger

Mandated Lead Arranger

Structuring & Hedging Bank

Mandated Lead Arranger

Mandated Lead Arranger


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Ministry of Finance Ghana (1990 – 2007)

Re: Korle Lagoon Ecological Restoration Project

(Ghana)

USD 37 million

ECA Buyer Credit Facility

Ministry of Finance Ghana

Re: Korle Lagoon Ecological Restoration Project

(Ghana)

USD 37 million

ECA Buyer Credit Facility

Sole Arranger/Lender

Sole Arranger/Lender

2003

2003

Ghana Telecom

(Ghana)

USD 30 Million

ECA Facility

Mandated Lead Arranger & Sole Lender

2005

Regional Infrastructure Deals (III)

Umm-Al-Naar IWPP

(U.A.E)

Tihama Power

National District Cooling

Sohar IWPP

(Saudi Arabia)

(U.A.E)

USD 855M

(Oman)

USD 510M

AED 700M

Project Financing

USD 414M

Project Financing

Project Financing

Project Financing

Pre-bid Underwriter and

Mandated Lead Arranger

Lead Arranger

Lead Arranger

Mandated Lead Arranger

Thuraya Satellite

(U.A.E)

Project Financing

Financial Advisor


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