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Alan Sproule - Standard Chartered Bank - Infrastructure investment
 

Alan Sproule - Standard Chartered Bank - Infrastructure investment

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Alan Sproule delivered the presentation at 2014 Africa Iron Ore conference. ...

Alan Sproule delivered the presentation at 2014 Africa Iron Ore conference.

The Africa Iron Ore conference is the annual gathering for iron ore and stainless steel executives engaged in the African Region.

For more information about the event, please visit: http://www.informa.com.au/africaironoreconference14

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    Alan Sproule - Standard Chartered Bank - Infrastructure investment Alan Sproule - Standard Chartered Bank - Infrastructure investment Presentation Transcript

    • 1 Financing infrastructure in Africa Alan Sproule, Standard Chartered Bank 3 June 2014
    • 2 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%
    • 4 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
    • 6 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
    • 7 Where do we start?
    • 8 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
    • 9 Private sector ownership of infrastructure assets is rarely feasible Private enterprise Lenders Contractors / equipment suppliers Transport infrastructure is a strategic national asset
    • 10 Public private partnerships or BOOT projects provide a solution Build / Design / Construct / Finance Own Operate / Manage / Maintain Transfer
    • 11 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.
    • 12 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 LendersUsers Operator O&M contract Infrastructure SPV
    • 13 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
    • 14 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?
    • 15 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
    • 16 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
    • 17 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
    • 18 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
    • 19 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
    • 20 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
    • 21 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