Final Presentation


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Final Presentation

  1. 1. Financing African Oil & Gas Investments Nathan A. Mintah Director, Project Finance, HSBC November, 2003 Presentation to the Africa Oil & Gas Forum – Houston, TX
  2. 2. <ul><li>INTRODUCTION </li></ul><ul><ul><li>Capital flows into Africa </li></ul></ul><ul><li>ATTRACTING FINANCING TO OIL & GAS PROJECTS </li></ul><ul><ul><li>Project issues </li></ul></ul><ul><ul><li>Country issues </li></ul></ul><ul><li>SOURCES OF FINANCING – </li></ul><ul><ul><li>Traditional sources </li></ul></ul><ul><ul><li>Future sources </li></ul></ul><ul><li>CLOSING REMARKS </li></ul><ul><li>HSBC’s OIL & GAS CAPABILITIES AND CREDENTIALS </li></ul>
  3. 3. Capital flows into Africa – recent trends Introduction
  4. 4. Foreign Direct Investment into Sub-Saharan Africa Net Inward FDI into Sub-Saharan Africa US$ billions <ul><li>Recent increases but on a decline </li></ul><ul><li>Targeted towards Oil & Gas Sectors – Nigeria, SA, Angola </li></ul>Source: Global Development Finance 2003 4.9% of FDI into Developing countries
  5. 5. Net inward debt flows into Sub-Saharan Africa Net inward debt flows: developing world vs. SSA US$ billions <ul><li>Steep declines in debt flows to the developing countires </li></ul><ul><li>SSA net position: outward flow for debt servicing </li></ul>Source: Global Development Finance 2003
  6. 6. Attracting financing into African oil & gas projects – Project issues
  7. 7. Typical contractual and ownership structure Operating Agreement Operator Offtake Arrangements <ul><li>Market &/or </li></ul><ul><li>Offtake Parties </li></ul>Concession Agreement, PSA, license etc Government Construction Arrangements EPC Contractor(s) Debt <ul><li>? </li></ul>SPV Project Company Shareholders Agreement Equity Sponsors
  8. 8. Project issues – sponsors and project company <ul><li>Credit strength and experience of project sponsors </li></ul><ul><li>Sponsor support undertakings </li></ul><ul><li>Project company: corporate governance structures, information reporting and transparency </li></ul>Lenders’ concerns
  9. 9. Project issues – concession agreement, PSA or license <ul><li>Transparency of process for granting license – Nigeria’s example </li></ul><ul><li>Can security be created over concession or license? Is it assignable? </li></ul><ul><li>Enforceability of such security </li></ul><ul><li>Are direct agreements between lenders and government/concession grantor possible? </li></ul>Lenders’ concerns
  10. 10. Project issues – construction arrangements <ul><li>Experience of contractor </li></ul><ul><li>Proven technology </li></ul><ul><li>Independent engineer’s review of development & construction plans, CAPEX and technology </li></ul><ul><li>Cost overruns (delay and performance LDs) </li></ul><ul><li>Completion guarantees and undertakings </li></ul>Lenders’ concerns
  11. 11. Project issues – operating agreement <ul><li>Operator’s technical expertise and credit strength </li></ul><ul><li>Extent of performance linked penalties and bonuses </li></ul><ul><li>LDs for lack of performance etc. </li></ul>Lenders’ concerns
  12. 12. Project issues – offtake arrangements <ul><li>Product marketing arrangements and credit strength of offtaker(s) </li></ul><ul><li>Product price risk and hedging program, if any </li></ul><ul><li>Transportation of offtake products and reliability of export infrastructure </li></ul>Lenders’ concerns
  13. 13. Project issues: other – reserves <ul><li>Sufficiency of reserves: </li></ul><ul><ul><li>reserve life at projected production rates vs. loan life </li></ul></ul><ul><li>Reserves due diligence: independent engineer’s report and certification (e.g. Ryder Scott) </li></ul><ul><li>Lenders lend against proven reserves </li></ul>Lenders’ concerns
  14. 14. Project issues: other (cont’d) <ul><li>Completion risk – who bears completion risk? </li></ul><ul><ul><li>Mechanical completion </li></ul></ul><ul><ul><li>Financial completion </li></ul></ul><ul><li>Security package </li></ul><ul><li>Environmental standards </li></ul>Lenders’ concerns
  15. 15. Project issues: other – project economics <ul><li>Project’s economics: </li></ul><ul><ul><li>Cashflow projections </li></ul></ul><ul><ul><li>Capital structure </li></ul></ul><ul><ul><li>Debt servicing capacity – cover ratios </li></ul></ul><ul><ul><ul><li>DSCR </li></ul></ul></ul><ul><ul><ul><li>Loan life cover ratios, </li></ul></ul></ul><ul><ul><ul><li>Project life cover ratios etc </li></ul></ul></ul><ul><li>Important but not sufficient. </li></ul>Lenders’ concerns
  16. 16. Attracting financing into oil & gas projects – Country issues
  17. 17. Country issues – legal & regulatory framework <ul><li>Security available for loans </li></ul><ul><ul><li>Creation, perfection and enforcement of security given local laws </li></ul></ul><ul><li>Regulatory framework for natural resources, oil & gas </li></ul><ul><ul><li>Tax regime </li></ul></ul><ul><li>Change in laws – uncertainty </li></ul>Lenders’ concerns
  18. 18. Country issues – country risks & mitigation <ul><li>MIGA’s programs </li></ul><ul><li>Private PRI insurance market </li></ul><ul><li>World Bank ‘Partial Risk Guarantee’ program </li></ul>
  19. 19. Typical contractual and ownership structure Operating Agreement Operator <ul><li>Market &/or </li></ul><ul><li>Offtake Parties </li></ul>Government EPC Contractor(s) SPV Project Company Equity Sponsors Projects with solid economic fundamentals, that properly address qualitative lender issues have best chance of attracting debt capital. Offtake Arrangements Concession Agreement, PSA, license etc Construction Arrangements Shareholders Agreement Credit Enhancement MLAs, ECAs Debt <ul><li>Banks </li></ul><ul><li>DFIs </li></ul><ul><li>Other </li></ul>
  20. 20. Sources of financing
  21. 21. Sources of financing – Africa focused commercial banks and infrastructure funds Africa Millennium Fund AIG Africa Infrastructure Fund Emerging Africa Infrastructure Fund <ul><li>Infrastructure funds </li></ul><ul><li>Various international banks </li></ul><ul><li>AFREXIM Bank </li></ul><ul><li>Fund size: ~US$ 200 million+ </li></ul><ul><li>Senior & subordinated loans, equity </li></ul><ul><li>Some will not finance extractive industries but will finance related infrastructure. </li></ul><ul><li>Commercial Banks </li></ul>Local banks International banks with African risk appetite
  22. 22. Sources of financing – DFIs <ul><li>DFIs </li></ul><ul><li>Proparco, France </li></ul><ul><li>RSA </li></ul><ul><li>UK </li></ul><ul><li>USA </li></ul><ul><li>Germany </li></ul><ul><li>Germany </li></ul><ul><li>CDC – interested in equity </li></ul><ul><li>Others – equity, senior & subordinated debt </li></ul><ul><li>RSA </li></ul>FMO <ul><li>Netherlands </li></ul>
  23. 23. Sources of financing – export credit agencies <ul><li>UK </li></ul><ul><li>USA </li></ul><ul><li>France </li></ul><ul><li>Germany </li></ul>SACE <ul><li>Australia </li></ul><ul><li>Japan </li></ul><ul><li>Spain </li></ul><ul><li>Italy </li></ul><ul><li>Export Credit Agencies </li></ul>ECIC <ul><li>South Africa </li></ul><ul><li>Term debt financing </li></ul><ul><li>Term: 7 - 10 years+ </li></ul><ul><li>CIRR Rates, ECA premium </li></ul><ul><li>Must meet local content requirements </li></ul>
  24. 24. Sources of financing – multilateral agencies <ul><li>Multilateral Agencies </li></ul>AfDB <ul><li>IFC – ‘A’ loan & ‘B’ loan program </li></ul><ul><li>Equity, senior & subordinated debt </li></ul>
  25. 25. Sources of financing: local banks & capital markets – recent notes/bond issues, Nigeria <ul><li>Lagos State </li></ul><ul><li>Nigerian Breweries Plc </li></ul><ul><li>Cadbury Nigeria Plc </li></ul><ul><li>Unipetrol Nigeria plc </li></ul><ul><li>Cement Company of Northern Nigeria </li></ul>N 15 billion 7 2.5 1.2 1.5 Terms 7 years; 1% over CBN - 365 day Treasuries 3 yrs 3 yrs; Zero-coupon 3 yrs; Zero-coupon 3 yrs; 15% p.a. Naira US$ $120 million 56 20 9.6 12 The local banking and capital markets are deep in certain countries …. The mobile telephone industry has successfully raised over US$ 0.5 billion from local banking market in Nigeria.
  26. 26. Future sources of financing – international capital markets <ul><li>Debt Capital Markets </li></ul><ul><ul><li>Securitization of export receivables </li></ul></ul><ul><ul><li>144a bond issues </li></ul></ul><ul><ul><li>International syndicated loans </li></ul></ul><ul><ul><li>Eurobond issues </li></ul></ul><ul><li>Equity Capital Markets </li></ul><ul><ul><li>Rule 144a ADRs (RADRs) </li></ul></ul><ul><ul><li>SA’s mining companies have successfully tapped ADR/GDR markets </li></ul></ul>Disclosure and corporate governance standards are higher still for these sources of funding …
  27. 27. Conclusions
  28. 28. Conclusions <ul><li>Financing is available for well structured projects in Africa's oil & gas sector </li></ul><ul><li>Quality and credit strength of project participants is important </li></ul><ul><li>Good corporate governance and disclosure standards is instrumental in accessing financing. Good governance has value. </li></ul><ul><li>Project sponsors should seek advisors: legal, technical & financial advisors </li></ul>
  29. 29. HSBC oil & gas credentials
  30. 30. Mergers and acquisitions/advisory – oil and gas industry HSBC has been extensively involved in providing M&A advice to clients both in domestic and cross-border transactions in the oil and gas industry Confidential Italy Adviser Ongoing Russian Federal Property Fund US$225 million Disposed of 36.8% stake in Eastern Oil Adviser 2002 Advised Tosaco on purchase of 25% stake in total South Africa Adviser 2003 Russian Federal Property Fund US$440 million Sale of 9% stake in Lukoil Adviser 1999 $300 million Fairness on disposal of interest in Muturi PSC to BP Indonesia Adviser 2001 Terminated disposal of Saga Petroleum Mabruk AS Libya Adviser 2001 Confidential Advised on defense against unsolicitied public offer from Sibir Energy UK Adviser 2001 US$389 million Valuation and Advisery services Adviser 1999 $100 million Sale of Australian Subsidiary Gulf Australia Australia Adviser 1999 Valuation of a large lubricants business 2002 India Adviser 2002 US$1.3 billion Acquisition by ENI UK Adviser 2000
  31. 31. Equity offerings in the oil & gas sector HSBC has an excellent track record in successfully raising equity finance for major oil and gas companies around the world, including equity, equity-linked, IPOs, rights issues, secondary placements and convertible issues Integrated Oil NT Corp C$111 million Issue of aapital shares and preference shares via a public offer Co-Manager 1999 US$288 million Initial public offering Greece Co-lead Manager 1998 HK$26 billion Global offering Hong Kong/China Co-lead Manager 2000 £15.7 million Placing and open offer of ordinary shares UK Broker 1999 Confidential IPO Greece Lead Manager 2001 US$440 million Sale of a 9% stake in Lukoil held by the Russian Federal Property Fund Russia Advisor 1999 £ 830 million Secondary share offering Turkey Co-Manager 2000 C$18 million APF energy trust rights issue Co-manager 2001 € 5.7 billion Primary offering Spain Co-Manager 1999 CA$100.7 million Issue of trust units Canada Underwriter 2001 £2.7 billion Initial public offering Hong Kong Co-Lead Manager 2000 Canada Dominion Resources VI C$27.5 million Issue of limited partnership units Agent 2002 US$4.4 billion Initial public offering UK International Co-manager 1998 £36.3 million AIM flotation UK Adviser and broker 1998 US$151,145,000 Equity financing Canada Underwriter 2003
  32. 32. Debt finance and debt capital markets experience in the oil and gas sector HSBC’s strong presence in all major (and many smaller) financial markets, and close relationships with international and domestic banks, provides us with wide and deep access to the loan distribution market Selected oil and gas industry transactions 2001 2003 US$700 million Syndicated facility USA Joint Mandated Arranger $500 million Six year loan to finance capital expenditure Singapore (India) Lead Arranger 2001 US$500 million Syndicated loan India Joint Arranger 1998 CK5000 million Term loan for general corporate purposes Bookrunner and Arranger 2000 US$250 million Revolving credit facility Singapore Coordinator and Agent 2000 US$30 million Subscription of new preference shares and US$70 million new banking facilities, UK Adviser and Arranger 1999 US$335 million Syndicated loan Brazil Joint Mandated Arranger $650 million Syndicated loan UK Joint Arranger and Underwriter 1998 US$350 million Term loan facility Norway Joint Arranger 1999 US$250 million Syndicated loan USA Joint Mandated Arranger 2002 250 million 6.625% Dec 2017 UK Joint Bookrunner 2002 C$200 million Cumulative redeemable preferred shares Canada Co-manager 1999 £200 million 5.875% Nov 2012 UK Joint Bookruner 2002 £250 million 7.5% Bond 2013 UK Joint Bookrunner and Lead Manager 2003 € 750 million 6.375% May 2009 UK Joint Bookrunner 2002
  33. 33. Project finance experience in the oil and gas sector HSBC has acted as advisor on a number of internationally renowned projects, to the world’s largest oil and gas companies. Our Project and Expert Finance practice utilises considerable industry expertise in the sector, acquired over a number of years, together with first-class knowledge of leading edge project finance techniques Selected oil and gas transactions US$600 million Guangdong LNG Terminal and trunkline project China Adviser 2001 US$700 million Financing for the gas to liquid plant Qatar Adviser 2002 US$1.37 billion Refinancing of 6.6mtpa Oman LNG facility Oman Joint Mandated Lead Arranger 2002 CSPC Nanhai US$4 billion Landmark CNOOC/Shell petrochemical project involving US EXIM, JBIC, NCM, ECGD and SACE China Financial Adviser Ongoing US$3.2 billion HPEF advised the export credit agencies on the financing for the Blue Stream pipeline Russia/Turkey Adviser 2000 Oman Gas Company US$410 million HPEF advised the borrower on the financing for the Sohar and Salalah pipelines Oman Adviser 2000 US$100 million ECGD-guaranteed supplier credit finance Oman Arranger 2003 US$300 million Fairness opinion of the sale of Muturi PSC interest Malaysia Adviser 2001 US$1 billion Debt and equity financing for LNG regasification plan, Texas/Louisiana United States Adviser and Underwriter 2003 Qatofin US$800 million (approx) Development of LLDPE/Ethylene plant Qatar Financial Adviser Ongoing US$4 billion Private sector project financing Quatar Adviser 2000 US$400 million Export credit Arranger 2003 Yanbu Petrochemical Co. US$2.3 billion Financing Saudi Arabia Adviser/Arranger Advisor/Floating rate Egypt LNG US$1.1 billion $ 1,100 million financing of BG/Edison LNG plant Egypt Lead Arranger and Bookrunner Ongoing US$129 million Limited resources financing of LNG Ship Brunei Sole Adviser 2002 US$5 billion Bidding strategy and structure for construction and investment of Guangdong LNG Terminal project China Co-lead Manager 2000
  34. 34. <ul><li>Thank you </li></ul>Nathan A. Mintah Director, Project Finance HSBC Tel: +27-11-481-4369 Fax: +27-11-646-8485 E-mail: [email_address]