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Transcript of TBLI NORDIC 2015 - Andrew Johnstone - Managing Climate Change Risks for Investors
TBLI NORDIC 2015
Andrew Johnstone : June 2015
Managing Change Risk for Investors
Where’s the money
Agenda
World capital sources
Climate Finance Why it interests investors
CDFF What and why
C O N F I D E N T I A L
Global assets and allocation
Infrastructure is a big number, in a bigger pool of assets
$263
trillion
$175
trillion
$75
trillion
$64
trillion
$3
trillion
67%
30%
37%
5%
3-6%
Infrastructure
Climate Finance
World’s private
assets
Investable assets
Managed assets
Global GDP
C O N F I D E N T I A L
The climate finance Market
USD331 billion financing market in 2013
C O N F I D E N T I A L
Private sector capital is flowing
Fund raising is picking up after a slowdown in 2009-2010
19
25
19
28
35 33 33
5 3 4
9
20 21
25
0
5
10
15
20
25
30
35
40
2007 2008 2009 2010 2011 2012 2013
Am
ou
nt
of
Cap
ita
l ($
bn
)
Annual Capital Invested and Distributed by Unlisted Infrastructure Funds, 2007 - 2013
Capital Invested Capital Distributed
35%
24%
30%
11%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Less than $500mn $500mn-999mn $1-5bn $5bn or More
Pro
po
rtio
n o
f In
vesto
rs
Assets under Management
Breakdown of Endowment Plans Investing in Infrastructure by Assets Under Management
33
41
59
27
49 49
59
68
36
23.2
45.5 41.1
10.5
32.0
24.4
30.5
43.9
35.0
0
10
20
30
40
50
60
70
80
2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD
Year of Final Close
Annual Unlisted Infrastructure Fundraising, 2006 - 2014
No. of Funds Closed Aggregate Capital Raised ($bn)
C O N F I D E N T I A L
Impact in climate finance
Climate and social impacts
• Avoided GHG emissions and energy provision
• Energy supply critical to economic growth and job creation
• Innovative instrument for renewable projects in emerging
markets delivering more projects faster
• Limited public funds mobilise large amounts of private capital
resulting in a strong multiplier
C O N F I D E N T I A L
The need
Barriers in the market
• Lack of good bankable projects
• High development and time-related costs
• Many non-aligned financiers needed
• High Complexity
C O N F I D E N T I A L
Infrastructure funds
• Provide a hedge against inflation
• Deliver returns Commensurate with
the investment risk
• Availability-based
• Limited cyclicality
Focus Sectors
• Toll Roads
• Ports
• Power
• Renewable Energy
• Rail
• Airports
• Container Terminals
• Water
Infrastructure Funds
Opportunities to invest will arise in the development and greenfield stages of infrastructure
projects or assets, as well as during their expansion, rehabilitation or restructuring
C O N F I D E N T I A L
Defined risk parameters
0
100
200
300
400
500
600
700
2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Opex Revenue Capex
Cashflows are highly defined
Opex limited by contract
• Typically 5 years renewable
• Fixed price / fixed scope escalated at CPI
• Risk mitigated
• Operations
• Cash Collection
• Ops real prices
Rehabilitation cost scoped
• Linked to usage
• ve correlation to increase
revenues
• Flexible timing
• Benefit from tech advances
Debt costs limited by contract
• Interest
• Tenor
• Break costs
Project term limited by contract
• Typically 25 - 30 years
Cash for debt & equity
Revenues protected by contract
• Tariff set by legislation
• Escalated at CPI
• Risk mitigated
• Inflation
• Competitive pressures
C O N F I D E N T I A L
Structuring considerations
Specific risk can be mitigated through project structuring
Inflation and Forex
Realisations
• Tariff escalation designed to mitigate variations around
forecasts
• Short term equity hedging to cover acquisition cost exposure
• Longer term hedging instruments for fixed debt obligations to
link costs to revenue currency
• Development of local long term capital markets creates a pool
of potential purchasers with matching local liabilities
Political Commitment
• Central government direct agreements guaranteeing
implementing authorities obligations
Government Default and Country Risk
Quality
• Political Risk Insurance to cover government default, currency
convertibility, repatriation and contract frustration
• Strong international contractor interest and competence
Sustainability
• Local lenders and investors capacity creating long term local
vested interest
• Dependency on infrastructure makes assets critical service
providers
Corruption
• Transparent procurement process and multiple party due
diligence, plus DFI funding participation
The Climate Development and Finance Facility
C O N F I D E N T I A L
Addressing barriers in the market
Focusing on
bankability
from
day one
Resourcing
with
qualified
staff
Simpler
financing
with fewer
financiers
Realising
more
projects, quicker
Taking the role of
project
co-developer
Resourcing with
adequate
funding
Increasing influence
by higher single
asset limits
Faster
development
lead times
C O N F I D E N T I A L
Complete Lifecycle Financing for Renewable Energy
Outcome =
Bankable
project
Construction
can start directly,
no delays
Once operational,
3rd party investors
provide refinance
Development
Fund
Construction
Fund
Refinancing
Fund
0-24 months 0-36 months 0-20 years
C O N F I D E N T I A L
Complete through the cycle financing
Development
Fund
Construction
Fund
Refinancing
Fund
THE FACILITY
WIND PROJECT COMPANY
SPONSOR
Shareholder
Shareholder
REFERENCE COMMERCIAL LENDER
C O N F I D E N T I A L
Ris
k P
rofi
le
Target Return
Governments
Development
Fund
Governments
Construction
Fund
T1
Private Sector
Fixed Income
Refinancing
Facility
DFI & Private
Sector Equity
Construction
Fund T2
Private Sector
Fixed Income
Construction
Fund T3
Investment Optionality
67%
30%
37%
5%
3-6%
Infra
Climate Finance
World’s private
assets
Investable
assets
Managed
assets
Global
GDP
Thank you
Andrew Johnstone : June 2015