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

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 Trade Finance Bilateral Credit

Our Global Presence

  

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Our Local Presence



Raising Capital and Risk Management Forfaiting FX, Derivatives Structured Trade Finance Securitisation Fixed Income Loan syndication

Strategy and Equity M&A LBO/MBO Equity Private Placement Private Equity Investing

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 clients needs.

Project & Export Finance Arranging & Advisory

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 Nigerias 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 Project4

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 Nigerias 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 Viva Methanol, $1.2billion Natural Gas Liquids supplemental financing, $220m NNPC /ExxonMobil Satellite Oilfields, $680m Lafarge Euro 225m Expansion facility Addax Izombe LPG Project

DP World Port -Senegal, Tullow Jubilee Oilfields project Ghana Tata: Itezhi-Itezhi Power project-Zambia, Sasol Inzalo- South Africa Kosmos Energy-Ghana, Kengen- Kenya .
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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

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

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 privatelyowned 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 considerations

 May undertake project location and or management decisions on political  Increase perceived commercial risks for debt finance  Sovereign and Cross-Border risks
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Critical Investment Barriers & Enablers

CASHFLOW FINANCING

Regulatory Framework and Macro Stability

Equity and Management

Tariffs / Fees / Tolls

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

Govt Supplements (MYTO?)

Credit enhancements possible?

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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 (global scale) local currency rating to become its foreign currency rating

 Structure to breach the sovereign ceiling, which therefore permit the transactions
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
Dont 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 (Nigeria) Independent Power Plant Bujagali Hydro (Uganda) Project Financing
Mandated Lead Arranger & Modelling Bank Mandated Lead Arranger Off-take Credit Support Provider

AES Ebute (Nigeria) Independent Power Plant

Energia Azteca x Energia de Baja California (Mexico) USD 804 M Project financing for a 1,060 MW natural gas power plant
Arranger

Ongoing

Ongoing

Ongoing

On-going

Itezhi-Tezhi IPP (Zambia) Proejct Financing of IPP

PT Indonesia Power (Indonesia) USD 55 M SBLC for Gas Purchase

Lead Arranger

Empresa Electrica Ventanas (Chile) USD 440 M Project financing for a 242 MW greenfield coal-fired Arranger & Documentation plant
Agent

Marrafiq IWPP (Saudi Arabia) US$ 3,300 M Project Financing

Mandated Lead Arranger

Financial Adviser

Ongoing

Ongoing

2007

2007

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Power & Infrastructure Credentials

Notable Deals

Shuqaiq IWPP (Saudi Arabia) USD 1,400 M Project Financing

Mandated Lead Arranger

AES Sonel (Cameroon) Capex Programme Financing

Fujairah IWPP (UAE) USD 1,500 M Project Financing

Mandated Lead Arranger and Hedging Bank

Al-Hidd IPP (Bahrain) Project Financing

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

Mandated Lead Arranger

2007

2006

2006

2006

MALAKOFF
PENDEKAR POWER (LABUAN)

Shuaibah IWPP (Saudi Arabia) US$ 2,542 M Project Financing

Mandated Lead Arranger

Nam Theun 2 Hydropower Project (Laos) US$ 1,581 M Project Financing

Mandated Lead Arranger Hedging Bank

Taweelah A-1 10 (Abu Dhabi) USD 1,100 M Project Financing

Mandated Lead Arranger

Taweelah B IWPP (Abu Dhabi) US$ 2,670 M Project Financing

Mandated Lead Arranger Structuring Bank, Insurance Bank Documentation Bank, Joint Bookrunner, JBIC Co-ordinator, Hedge provider

2006

2005

2005

2005

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Regional Infrastructure Deals (I)

Sohar Power (Oman) USD 446M Project Re-Financing

Bookrunner and Mandated Lead Arranger

Port Said East Power (Egypt) USD 302M Project Financing

Suez Gulf Power (Egypt) USD 296M Project Financing

Mandated Lead Arranger

(U.A.E) Umm-Al-Naar IWPP Mesaieed IWPP (U.A.E) USD 855m (Qatar) Project Financing USD 855m
Mandated Lead Arranger Mandated Lead Arranger

Project Financing USD 2.2 bn Project Financing

Mandated Lead Arranger

Umm-Al-Naar IWPP (U.A.E) Umm-Al-Naar IWPP (U.A.E) Masdar USD 855m (U.A.E) Project Financing USD 855m Project Financing USD 500M
Mandated Lead Arranger Financial Advisor

Project Financing (Current)

Umm-Al-Naar IWPP Umm-Al-Naar IWPP (U.A.E) Qasim International (U.A.E) Container Terminal USD 855m (Pakistan) Project Financing USD 855m USD 100M Project Financing Islamic Project Financing Arranger Mandated Lead(Current)
Financial Advisor, Mandated Lead Arranger

Umm-Al-Naar IWPP (U.A.E) Umm-Al-Naar IWPP Dolareh (U.A.E) Container Terminal USD 855m (Djibouti) Project Financing USD 855m Project Financing USD 300M Islamic Project Financing
Mandated Lead Arranger Financial Advisor, Mandated Lead Arranger

XXX Emirates Cement Company (XXX) (U.A.E.) USD XXX USD 290M Project Financing Project Financing
Mandated Lead Arranger

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Regional Infrastructure Deals (II)

ADWEA Sewage Treatment Plant (U.A.E) Confidential Project Financing

Financial Advisor

Umm-Al-Naar IWPP (U.A.E) Umm-Al-Naar IWPP Disi-Mudawwara Water (U.A.E) USD 855m Conveyance Pipeline Project Financing (Jordan) USD 855m Project Financing USD 1,000M Project Financing
Mandated Lead Arranger Financial Advisor

Shuqaiq IWPP XXX (Saudi Arabia) (XXX) USD 2.0B XXX Project Financing Project Financing
Mandated Lead Arranger Financial Advisor

Marafiq IWPP XXX (Saudi Arabia) (XXX) USD 2.2B USD XXX Project Financing Project Financing
Mandated Lead Arranger Financial Advisor

Shuaibah IWPP XXX (Saudi Arabia) (XXX) USD 1.9B USD XXX Project Financing
Financial Adviser Mandated Lead Arranger Mandated Lead Arranger

Taweelah-B (U.A.E) USD 2,056M Project Financing

Pre-bid Underwriter and Mandated Lead Arranger

Rousch Power Ras Laffan Rousch (Pakistan) (Qatar) USD 328M 712m Interest Financing Project Rate Swaps
Structuring & Hedging Bank Mandated Lead Arranger

Power

Al Ezzel Power XXX (Bahrain) (XXX) USD 372M USD XXX Project Financing Project Financing
Mandated Lead Arranger

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Regional Infrastructure Deals (III)

Tihama Power (Saudi Arabia) USD 510M Project Financing

Lead Arranger

Sohar IWPP (Oman) USD 414M Project Financing

Pre-bid Underwriter and Mandated Lead Arranger

National District Cooling (U.A.E) AED 700M Project Financing

Lead Arranger

Umm-Al-Naar IWPP (U.A.E) USD 855M Project Financing

Mandated Lead Arranger

Ministry of Finance Ghana Re: Korle Lagoon Ecological Restoration Project (Ghana) USD 37 million ECA Buyer Credit Facility Sole Arranger/Lender

Ministry of Finance Ghana Re: Korle Lagoon Ecological Restoration Project (Ghana) USD 37 million ECA Buyer Credit Facility Sole Arranger/Lender

Ghana Telecom (Ghana) USD 30 Million ECA Facility

Mandated Lead Arranger & Sole Lender

Thuraya Satellite (U.A.E) Project Financing

Financial Advisor

2003

2003

2005

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