Post on 20-Mar-2018
Private and confidential
Resource improvement financing: The petrochemicals case
Prepared for the Nigerian Society of Chemical Engineers Workshop
September 2012
1Contents
Section
1. Introduction to petrochemicals
2. Global petrochemicals industry overview
3. Market overview
3.1 Middle east and Europe
3.2 Africa
3.3 Nigeria
4. Developing Nigeria’s petrochemicals industry
5. Financing Petrochemicals
5.1 Sources of capital
5.2 Case studies
6. Stanbic IBTC Bank and the Standard Bank group
2Introduction
Any of a large group of chemicals derived from a component of petroleum or natural gas
Originally considered waste products, the gases today are manufactured into petrochemical substances widely employed in industry.
Important petrochemical compounds:
– Ethylene & Propylene,
– Alcohols and Aldehydes,
– Styrene
– Ammonia etc.
Materials made from the gases include
– carbon black
– synthetic rubber
– Polystyrene
– Polypropylene and
– polyethylene
What are petrochemicals
3IntroductionWide range of ndustry applications
Feedstock Cracking
Aromatics(Benzene / Toluene / Xylene)
Plastics Industry
Olefins(Ethylene / Propylene / Butylene / Mixed C4
Synthetic Rubber
PropyleneBenzeneEP Rubber(Ethylene + Propylene)
SB Rubber(Styrene + Butadiene) Ethylene
Construction
Piping
House Sliding
Food Wrap
Latex Paints
Autoparts
Computer hosing
Telephones
Food packaging
Medical products
Coffee pots
Toys
Rope
Film / tape
Flexible foam
Bedding
Coatings
Electronic components
Tires
Hoses
Belts
Footwear
Latex foams
Autoparts
Hoses
4Global Overview
0
50
100
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200
2011E 2012E 2013E 2014E 2015E
mm
t
Global Ethylene Demand: 2010 - 2015
Price Trend
– Price trend for petrochemical products largely mirrors that of larger commodity market
Competitive Feed Stock advantage
– Pricing structure of associated gas produced at well head is based entirely on extraction cost of NGL
– Persistently high oil prices are translating to high input costs and encouraging global players to shift production to low cost regions
Strong political support
– UAE: Guaranteed tax holidays initially for renewable 10 to 15 year periods
– Singapore : 100% investment allowance for up to 5years, M&A allowance for up to 5 years on 5% of qualifying amounts
GDP growth
– Improving Living standards in EMEA has contributed to significant internal consumption
0
50
100
150
200
2011E 2012E 2013E 2014E 2015E
mm
t
Global Ethylene supply - demand gap
Capacity Demand
Excess capacity projected to decline in the long run as global economy picks ups and more downstream and petrochemical applications come on stream supported by Asian and Indian Demand
Global economy grew at 2.8% from 1980 to 2005 and has since remained on a flat trend
Manufacturing Industry hardest hit by recession resulting in transitional growth to developing countries (feed stock & population driven - Nigerian Story)
International sanctions such as; trade embargo could delay funding obligations of foreign partners,
Protectionist tariffs (anti – dumping) in key markets such as India and China
Key industry catalystsDemand and supply Industry said to be at turning point with most leading global
petrochemical firms located in the Gulf evaluating options of entering or expanding their through subsidiaries, Joint Ventures or other innovative models
Geopolitical concerns and long term demand from EMEA
5Market Overview – Middle East (“ME”) & Europe
The Middle east enjoys a relative cost advantage over Asia and Europe
– Lower feed stock cost owing to its rich oil and gas reserves
– Proximity to major demand clusters (India and China)
Strong government support largely exemplified by tax incentives, acts as catalyst for capacity expansions and product diversification
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20
40
60
80
100
KSA Qatar Oman Kuwait UAE Bahrain
2010 2011
13.5% Growth in Production Capacity
European Petrochemical Industry is in a transition phase
Heavily reliant on the economic trend in the Eurozone (Germany)
Financial re-structuring, consolidation, realignment can clearly be noticed among players
– Poland’s Major: PKN orlen currently undergoing major restructuring
The growing markets of Central Europe are important to the remaining operators
1.3 mmt plant – Exxon Mobil and QP JV (Qatar)3.0 mmt Saudi Aramco & Sumitomo Chemcial (KSA)1.2 mmt plant , JV Midroc, Sara Development , Chinese
0.29mmt Petromont plant (Canada)0.53mmt Total plant (France)1.2mmt LyondelBasell plant (US)
Massive capacity and clustering expansion by majors such as SABIC, SIPCHEM and Saudi Aramco
Output largely destined for China and India. Competitive advantage geared towards ME producers with low cost advantage
Middle East EuropeEurope is being subjected to increasing competition from Middle East,
European economic rebound largely driven by domestic consumption however tempered by the weakening of the European Automotive market
ME production capacity (mmt)
6
Significant scope for growth in African petrochemicals market
– Africa has the world’s lowest per capita polyolefin consumption
– light manufacturing industries (particularly packaging and textiles) expected to fuel demand for plastics
Africa’s substantial hydrocarbon reserves and low labor costs appeal to potential investors in downstream petrochemicals
– Attractive destination for expansion plans of global players
– Infrastructure gaps and political instability remain constraints across the continent
S. America3%
E. Europe6%
China12%
W. Europe13%
MEA20%
NAFTA23%
Asia23%
Global ethylene capacity
African Petrochemicals marketStrong fundamentals ... Capacity build up ongoing
Source: BP Statistical Review 2011, BMI: Nigerian Petrochemicals Industry report 2012
Africa is home to 14% of the world’s population
Economic development expected to spur polyolefin consumption
Based on planned capacity increases, Nigerian share of African ethylene capacity is expected to drop from 2nd place in Africa with 22% share, to 4th place with 15% share
650
300 300
130
650550
1200 1230
0
200
400
600
800
1000
1200
1400
S. Africa Nigeria Eqypt Algeria
2011 2016f
African ethylene production (‘000 Tonnes)
Africa’s ethylene capacity expected to grow by more than160% over the next 5 years
– 2 Large projects in Egypt and Algeria
– Several projects announced in Nigeria
South Africa’s export potential limited by distance from high consumption markets
– S.A. expected to increase supply into the African continent while other producing nations export to developed markets
7Developing Nigeria’s Petrochemicals
Nigeria is well endowed to build a strong petrochemicals industry
– Abundant natural gas reserves
– Evidence of significant unsatisfied local demand
– Good geographical proximity for supply to major European markets
Strong fundamentals
1,580
1,045 894
283 283 273 213 193 187 159
0
500
1,000
1,500
2,000
TCF
Significant gas reserves
Source: BP Statistical Review 2011, BMI: Nigerian Petrochemicals Industry report 2012
Nigeria has the largest natural gas reserves in Africa
BMI rated Nigeria’s business environment as the least attractive among Middle East and African Petrochemical Markets
Future focus on Fertilizer production may benefit first movers like Notore Chemicals
International investors recognize Nigeria’s potential
– In 2011, Natpet, a subsidiary of Saudi Arabia’s Alujain Corporation, pledged to invest US$3.5bn to establish a petrochemical complex in Nigeria
– India’s Nagarjuna Fertilizers and Chemicals also committed to build two fertilizer plants in Nigeria
There are however limiting factors on the type and quantum of available capital
– Specialized technology requires extensive and often expensive due diligence
– Large gaps in required gas infrastructure constrain viability of projects
– High capital intensity
– Environmentally intrusive nature of industry limits participation of some potential pools of capital
Investor appetiteKey players
Eleme Petrochemicals:
Acquired by the Indorama Group in 2006, Eleme’s facilities comprise of an NGL cracker, a C5+ distillation unit, Polyethylene (PE) plant and Polypropylene (PP) plant. Its has a capacity to produce 240,000 metric tons per year of PE, and 95,000 metric tons per year of PP
Notore Chemicals:
Located in Onne, the Notore chemicals complex has production capacity of 500,000 tpa
NNPC:
NNPC is a state owned oil company. Its two refineries in Warri and Kaduna together have 18,000tpa carbon black, 35,000 tpaof PP and 30,000tpa Linear Alkyl Benzene capacity
Despite obvious potential, Nigeria must overcome structural problems to attract investments
Multiplier effect : 14mmt = $11b Investment = $15b Turnover = $45b GDP Impact = 52m employment
8Case Study : Trinidad & Tobago Vs Nigeria (Rivers State)
Trinidad & Tobago Rivers State
Area of 5128 sq kms, population of 1.3 million Area of 21,850 sq kms, population of 6.5 million
Key sectors are Oil and Gas, Agriculture, Metals and Cement Key sectors are Oil and Gas, Agriculture??
Proven Gas Reserves of 436 Trillion Cubic Meter (No. 33 in ranking)
Proven Gas Reserves of 2,600 Trillion Cubic Meter (No. 16 in ranking)
Ammonia Production Capacity of 8 million Tons Ammonia Production Capacity of ?? Million Tons
Methanol Production Capacity of 7 million tons Methanol Production Capacity of ?? million tons
Urea Production Capcity of 2 million tons Urea Production Capacity of ?? million tons
Other Petrochemicals 2 million tons Other Petrochemicals ?? million tons
LNG 22 million tons (Supplies 70% of US LNG imports and 33% of Europe’s imports)
LNG 22 million tons
Source: Indorama Presentation, August 2012
9Sources of capital for Petrochemical projectsFinding the right source of capital to match risk profile
Oil & Gas projects in Africa are funded by a wide variety of equity and debt providers
Time
Risk profile Equity
Convertible bond
Junior debt Mezzanine Subordinated bond
Senior debt Project Finance Bond Securitisation
Venture Capitalist & Private Equity Firms
High Net worth Individuals
Nigerian Content Support Fund.
Structured Leases
Private Placement & Public Subscription
Finance Syndication (Local & International banks
Federal Government Grants
Bonds
Asset Backed Obligations
1 Multilateral and Bilateral financial institutions
2 Commercial Banks
3 Private Equity Institutions
4 Others
Debt Financing – Short to Medium Term Equity financing under the SMEEIS scheme
Export Import Bank of the United States (Ex-Im) International Finance Corporation (IFC) African Export Import Bank (Afrexim) African Development Bank (ADB)
Seed & Venture Capital Development Capital Buyout
Microfinance banks Personal Savings Supplier Credit, Leases, Franchising Capital Markets
10Financing Petrochemicals
Project finance by definition involves significant risk
– Huge sums involved
– Zero (or limited) recourse to the project sponsor
– Full reliance on project cashflows to repay financing
– Above implies relatively higher structuring cost
Project finance
Project sponsor must cover all bases before approaching potential sources of capital
… sharing risk and reward
A key tenet of PF is for risk to be apportioned to the party most capable of managing that risk
– Construction risk
– Operation and Maintenance risk
– Supply risks
– Product marketing risks
– Financing risk
Project SPVInsurance
EPC Contractor Buyers
O&M Contractor
SponsorSuppliers
Project finance is widely considered an attractive financing structure for petrochemical projects
11Saudi Kayan ─ US$10billion Project and Acquisition Finance Facility
Sabic was established in 1976 and is currently one of themarket leaders in the petrochemical industry
Ownership : 70% Government , 30% Institutional
Recently formed a joint venture , known as Saudi Kayan withprivately held AL – Kayan Petrochemical Company (“Al-Kayan”)
The project will consist of an Ethylene cracker and unitsproducing ethylene glycol, HDPE, LDPE and PP
The Project is valued at approximately $10billion and is beingfinanced by a mix of debt and equity (62:38)
Financial closure was achieved by means of equity includingIPO ($3.9b,), Term loan ($0.7b), Islamic Loan ($1.7b), Exportcredit debt ($2b), and government loan ($1.6b)
The Kayan project is part of Sabic’s plan to raise itsproportion of specialty chemical s to 30% of total sales by20202
Company Overview Transaction Summary
Expansion Capacity from the Middle East Transaction Overview
Key points
Transaction: Project Finance
Financial close: August 2009
Transaction size: US$10 Billion
Purpose: Project finance of Ethylene cracker
Instrument: Term Loan, Islamic Loan and Government loan
Tenor: NA
0 10 20 30
Saudi ArabiaIran
QatarUAE
OmanKuwait
Bahrain
Gulf Petrochemcial Capacity Expansion (mmt): 2010 - 2015
12Eleme Petrochemicals ─ US$160m Project and Acquisition Finance Facility
Acquired by Indorama Petro Limited from the NigerianGovernment in May 2006
Polyolefin polyolefin producer based in Port Harcourt, RiversState, Nigeria
Only stand-alone petrochemicals complex in Nigeria -350,000 tpa of polyolefin production capacity
Project involved the acquisition of the privatized plant,implementation of an extensive turnaround and upgrade
Stanbic IBTC arranged the project finance funding for thetransaction comprising of a senior term loan and workingcapital facility with a tenor of 6 years
Three layers of funding – equity, mezzanine debt and seniordebt
Secured funding from the international markets in spite ofEleme being situated in the volatile Niger Delta
Non-recourse funding
Parent company completion support
Company Overview Transaction Summary
Successful production turnaroundTransaction Overview
Key points
Transaction: Senior Term Facility
Financial close: March 2007
Stanbic IBTC role: Mandated Lead Arranger
Transaction size: US$160 million
Purpose: Turnaround maintenance and CAPEX program
Instrument: Senior Term Loan and Working Capital Facility
Tenor: 6 years
2007US$ 160m & US$25m
Bridge & Project Finance, Nigeria
Lead Arranger
INDORAMA
66 69 54
5 15 12
136
189
239
282 296
345
0
50
100
150
200
250
300
350
400 TAM investment results in significant increase in output
13Stanbic IBTC Bank PLC
Stanbic IBTC is a full service bank in Nigeria offering its clients the full suite of banking services
– Corporate and investment banking
– Personal and business banking
– Investment management and brokerage
Stanbic IBTC is the leading investment banking franchise in Nigeria with excellent capabilities in advisory and capital markets and is the only local bank with a Fitch AAA rating
Stanbic IBTC’s subsidiaries include the leading equities brokerage firm and the leading pension fund administrator in Nigeria
Combines strong domestic coverage with regional and international reach
Stanbic IBTC is 50.7% owned by Standard Bank Group and can draw on the deep resources within the group
Concerted effort has been made to ensure seamless working relationships across the various investment banking teams within Standard Bank
Stanbic IBTC emerged from the merger of Stanbic Bank Nigeria Limited with IBTC Chartered Bank Plc in 2007
BackgroundIntroduction and overviewKey points
Stanbic IBTC is a full service universal bank offering a complete suite of Corporate and Investment banking products
Stanbic IBTC’s branch network spans all of Nigeria with at least one branch in each State
Incorporated as Investment Banking & Trust Company Limited and commenced operations as a Merchant bank
ObtainedUniversalBankingLicence
Listed on the NSE on 25April 2005
Merged with CharteredBank & Regent Bank andchanged name to IBTCChartered Bank Plc
Merged with Stanbic Nigeriaand Standard Bank gainedcontrol of the combined entityin a US$1bn transaction
1989 2001 2005 2007
Vast Branch Network Across Nigeria
Stanbic IBTC’s presence
174 branches with a branch in every state
Key statistics
Market capitalisation (2 July 2012) N120bn
Total assets (31 December 2011) N554.5bn
PAT (31 December 2011) N6.6bn
ROE – PAT (FY 2011) 11.6%
Average no. of employees 2,248
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Stanbic IBTC business pillars
Stanbic IBTC Bank
Stanbic IBTC Bank Group
Personal and Business Banking Corporate and Investment Banking Wealth
Home Loans
Group Scheme
Global Markets Corporate Banking Coverage
Transactional Products and Services
Money Markets
Forex
Commodities
Interest Rate Sales and Structuring
Global Markets Research
Equities
Management of client relationships within CIB
- Oil & Gas
- Large Local Corporate
- Multinational Corporate
- Telecoms
- Power and Infrastructure
- Others
Custodial Services
Transactional Banking
Trade Services
Investment Banking
Personal & Business Banking Loans
Transactional Accounts
Stanbic IBTC Pension Managers Limited
Stanbic IBTC Asset Management Limited
Stanbic IBTC Trustees Limited
Advisory (M&A, ECM)
Debt Capital Markets
Securitisation
Debt Solutions
- Acquisition & Leverage Finance
- Project finance
- Property Finance
- Structured Trade
15
More than a glass and a half
Ranked 94 out of 1,000 top world banks by Tier 1 capital
2011Best Bank in Africa 2010,
2011
Standard Bank Overview
Established in 1862, an African emerging markets bank, headquartered in South Africa
Wide representation spanning 17 countries in Africa and a global reach in 13 countries outside Africa including New York, Londonand Hong Kong
Largest banking group in Africa by assets, Total assets over R1,379 billion (approx USD203 billion) as at June 2011
ICBC, the Industrial and Commercial Bank of China, the biggest bank in the world, is a 20% shareholder
Long-term credit rating for Standard Bank South Africa: Moody’s A3, S&P BBB and Fitch Ratings BBB+
Employs over 46,000 people in 30 countries around the world, has over 1200 branches and over 7,800 ATMS (cash points)
Financial strengths
Our achievements through to 2012
Ranked South Africa's ‘greenest’ company – 13th globally in
Financial Sector category and 45th overall (2011)
Best cash management services in Africa; Best
foreign exchange services in Africa; Best treasury services
in Africa (2011)
Best Bank in Africa 2011Best Debt House in Africa 2011
Best Overall Bank for Cash Management in Africa 2009,
2010.
Best Investment Bank in Africa 2009
Best Bank in south Africa 2009
Financial overview of the Standard Bank Group – interim results for period ending December 2011
FY11 FY10 Change%
Headline earnings (Rm) 13,599 11,283 11
Net asset value per share (cents) 6453 5726 10
Return on equity (%) 14.3 12.5
Tier I capital adequacy ratio (%) 12.0 12.9
Global Markets
Market leader in Africa
o Market coverage
o Product diversity
o Size and the scale of the custody business
Assets under custody
o ZAR2.5 trillion (USD350 billion) plus
Assets under trusteeship and/or administration
o ZAR650 billion (USD 90 billion) plus
16Standard Bank Group
United States of America
Argentina
Brazil
Isle of ManUKJersey
Russian Federation
Turkey
United Arab Emirates
China Japan
TaiwanHong Kong
Singapore
Mauritius
NigeriaGhana
DR CongoAngola
Namibia
UgandaKenyaTanzania
MalawiZambia
Zimbabwe
South AfricaLesotho
SwazilandMozambique
Botswana
Shanghai
Beijing
13 countries outside Africa
Key international financial hubs and strategic emerging markets presence
Chinese operations
Rest of world
Offices in key regional financial centres including:
– Johannesburg, London, New York, Hong Kong, Sao Paulo, Buenos Aires, Dubai, Istanbul, Lagos, Nairobi and Beijing
Key regional offices
17 African countries
1,228 Offices & Branches
7,968 ATMs across these geographic regions
Africa
Standard Bank has extensive expertise in the complicated dynamics of emerging markets, enabling us to effectively partner clients and our stakeholders in achieving their strategic objectives
Global Footprint
17Contact
Dele Kuti Head, Oil & Gas and Renewables Corporate & Investment Banking Stanbic IBTC Bank IBTC Place, Walter Carrington Crescent Victoria Island, Lagos +234 1 488 8900 ext 8129+234 803 555 5777Oladele.kuti@stanbic.com
Olawale SulaimonAssociate , Oil & Gas and Renewables CoverageCorporate & Investment Banking Stanbic IBTC Bank IBTC Place, Walter Carrington Crescent Victoria Island, Lagos +234 1 422 8641+234 813 661 1571Olawale.Sulaimon@stanbic.com
Oluwole Oluwole- RotimiAnalyst , Oil & Gas and Renewables CoverageCorporate & Investment Banking Stanbic IBTC Bank IBTC Place, Walter Carrington Crescent Victoria Island, Lagos +234 1 422 8641 +234 706 406 4460oluwole.oluwole-rotimi@stanbicibtc.com
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Thank you …