Financing Power Projects in Africa Jeannot BoussougouthSenior Manager: Energy, Utilities and Infrastructure Investment Banking Coverage Jeannot.Boussougouth@standardbank.co.za Standard Bank 1 July 2011 UNECA 2011, Addis Ababa
Contents 1 Section Page 1. Introduction 2 2. Standard Bank 4 2.1 Natural partner in Africa 5 2.2 Recent Accolades 6 2.3 Selected Infrastructure Credentials 7 3. Our African Infrastructure Understanding 10 4. Business and Financing Challenges 13 5. Requirements for Successful Private Sector Participation 16 6. Potential Financial Structure 23 7. Standard Bank’s Value Proposition 25 8. Case Study: Morupule B Coal Power Plant Financing 34
Private and confidential Section: 1 Introduction
Introduction 3 Standard Bank is the largest bank in Africa – We are present in 17 countries across Africa (especially Sub-Saharan Africa) – Our current market capitalisation is USD 24.77billion (11 January 2011) and our Total Assets are USD 182.6 billion (June 2010 Interims) – We are 20% owned by ICBC (the world’s largest bank) – In most African countries, Standard Bank operates as an integrated corporate and investment bank The purpose of today’s presentation is to : – Introduce Standard Bank to the audience in terms of our offering, capabilities and strengths in Africa – Highlight business and financing challenges in the African power space – Highlight Standard Bank’s proposed financing solutions, including ECAs – Highlight some of the most attractive power projects in Africa
Private and confidential Section: 2 Standard Bank
Standard Bank: Natural partner in Africa 5Key points Most comprehensive network in Sub-Saharan AfricaOn-the-groundpresence in 17 On-the-ground presence in 17 African countriesAfrican countries Nearly 150 years of experience in Africa Largest bank in Africa – Over 40,000 employees in Africa – Over 8,000 bank branches headquartered inUnrivalled Johannesburgknowledge of sub-Saharan Africa Growth on the continent is a key strategic focus areathrough on ground Investment banking presence across the region and in keypresence markets strengthened by recent acquisitions: – IBTC Chartered Bank, Nigeria – CFC Bank, Kenya – Recent banking licence awarded - Angola Standard BankStrong productteams in Angola (33.3 million) Lesotho (1.7 million) Nigeria (154.7 million) Zambia (14.6 million)Johannesburg,Lagos, Nairobi and Botswana (1.8 million) Malawi (12.8 million) South Africa (47.4 million) Zimbabwe (13.1 million)London DRC (63.6 million) Mauritius (1.2 million) Swaziland (1.1 million) Ghana (23.1 million) Mozambique (20.3 million) Tanzania (37.8 million) Kenya (34.7 million) Namibia (2.1 million) Uganda (27.6 million)
Recent Accolades 6Key points African Banker – 2009, 2008Euromoney: Best The Banker – 2010, 2009, 2008 Euromoney – 2010, 2009 Deal of the Year Africa: Bonds (2010) Best Investment Bank in Africa (2010) Investment Bank of the Year, Africa (2009)Investment Bank in Deal of the Year Africa: Capital Raising (2010) Best Investment Bank in Nigeria (2010) Best Issuing House in Africa (awarded to StanbicAfrica (2010) IBTC Bank) (2008) Deal of the Year Africa: Structured Finance Best Bank in South Africa (2010) (2010) Best Equity House in Africa (2009) Deal of the Year - ICBC 20% acquisition of Lakatabu Expansion - Africa Industrial Deal of the Standard Bank (2008) African Bank of the Year (2009, 2008) Bank of the Year, South Africa (2009, 2008) Year (2009) Best Investment Bank from Africa (2009, 2008) MTN Uganda - Africa Telecoms Deal of the Year. (2009) Best Bank in Botswana, Lesotho, Malawi, Swaziland , Tanzania (2009) Zain - Middle East Telecoms Deal of the Year (2009) Deal of the Year for the Ruashi Copper Mining Project in DRC (2008) Global Finance Magazine – 2009African Banker: Deal of the Year - Botswana for National Development Bank BWP100 million 11.25% notes Best Debt Bank in Africa (2009)Investment Bank of Best Foreign Exchange Provider in South Africa due 2017 (2008)the Year, Africa (2009) Deal of the Year - DRC for the Ruashi Copper(2009) Mining Project (2008) Best Investment Bank in Africa (2009) Deal of the Year - Finland for Talvivaara Nickel Africa Investor – 2009 Best Investment Bank in Nigeria (2009) Project US$320m debt facility (2008) Best Africa Investment Bank (2009) Best Investment Bank in South Africa (2009) Deal of the Year - Germany for Kreditanstalt fur Best Africa Research Team (2009) Wiederaufbau NGN28.7 billion 8.5% notes due by Infrastructure Deal of the Year for Gautrain (2008) 2011 (2008) Deal of the Year - Tanzania Electricity Supply Limited TZS300 billion syndicated loan (2008) EMEAFinance – 2009, 2008 Deal of the Year - Zambia Sugar Project (2008) Deal of the Year (South Africa) for the 20% Best Investment Bank in Africa (2009, 2008)Africa Investor: Best investment by ICBC in Standard Bank (2008) Best Investment Bank in Nigeria (awarded toAfrica investment Deal of the Year Award - Bahrain for Arcapita Stanbic IBTC Bank) (2009)Bank (2009) Bank US$1.1b syndicated Murabaha facility Best Natural Resources Deal in EMEA: (2008) Kayelekera Uranium project (2009) Most innovative in Trade and Project Finance Environmental Finance Magazine - 2009 Best Oil and Gas Deal in Africa: Oando (2009) (2008) Carbon Finance Deal of the Year for Camco- Best Project Finance Deal in Africa: Botswana Ranked No 1 in sub-saharan Africa and No 106 in Standard Bank Structured Carbon Credits Power Corporation (2009) The Banker Top 1000 World Banks (2008) Transaction (2009) Best Project Finance House in Africa (2009) Standard Bank has won various awards that demonstrate our capabilities across the entire range of advisory and funding services in Africa
Recent Energy, Power & Renewables Credentials (1/3) 7 Ongoing – Scatec Solar, South Africa Standard Bank has been mandated as Sole Financial Arranger and Underwriter, and BEE funding provider to Scatec Solar on its various Solar PV project in the Northern Cape and Eastern Cape provinces of South Africa Ongoing – Solar Reserve, South Africa Standard Bank has been mandated as financial advisor to Solar Reserve on its Solar CSP plants, using molten salt storage technology, totalling [80-100]MW, in South Africa Ongoing – Confidential, Africa Standard Bank has been mandated for a confidential Equity raise in Africa Ongoing – The Power Company/Built Africa, South Africa Mandated as financial advisor for The Power Company/Built Africa MW Solar PV Project, over several South African sites Ongoing – Gitson Energy, Kenya Mandated lead arranger & financial advisor for Gitson Energy’s [300MW] Wind Power Project in Bubisa, Kenya Ongoing – Solar Capital, South Africa Standard Bank has been mandated as financial advisor and main lead arranger for Solar Capital on its five Solar PV plants in the Northern Cape Ongoing – African Clean Energy Developments, South Africa Standard Bank has been mandated as main lead arranger for African Clean Energy Development (ACED) to develop a [400MW] wind farm in cookhouse in the Eastern Cape Ongoing – CGNPC, South Africa Standard Bank has been mandated as a financial advisor to China Guangdong Nuclear Power Corporation (“CGNPC”), China’s largest Nuclear Energy company, in support of their bid to build South Africa’s potential nuclear power programme Ongoing – Just Energy, South Africa Financial Advisor to Oxfam’s energy subsidiary, Just Energy, to develop [74MW] of wind farms in the Eastern Cape Ongoing – Italgest, South Africa Standard Bank has been mandated as Financial Advisor to Italgest on its [100 MW] Solar PV project.
Recent Energy, Power & Renewables Credentials (1/2) 8 Ongoing – BHP Billiton, DRC Mandated Transaction Advisor to BHP Billiton SA (Pty) Limited on the INGA 3 hydro-electric project concept study in the Democratic Republic of Congo. Ongoing – Mphanda Nkuwa Hydropower Project, Mozambique Financial advisor to the Mphanda Nkuwa consortium on the development of 1500 MW hydro electric project in Mozambique Ongoing – Anglo American, South Africa Standard Bank has been mandated as the Financial Advisor to Anglo American’s [450MW] discard coal-fired IPP near Witbank Ongoing – SARGE, South Africa Standard Bank has been mandated as the sole Project and Equity Raising Financial Advisor and Lead Arranger to the SARGE 50 MW, Solar PV project in the Northern Cape, as well as 216 MW of wind projects Ongoing – Forest Oil Corporation, South Africa Standard Bank has been mandated as Financial Adviser to Forest Oil Corporation in connection with the development of an integrated [750-800 MW] natural gas to power project Ongoing - Oelsner Group Wind Farms , South Africa Standard Bank mandated Financial Advisor and Lead Arranger to Oelsner Groups’ two wind farms being Kerrifontein (20.8MW) and Langefontein (50MW) Ongoing – Confidential , South Africa Standard Bank has been mandated as the sole Project and Equity Raising Financial Advisor and Lead Arranger to a SA renewable energy company on a multiple wind farm project Ongoing – Volta River Authority, Ghana Standard bank has been mandated as Financial advisor to VRA on the expansion of the Takoradi power plant Ongoing - Aldwych International, Kenya Joint Lead Arranger for long-term financing to Aldwych International for the 300MW Lake Turkana Wind Project valued at US$760m Ongoing - Gulf Power, Kenya Co-lead Arranger of the Greenfield 84MW Athi River HFO power plant developed by Gulf Energy
Standard Bank – Recent Energy, Power & Renewables Credentials (3/3) 9 Ongoing – redcap, South Africa Standard Bank has been mandated as the Lead Arranger for the Kouga Wind Farm project Ongoing - AMD Energia, South Africa Standard Bank has been mandated as the Lead Arranger for Alt-E’s multiple solar PV projects Ongoing – Confidential, Africa Standard Bank has been mandated as the Buyside Financial Adviser for the purchase of a power station Ongoing – Confidential, Africa Standard Bank has been mandated as the Sellside Financial Adviser for the sale of a power station Ongoing – Aeolus, Kenya Standard Bank has been mandated as the Financial Advisor and Lead Arranger to Aeolus Kenya Ltd on a 60MW wind farm project Ongoing – Electromaxx, Uganda Sole Lead Arranger of the expansion from 25MW to 50MW of the Electromaxx HFO power plant facility 2010 – Companhia Moçambicana de Hidrocarbonetos, S.A. (“CMH”), Mozambique Standard Bank acted as FA and lead arranger to Companhia Moçambicana de Hidrocarbonetos, S.A. for the funding of its share of the project costs for the expansion of the Central Processing Facility at the Pande and Temane fields’ reservoirs near Bazaruto 2009 - Mmamabula Energy Project, Botswana Mandated by CIC Energy for a 1200 MW coal fired power plant, coal mine and related infrastructure in Mmamabula, Botswana. Project size of US$5 billion and mandated as co-lead arrangers for the ECIC covered ZAR tranche as well as the ZAR commercial facility. 2009 – Eskom, South Africa Standard Bank acted as the Mandated Lead Arranger in the Kusile Boilers contract. Standard Bank acted with 4 international banks in funding the Euro 705 million contract over 12 years. Export Credit was also arranged with Euler Hermes (German ECA) over the foreign content of the contract with Hitachi Power Europe.
Private and confidential Section: 3Our African Infrastructure Understanding
African Infrastructure Context 11Key points African Context Positive correlation between infrastructure expenditure and GDP Table 1: Overall Infrastructure Spending Needs for SSAInadequate growth (Economic Research (Aschauer, 1989; Munnell, 1990) )infrastructure is _e.g. through increased productivity, reduced logistics costs etc.cited as a keyconstraint to Conversely, inadequate infrastructure is cited as a key constraint toinvestment andgrowth investment and growth (ADB, 2007) Therefore, the provision of quality infrastructure is a necessary element of any strategy for economic integration and sustainable development in AfricaSSA requires SSA requires $93bn/year in infrastructure investment to meet MDG,$93bn/year in (or around 15% of GDP)infrastructureinvestment to meet 15 countries in Africa are land-locked, with 40% of the continent’sMDG population estimated to live in these countries Hence efficient cross-border transportation is vital for their economic development However, the cost of trucking increases in Africa by between 684% - 1560% due to poor road conditions, with 40% of food produced inBetter policy rural Africa degrading due to the lack of roads and bridges (Councilframeworks toattract investment for Scientific & Industrial Research (CSIR))required Opportunity 1: Potentially high economic returns to investment in infrastructure, but requires better policy frameworks to attract investment and align economic returns with investor risks/returns Opportunity 2: Although investment currently dominated by public sector, there’s a strong shift towards private sector (IPP, PPP, Corporate etc.).
African Infrastructure Characteristics 12Key points African Infrastructure Characteristics Context:On-the-groundpresence in 17 Investing in African power / infrastructure is not usually for the marginal player – more a specialist activity so less subject toAfrican countries boom and bust Project lead times will likely take longer than the credit crunch/global recession, e.g. often 3 years plus Developer Perspective: Some cut backs in capital expenditure (e.g. focus on lower risk markets) but reduced bank financing capacity is a larger issue Financing Perspective:Ability of Africanbanks to raise USD Ability of African banks to raise USD has been dramatically affected, hence a focus on local currency financings which capsdramaticallyaffected project size Current turmoil in the global credit markets has impacted on closings and increased borrowing costs. However, few clients have walked away with more club deals seen. Limitation on banks’ liquidity/capacity BUT project finance less affected than most debt financing classes Flight to ECAs and DFIs across all markets, not just Africa. Follow on question is their ultimate African appetite given competing liquidity demandsFlight to ECAs andDFIs across all Supplier Perspective:markets Recent softening of forward-looking equipment prices but no dramatic plummet. Note most bail-outs encourage infrastructure spending
Private and confidential Section: 4Business and Financing Challenges
Business and Financing Challenges 14Key points Key Issues Opportunity Costs of insufficient electricity supply/electrificationHigh opportunity costsof insufficientelectricity supply – Cost of Unserved Energy: $1.50/kWh (IRP 2010), $10/kWh (Dept of Energy) – Small Diesel Generator: $1/kWh plus – OCGT Diesel turbines: 30c – 50c/kWh peaking power – Subsistence charcoal: destruction of our forestsGreater certainty in – Reality Check: the real developmental costs of delayed decisions!!...future tariffs isparamount New Generation Planning – A complete financial model not a shopping list of projects – Should include interest during construction (IDC) – As an indicator to politicians, regulators and consumers about what realities we faceEffective domestic – Greater certainty in future tariffs is key to funding new investments todaywheeling frameworkneeded – Greater support to credit ratings of utilities (key to tapping current EM liquidity) Effective Domestic Wheeling framework – Framework must be standardised and transparent for all arrangements – Pricing and risk sharing should facilitate wheeling not prevent it
Business and Financing Challenges 15Key points Key Issues (Contd...) Leveraging credit quality private off-takersEffective riskallocating approach – Allocating risk to those that are able to best manage it – Creating a domestic industrial/mining offtaker group. e.g. CEC Energy – Innovative commodity risk management (commodity price indexation in loan terms) – Allowing more private players on regional power pools (e.g. SAPP)Unrivalled – Enables smaller countries to reduce burden on their utilities/Treasuryknowledge of sub-Saharan Africa Cross-border PPAsthrough on groundpresence – Chicken and Egg situation (smaller countries can’t build large projects alone) – Mozambique’s Mpanda Nkuwa 1,500MW hydro project would benefit entire region but needs Eskom – Challenge: CESUL line and Mpanda Nkuwa require back-to-back contractsStrong product – Could a Mozambique coal IPP sign a private PPA with mine in SA or Zambia?teams inJohannesburg, Integrated Mining/ Power projectsLagos, Nairobi andLondon – Reality check: new mining investment is key to our economies over next 20 years – Using Diesel Generators cost GDP and jobs – New quality creditors for power projects: Commodity Buyers
Private and confidential Section: 5Requirements for successful private sector participation
Key Requirements 17Key points Overview Finalise the enabling framework to allow and facilitate private sector participation in the power sectorFinalise the enablingframework – E.g. In SA. New Generation Regulations of August 2009 is a positive step, but market requires more clarity on process (amongst several other issues) – Rules on Selection Criteria for Renewable Energy Projects Market requires a bankable PPA (which allows for the appropriate risk allocation between the private sector and the buyer (SOEs or any Integrated System Operators)). This should include such items as:Bankable PPA are – A balanced liability regimerequired – Appropriate protections for the generation companies for risks not within their control – A stablisation clause for changes of law – Fair termination events for buyer and seller – Appropriate termination compensation regimeGovernment support – Clauses allowing for restructuring which may affect the buyer (e.g. unbundling of the Public utility)required to standbehind buyer Government support required to stand behind buyer, in order to provide comfort to private sector (developers, equity participants, lenders, etc.) that PPA availability payments will be made accordingly and termination provisions are fair (and termination payments will be funded) – E.g. In SA, if buyer is Eskom, NT support for PPA required as Eskom is already highly leveraged. Further PPA-type commitments could negatively impact on Eskom’s balance sheet and current debt covenants. Risk that private sector not prepared to enter into PPAs with Eskom without Government backstop
Key Requirements (Contd…) 18Key points Overview (Contd...)Need for – E.g. In SA, if buyer is ISO, NT support required as will be newly formed company with no trading history. Privateindependent offtaker sector will require Government backstop for new entity/ buyers – E.g. In SA, Cash-flow timing risk – monthly payments under PPAs versus collections from distribution companies (municipalities), large industrial users and Eskom Distribution Market is looking for independent offtaker / buyer – e.g. Eskom is seen to be conflicted as a fellow generator and somewhat higher risk creditworthiness – Independent buyer is seen as key by private sectorISO has been asuccessful model Independent systems operator has been a successful model in other jurisdictions, seen by the market in a favourable light
Key Requirements (Contd…) 19Key points PPA 101 The PPA grants the concession and sets the tariff. It is the primary document that the SBO would focus on. To some extent all the others are secondary Grants the concession • Grants the concession - gives the project the right to exist, and the right to generate electricity. Term typically 20-25 years from completion of construction Ownership • BOO or BOT Sale and purchase of • Generator (IPP) paid on the availability of net • Procurer (SBO) takes price and despatch risk capacity dependable power capacity irrespective of despatch • Take or Pay sufficient to cover debt service, equity return and fixed O&M Sale and purchase of • Variable O&M costs recovered through the sale of the Net Electricals net electrical energy dispatched Indexation • Tariff payments may be indexed for inflation and • Procurer may take inflation and forex movements movements in Foreign Exchange rates risk The responsibilities will be split Specifications and • PPA sets out the responsibility of the Generator to • Generator / EPC Contractor takes the responsibility Performance Standards build by a given date a plant to very precisely and risk of building the plant to the requirements of of the Plant documented specifications, operating standards and the Procurer designs Revenue Write Down • PPA includes provisions to reduce the payments • Generator takes performance riskPerformance criteria provisions for non- payable to the Generator if the tested dependable Performance capacity at any time or the actual availability [or the heat rate] is worse then the levels the Generator is contracted to provide Delay LD’s for late • Delay LDs payable for late commissioning payable by • Generator takes risk of late commissioning commissioning Generator/ EPC Contractor
Key Requirements (Contd…) 20Key points PPA 101 (Contd...) The responsibilities will be split (Contd…) Water and Power • Generator would seek to make it an • Procurer takes responsibility for providing Water and Power Transmission obligations of the Procurer to design build Interconnections interconnections and commission all required water and • The PPA sets out provisions for the Procurer to keep the transmission linkages by an agreed date Generator whole and / or pay compensation if such facilities and prior to scheduled testing are lateThird party Supply of Gas / Coal / Fuel • In many markets, the Generator would seek • Procurer takes risk of fuel supply and pays deemedresponsibilities to make it an obligation of the Procurer to commissioning if fuel is not available Generator takes supply Gas / Coal / Fuel (ie energy efficiency risk through an incentive penalty regime conversion) • Generator may take fuel / hydrology risk assuming satisfactory pricing and supply Permits • PPA allocates responsibility for obtaining • Split between Procurer and Generator risks permits Natural Force Majeure • PPA sets out provisions in relation to relief • Insurance of liability and the provision of insurance (both damage and business interruption) to mitigate Natural Force Majeure Risk • (Lightening, fire, earthquake, accidents, explosions, epidemics etc.) Political Force Majeure • There are certain risks which are • Procurer Risk uninsurable, political in nature and which Generators will not accept and need to beForce majeure / taken by the Procurer • Payments of deemed commissioning [or termination buyoutpolitical events if prolonged] or tariff adjustments to compensate for • (Act of war, blockade, boycott, rebellion, additional costs or revenue losses civil commotion, Change in Law and / or unjustified failure to renew permits)
Key Requirements (Contd…) 21Key points PPA 101 (Contd...) The responsibilities will be split (Contd…) Termination • The Agreement will stipulate the Events of • In the event of termination due to Procurer default, the Default, cure periods and the termination Procurer is obligated on request to purchase the plant for an regime agreed sum that covers debt and probably an equity return • In the event of termination due to Generator Default, the Procurer has the right but not the obligation to purchase theTermination plant but for a lesser sum covering only debt Credit Support • In the event of termination due to Procurer • It is a matter of commercial negotiation as to whether SBO Default and a purchase price being payable would be required to provide such a backstop. It may be then lenders may seek some form of possible to structure without backstop credit support in respect of the payment to be made, typically in the form of a payment guarantee
Key Requirements (Contd…) 22Key points Tariff structure – integral component of PPA A number of different tariff structures are feasible – in this document we have focused on the most commonly used structure:Availability paymentstructure ‘Availability’ payment structure The RFP for an IPP tender will specify the tariff structure which bidders must adhere to and will form the basis of payments to / from the Project Company (Generator) and the offtaker (Procurer) Each bidder will be invited to bid a number of Charge Rates – Occasionally charge rates can be firmly fixed and bidders would have to target LEC (Levelised Electricity Cost) based on an Asset Value (Brownfield)Bidders would have – Lower charge rates however may not always equate to better value for money for the procurement Authorityto target LEC For an availability driven tariff, payments will typically be split between Capacity and Output – Capacity Payments are designed for recovery of all the fixed costs of the plant, including debt service, taxation, equity return and fixed O&M costs. Typically deductions for non-availability and / or poor plant performance would be netted off against these capacity payments – Outputs Payments recover the variable operating costs of the plant and may also include an adjustment for fuel consumption In the case of a merchant plant or ‘Take or Pay’ agreement, the tariff structure is much simpler. Revenue = Plant Output (MWh)Payments typically * Market Price (ZAR/MWh)split betweenCapacity and Output Fuel adjustment Base capacity component Fixed O&M component Variable O&M payment payment Capacity Payment Output Payment Service Payment
Private and confidential Section: 6Potential Financing Structure
Financing Structure 24Potential Financing Structure Mine or Leveraging credit quality of end-users Utility/Single Buyer SmelterCo – Mines PPA – Smelter or Steel mill Sale of coal to – Commodity offtakers local industry Unlocks the Chicken/Egg problem IPP and smelters – Facilitates investment in interdependent power, port and mining infrastructure at same time Discard coal PPP basis – Private sector partnerships with public electricity, rail and port utilities Coal Mine Co RailCo – But reduces investment, guarantee and operations burden on utilities/Treasury Standard Bank can facilitate: Security of supply for Coking Coal – Advisory Offtaker – Bring in foreign partners Commodity Offtaker PortCo – Debt Funding – Commodity Risk Management
Private and confidential Section 7:Standard Bank’s Value Proposition
Standard Bank’s Value Proposition: Robust Project Advisory/Finance Services 26 Our Project Advisory and Finance Services A Standard Bank team of about 70 project f inance specialists (based in Johannesburg, Lagos, Nairobi, London, Beijing, and Sao Paolo) provides advisory and arranging services to government and private sector clients on limited recourse projects Strong Our experts come f rom diverse disciplines, are knowledgeable in a variety of sectors and have an understanding of local Multi-Disciplinary regulatory f rameworks and f inancial market constraints Team Structure Our project f inance team is able to work closely with other areas of our banks to create customised solutions that draw on sector and product expertise f rom across the banks Standard Bank can act in any one or a combination of the capacities of financial advisor, arranger and underwriter of senior debt, mezzanine debt and equity f or all large capital projects. Our project f inance services include: – Project evaluation and f easibility studies – Financial modelling and sensitivity analysis – Risk evaluation and risk mitigation strategies Project Finance – Advice on the structure of project contracts Services – Taking an active role in negotiations – Financial structuring – Foreign exchange risk mitigation techniques – Arranging of multi-source f unding, including development f inance and export credit f inancing – Arranging and underwriting bank f inancing We have established excellent relationships with development f inance institutions, multilaterals and major credit export Excellent agencies having closed numerous project f inancings with them across a range of emerging markets Relationships with DFIs and ECAs Standard Bank Group is an Equator Principle Financial Institution, having adopted and integrated all 10 of the Equator Principles which relate to Project Finance
Standard Bank’s Value Proposition: Experience with DFIs 27 Selected Experience with DFIs Transaction Year Amount DFIs involved SB Role EBRD, IFC, DEG, NIB, BSTDB, Pulkovo Airport Expansion Project Current EUR1.2bn MLA and Bookrunner EDB EUR450m Mandated co-arranger Lake Turkana Wind farm project, Kenya Current AfDB, DEG, FMO, Proparco and lender Petromax Power Project, Bulgaria Current Undisclosed EBRD Advisor, MLA Nairobi Northern Corridor Concession, IFC, DEG, FMO, IDC, AfDB, Current Undisclosed Advisor Kenya PAIDF, EAIF Guinea Allumina Project, Guinea Current US$2.8bn AfDB, EIB, IFC Advisor Lekki-Eppe Expressway PPP 2008 US$300m AfDB Advisor and Lender Monastir & Enfidha airport concessions, EIB, AfDB, IFC, OPEC, Arranger and 2008 €562m Tunisia PROPARCO Underwriter Eleme Petrochemicals Company Ltd, 2007 US$125m IFC Arranger INDORAMA Nigeria Federal Grid Company, Russia 2007 RUB5.0bn EBRD Arranger Empresa Nacional de Hidrocarbonetos de 2007 ZAR1.08bn EIB, MIGA Arranger Moçambique, Mozambique Chelyabinsk Tube Plant, 2007 €145m EBRD Arranger Russia RusHydro, Russia 2006 RUB6.3b EBRD Co-Arranger Pervouralsk New Pipe Plant, Russia 2006 €115m EBRD Arranger
Standard Bank’s Value Proposition: Experience with ECAs 28 Selected Experience Working with ECAs Transaction Year Amount ECAs involved SB Role Lake Turkana Wind farm project, Kenya Current EUR450m EKF, SACE Co-arranger and lender Nord Stream Pipeline Project Current EUR3.9bn Hermes, SACE Arranger, lender Kusile Power Project, South Africa Current Undisclosed Hermes TBC Mmamabula, Botswana Current Undisclosed ECIC, China Exim MLA El Boleo Project, Mexico Current US$1.2bn US Ex-Im, EDC, KDB Advisor, lender Guinea Alumina Project, Current US$5.0bn COFACE, China Exim and ECIC Club participant and Guinea arranger of ECIC tranche Kolwezi Copper Cobalt Mine, DRC Current Undisclosed EDC, EFIC and ECIC Club participant and arranger of ECIC tranche Mozal Aluminium Project, Current Undisclosed COFACE Club participant and Mozambique arranger of ECIC tranche Federal Palace Hotel and Casino, 2008 US$167m ECIC Lead arranger and Nigeria underwriter Akwa Ibom Power Project, Nigeria 2006 US$60m US Exim, ECIC Club participant and arranger of ECIC tranche Empresa Nacional de Hidrocarbonetos de 2006 ZAR1.08bn ECIC Arranger Moçambique, Mozambique Sasol Natural Gas Project, Mozambique 2004 ZAR 2.5bn SACE and EFIC Lead Arranger and underwritter Kansahi Copper project, 2004 US$120m ECIC Arranger Zambia
Standard Bank’s Value Proposition: Export Finance Solution (1/4) 29 Export Credit Agencies An Export Credit Agency (“ECA”) is typically a government agency or parastatal organisation. Its goal is to promote its domestic industries and to foster economic growth through the provision of financial support to exporters. This is most often achieved by providing political and commercial insurance cover or loan guarantees to banks. A financing solution incorporating an ECA represents one of the most attractive financing solutions where there is a cross- border movement of capital goods and/or services. Given the general decrease in available liquidity and risk appetite for emerging markets and emerging market assets, the significance and importance of ECA supported funding has increased. Advantages of an Export Finance structure ECA backed funding is especially beneficial in transactions requiring a longer tenor, large amounts and for higher risk grade countries. Repayments can be “stretched” to match future cash flows, not country limit constraints Lower interest rates and competitive USD funding, eg Libor + 2.50% for ECIC-backed financing from South Africa Alternative source of funding (not tying up all credit lines with Standard Bank)
Standard Bank’s Value Proposition: Export Finance Solution (2/4) 30 Mechanics If a client or its subsidiary is sourcing capital goods and services from a supplier in South Africa, Standard Bank can provide an Export Finance backed term loan which is partly guaranteed by the ECIC. A lending rate of LIBOR + 2.50% is payable by the Borrower under the South African Export Finance scheme and an ECIC premium for political risk insurance and commercial risk insurance is also payable by the Borrower. The ECIC premium (for the provision of political and commercial cover) may be payable up-front as a lump sum payment or payable over the drawdown period or annualised over the tenor of the loan. The premium is determined by a number of factors including country, tenor, drawdown schedule, repayment profile and the security package relating to the loan. Borrower USD term loan Standard Bank (plus hedging if required) exported equipment Insurance cover Equipment supplier ECA eg in South Africa eg ECIC from South Africa
Standard Bank’s Value Proposition: Export Finance Solution (3/4) 31 ECIC The principal objectives of the ECIC are: – to facilitate and encourage South African export trade by underwriting bank loans and investments outside the country, in order to enable foreign buyers to purchase capital goods and services from the Republic; and – to provide investment insurance to South African companies investing in assets offshore. Unlike a number of other export credit agencies (such as EFIC for instance), ECIC does not lend directly to projects. – ECIC provides insurance cover (100% Political and 85% Commercial Risk cover) to Lenders that are signatories to their Export Credit Support Agreement and Standard Bank provides the liquidity. The ECIC have appetite for most countries in Africa and are mandated to cover countries around the world in general. – Their appetite both in terms of number of transactions supported as well as quantum of support per transaction differs from country to country. – They are actively looking to diversify their insurance portfolio and are most keen on countries where they currently have low levels of exposure.
Standard Bank’s Value Proposition: Export Finance Solution (4/4) 32 Criteria to qualify for ECIC support Tied Export Programme – The ECIC will support projects (under their “tied” export program) where there is an export of capital goods and services from South Africa. – ECIC will support 85% of the South African export contract (SA contract value) and will require the Borrower to make a down payment of 15% of the SA contract value to the South African exporter. – The minimum ECIC requirement for South African content is 50% of the value of the South African export contract. – The ECIC provides insurance for credits of a minimum of 2 years and typically up to a maximum of 12 years (in the recent past we have seen longer tenors).
Private and confidential Section: 8 Case Study
Case Study: Morupule B Coal Power Plant Financing 34Chinese partners: USD1.6bn coal-fired power plant, 600MW, built by Chinese contractor CNEEC, funding arranged by ICBC/Standard BankCost effective: The all-in cost of the whole project was USD 2.91m per MW (compared to USD4.5m per MW for the Kusile plant in South Africa)Single financial solution: Standard Bank and ICBC arranged a US$ 825mn loan for 20 yr, backed by a Botswana Ministry of Finance guarantee, Sinosure ECA 15yr guarantee and the World Bank 15-20 yr guarantee. A US$ 140 mn bridge finance facility was provided by ICBC, guaranteed by Standard Bank. The BPC sellspower in Botswana Pula (BWP). Standard Bank swapped the BPC’s floating USD exposure to a fixed BWP exposure for the whole 20-yr period.Standard Bank’s expertise: Our local banking presence in Botswana, power sector expertise and deep relationships with Chinese partners allowed us to bringtogether all the parties to present the Botswana Government with a single, quick and cost-effective solution to secure its domestic power supply. Sinosure World Bank Guarantee Partial Credit 15 year Political/ Ministry of Commercial cover Guarantee Finance 16 – 20 year Guarantee ICBC $825 mn 20 year loan Standard Bank BPC Bridge Currency and Interest rate hedging $140mn $140 mn ICBC Guarantee Bridge 9 month Standard Bank
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