FINANCING INFRASTRUCTURE : Breaking the Barriers to Sustainable Development

FINANCING INFRASTRUCTURE :

Breaking the Barriers to Sustainable Development

Ade AdeolaManaging DirectorProject & Export FinanceStandard Chartered Bank, LondonApril 2009

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Agenda

Introduction

Infrastructure Finance Trends

Breaking the Barriers to Sustainable Investment

Conclusions & Recommendations

Leveraging on Experience

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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.

Bilateral Credit

Cash management

Trade Finance

FX, Derivatives

Loan syndication

Fixed Income

Forfaiting M & A

Equity Private Placement

LBO/MBO

Private Equity Investing

Raising Capital and Risk Management

Strategy and Equity

Project & Export FinanceArranging & Advisory

Structured Trade Finance

Securitisation

Providing banking solutions to meet the needs of our clients

Standard Chartered-Leading the Way in Africa, ME & Asia

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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:

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 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:

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 .

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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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

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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 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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Evolution of Private Infrastructure Investment in Africa (1990 – 2007)

Breaking the Barriers to Sustainable Investment

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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

Barriers to Sustainable Infrastructure Development

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CASHFLOW

Regulatory Framework and Macro Stability

Tariffs / Fees / Tolls

Govt Supplements (MYTO?)

FINANCING

Equity and Management

Bank Debt (Loans) and Capital Markets Debts

(Bonds)

Credit enhancements possible?

Critical Investment Barriers & Enablers

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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)

What is required to achieve sustainable development?

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

Don’t 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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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

Summary

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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Bujagali Hydro (Uganda)

Project Financing

Mandated Lead Arranger

Ongoing

AES Ebute

(Nigeria)

Independent Power Plant

Ongoing

Off-take Credit Support

Provider

Energia Azteca x Energia de Baja California (Mexico)

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

Arranger

On-going

Empresa Electrica Ventanas (Chile)

USD 440 M

Project financing for a 242 MW greenfield coal-fired

plantArranger & Documentation Agent

2007

PT Indonesia Power (Indonesia)

USD 55 MSBLC for Gas Purchase

Lead Arranger

Ongoing

IBOM IPP (Nigeria)

Independent Power Plant

Ongoing

Mandated Lead Arranger &

Modelling Bank

ConfidentialConfidential

Itezhi-Tezhi IPP (Zambia)

Proejct Financing of IPP

Ongoing

Financial Adviser Mandated Lead Arranger

2007

Marrafiq IWPP (Saudi Arabia)

US$ 3,300 M Project Financing

Power & Infrastructure CredentialsNotable Deals

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Shuqaiq IWPP (Saudi Arabia)

USD 1,400 M

Project Financing


2007

Mandated Lead Arranger and Hedging Bank

2006

Fujairah IWPP (UAE)

USD 1,500 MProject Financing

Taweelah A-1 10 (Abu Dhabi)

USD 1,100 M Project Financing


2005

Mandated Lead Arranger Hedging Bank

2005

Nam Theun 2 Hydropower Project

(Laos)


AES Sonel (Cameroon)

Capex Programme

Financing

2006

Security Trustee & Facility

Agent for IFC, Proparco,

EIB, AfDB, DEG & FMO Mandated Lead Arranger

2006

Al-Hidd IPP (Bahrain)

Project Financing

Shuaibah IWPP (Saudi Arabia)



2006

MALAKOFF

Taweelah B IWPP (Abu Dhabi)


Mandated Lead ArrangerStructuring Bank, Insurance Bank

Documentation Bank, Joint Bookrunner, JBIC Co-ordinator,

Hedge provider

2005

PENDEKAR POWER (LABUAN)

Power & Infrastructure CredentialsNotable Deals

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Regional Infrastructure Deals (I)

(U.A.E)

USD 855mProject Financing

Umm-Al-Naar IWPP(U.A.E)



Mesaieed IWPP

(Qatar)

Project FinancingUSD 2.2 bn


Sohar Power (Oman)

USD 446MProject Re-Financing

Bookrunner and Mandated Lead Arranger Mandated Lead Arranger

Port Said East Power(Egypt)

USD 302MProject Financing Mandated Lead Arranger

Suez Gulf Power(Egypt)

USD 296MProject Financing






Dolareh Container Terminal(Djibouti)

USD 300MIslamic Project Financing

Financial Advisor, Mandated Lead Arranger

XXX(XXX)

USD XXXProject Financing


(U.A.E.)



Emirates Cement Company






Masdar(U.A.E)

USD 500M

Project Financing (Current)

Financial Advisor






Qasim InternationalContainer Terminal

(Pakistan)

USD 100MIslamic Project

Financing (Current)Financial Advisor,


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XXX(XXX)



Marafiq IWPP(Saudi Arabia)

USD 2.2BProject Financing

Financial Advisor

XXX(XXX)



Shuqaiq IWPP(Saudi Arabia)


Financial Advisor






Disi-Mudawwara WaterConveyance Pipeline

(Jordan)

USD 1,000MProject Financing

Financial Advisor

ADWEA SewageTreatment Plant (U.A.E)

Confidential

Financial Advisor

Project Financing

Regional Infrastructure Deals (II)

XXX(XXX)



Al Ezzel Power(Bahrain)



Rousch Power

Ras Laffan(Qatar)



Rousch Power(Pakistan)

USD 328MInterest Rate Swaps

Structuring & Hedging Bank

Taweelah-B(U.A.E)

USD 2,056MProject Financing

Pre-bid Underwriter and Mandated Lead Arranger

XXX(XXX)



Shuaibah IWPP(Saudi Arabia)


Financial AdviserMandated Lead Arranger

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National District Cooling(U.A.E)

AED 700MProject Financing

Lead Arranger Mandated Lead Arranger

Project Financing

USD 855M

Umm-Al-Naar IWPP(U.A.E)Tihama Power

(Saudi Arabia)


Lead Arranger

Sohar IWPP(Oman)


Pre-bid Underwriter and Mandated Lead Arranger

Regional Infrastructure Deals (III)

Thuraya Satellite(U.A.E)

Project Financing

Financial AdvisorSole Arranger/Lender

2003

Ministry of Finance Ghana Re: Korle Lagoon Ecological

Restoration Project(Ghana)

USD 37 millionECA Buyer Credit Facility

Ghana Telecom(Ghana)

USD 30 MillionECA Facility

Mandated Lead Arranger & Sole Lender

2005

Sole Arranger/Lender

2003

Ministry of Finance Ghana Re: Korle Lagoon Ecological

Restoration Project(Ghana)

USD 37 millionECA Buyer Credit Facility

FINANCING INFRASTRUCTURE : Breaking the Barriers to Sustainable Development

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