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Financing infrastructure in Africa

Alan Sproule, Standard Chartered Bank

3 June 2014

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Financing infrastructure in Africa

1. About Standard Chartered Bank

2. Current financing structures: Direct government borrowing / public private

partnerships

3. The three major factors that make projects “bankable”

4. Factors that influence the sources of debt and timelines for financial close

3

Leading the way in Africa, Asia and the Middle East

Combining our 150 year presence across the region, we aim to be

the leading international bank in all the markets in which we operate

– Headquartered in London

– Top 25 FTSE 100 Company – Listed in London and Hong Kong

– FCA regulated

Our Global Presence

– Long term credit rating A1/P-1 (Moody’s), AA-/A-1+ (S&P) and

AA- (Fitch)

– 87,000 employees in 1400 locations serving 70 countries

– Strong franchise in high growth markets e.g. China, India, Korea

and the Middle East

– Largest international bank in the Middle East and South Asia

– Top 3 foreign bank in each major market

Our Local Presence

– Unique focus on emerging markets – On-the-ground expertise in

Asia, Africa, the Middle East, India region and Latin America

– Strong on-shore presence and in-depth local knowledge,

facilitates delivery of innovative products, supported by quality

delivery systems and excellent customer service

– Relationship and leverage with key corporates and institutions

– Stature and rapport with regulators

Our Value Proposition

– Coupled with our deep understanding of the local markets, our

product capabilities are tailored to suit our client’s needs,

whether they be a local corporate or multinational

International footprint

Focus on Asia, Africa and the Middle East

Revenue split

92% of revenues from Asia, Africa and the Middle East

MESA

12%

Korea

14%

Other Asia

Pacific

15%

India

9%

Africa

8%

Hong Kong

22%

Malaysia

5%Singapore

7%

UK / USA

8%

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Project Finance Rankings – Sub- Saharan Africa 2013 Deal Value (US $m) by MLA1

Standard Chartered Bank is :

Consistently the largest

provider of loan products in

Sub-Saharan Africa, with

financings provided for

landmark projects such as

Indorama Fertiliser, Boseto

Copper Mine, Reserves

Development Program

Financing of Nigeria , AES

Dibamba, AES Kribi and

Bujugali Hydropower

Fully committed and

continues to stay dedicated

to its core foot print in Africa,

especially during difficult

times when most

international banks are

retreating from deploying

capital into emerging markets

No. of deals

7

8

9

2

2

2

8

5

5

2

1 Data from Dealogic

Leader in Africa Project Finance

1581

1266

800

729

729

729

515

478

438

324

5

MLA/Structuring

Bank

US $396m

2008, 2010

Financial Advisor

/ MLA Ongoing

Financial Advisor

MLA

US $130m

2010

US $1.5-1.7b

Strong African transport infrastructure track record – completed and ongoing

Financial Advisor

~US $900m

Ongoing

Doraleh

container

terminal,

Djibouti

DPW Dakar,

Container

terminal,

Senegal

Container

terminal

Lekki, Nigeria

Matola coal

terminal,

Maputo,

Mozambique

Financial Advisor

~US $4bn

Ongoing

500km rail and

port,

Mozambique

To be

announced

Kribi hydrocarbon

Confidential

Financial Advisor

Ongoing

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Financing infrastructure in Africa

1. About Standard Chartered Bank

2. Current financing structures: Direct government borrowing / public private

partnerships

3. The three major factors that make projects “bankable”

4. Factors that influence the sources of debt and timelines for financial close

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Where do we start?

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Direct government borrowing is most common

State Owned

Enterprise (SOE) Lenders

Contractors /

equipment

suppliers

Commercial banks

with ECA backing

Development

Finance Institutions

(DFIs)

State backed

institutions

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Private sector ownership of infrastructure assets is rarely feasible

Private

enterprise Lenders

Contractors /

equipment

suppliers

Transport infrastructure is a strategic national asset

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Public private partnerships or BOOT projects provide a solution

Build / Design / Construct / Finance

Own

Operate / Manage / Maintain

Transfer

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Benefits of public private partnerships over government borrowing

Benefits Features

Lenders consultants provide

independent review and

monitoring

Provides comfort to public and state that resources are used

properly

Finance terms match cash

flow

• Tailored draw down period.

• Longer repayment periods.

• Debt is sized according to affordability.

• Public borrowing and direct spending by government is

reduced.

Private sector brings current

best practice

State entities often have limited experience in developing large

infrastructure developments

Frees up state resources Capital expenditure lower, state borrowing is lower.

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Equity

A public private partnership structure has many interested parties

Direct

Agreement Management

Contract

Fixed Price EPC Contract

Long term

Debt

Support

Take or pay

Concession

Private Investor State Owned

Enterprise (SOE)

Equipment supplier /

civils contractor

Government

Lenders Users

Operator

O&M contract

Infrastructure

SPV

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Financing infrastructure in Africa

1. About Standard Chartered Bank

2. Current financing structures: Direct government borrowing / public private partnerships

3. The three major factors that make projects “bankable”

4. Factors that influence the sources of debt and timelines for financial close

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Financing infrastructure in Africa

3 key factors that make a project “bankable”

1. How well do we understand the cash flow?

2. Who are the private stakeholders?

3. What level of government commitment does the project enjoy?

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1. How well do we understand the cash flow?

Why What

Debt capacity is

determined by free

cash flow

Control over construction costs

Funding available for completion

• Sponsor support

• Fixed price EPC contracts

Long term offtake / throughput contracts

Overall market conditions

Existing cashflow from brownfield developments

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2. Who are the private stakeholders?

Why What

The Lender universe

is strongly

influenced by the

parties involved –

and especially

where they come

from.

Lead sponsors:

•Project development experience

•Strong balance sheet

•Other related interest in the project?

• Home country

Operator

•Experience

•Home country

EPC Contractors

•Experience

•Credit strength

•Home country

Rail / Port users

•Mining experience

•Financial commitment to the region

•Proven reserves

Raw material offtakers

•Credit strength

•Home country

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3. What level of government commitment does the project enjoy?

Why What

Large infrastructure

projects cannot

happen without

explicit government

support

The concession contract is the project’s primary asset

Lender protection mechanisms:

•Step in rights

•Termination compensation

•Restrictions on competing facilities

Legally binding commitments to develop supporting infrastructure

– roads, rail, power etc.

Cross border complexity requires cooperation with neighbours

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Financing infrastructure in Africa

1. About Standard Chartered Bank

2. Current financing structures: Direct government borrowing / public private partnerships

3. The three major factors that make projects “bankable”

4. Factors that influence the sources of debt and timelines for financial close

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Sources of debt funding are influenced by project characteristics

Environmental impact?

Project host country?

Capital expenditure?

Long repayment

periods

Local bank market

capacity?

USD / EUR required

Multiple lenders required

Development Finance

Institutions (DFIs)

Private party home country?

International Commercial

Banks

Political Risk Insurance

Export Credit Agencies / World Bank

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Certain features of the financing process cannot be fast tracked

Approach debt

market

Pre Feasibility

JORC /SAMREC Reserve Statements

Environmental and Social Impact (ESIA)

Front End Engineering and Design (FEED)

EPC price certainty

Execute key project contracts Equity support

Base case financial model

Project Information Memorandum

Approach

debt market

~2 years

1-2 years

6 -12 months

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Conclusion

PPPs are a viable model for financing resource backed infrastructure

developments in Africa

Success depends on:

• Detailed understanding of cash flows

• Strong private sector drivers

• Committed host government support