Andrew newman

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Andrew newman

  1. 1. MACQUARIE CAPITALFINANCING OPTIONS FOR TRANSPORT INFRASTRUCTURE21 AUGUST 2012
  2. 2. 2DisclaimerThis presentation has been prepared by Macquarie Capital Advisers Limited ABN 79 123 199 548 (Macquarie) for the sole purpose of providing an overview ofMacquarie’s Resources Infrastructure capabilities (Purpose).It is provided on a confidential basis, and may not be reproduced in whole or in part, nor may any of its contents be disclosed to any other person, without Macquarie’s priorwritten consent. Further, it is provided on the basis that recipients acknowledge and agree that they will not do anything to cause or constitute a breach of the insidertrading provisions of any relevant securities laws in relation to any information they receive in this presentation or connection with it.This presentation is provided by Macquarie for general information purposes only, without taking into account any potential investors’ personal objectives, financial situationor needs. It should not be relied upon by the recipient in considering the merits of any particular transaction. It is not an offer to buy or sell, or a solicitation to invest in orrefrain from investing in, any securities or other investment product. Nothing in this presentation constitutes investment, legal, tax, accounting or other advice. The recipientshould consider its own financial situation, objectives and needs, and conduct its own independent investigation and assessment of the contents of this presentation,including obtaining investment, legal, tax, accounting and such other advice as it considers necessary or appropriate.This presentation has been prepared on the basis of publicly available information only. Macquarie has relied upon and assumed, without independent verification, theaccuracy and completeness of all such information. It contains selected information and does not purport to be all-inclusive or to contain all of the information that may berelevant to the Purpose. The recipient acknowledges that circumstances may change and that this presentation may become outdated as a result. Macquarie is under noobligation to update or correct this presentation.Macquarie, its related bodies corporate and other affiliates, and their respective directors, employees, consultants and agents (Macquarie Group) make no representationor warranty as to the accuracy, completeness, timeliness or reliability of the contents of this presentation. To the maximum extent permitted by law, no member of theMacquarie Group accepts any liability (including, without limitation, any liability arising from fault or negligence on the part of any of them) for any loss whatsoever arisingfrom the use of this presentation or its contents or otherwise arising in connection with it.This presentation may contain forward-looking statements, forecasts, estimates and projections (Forward Statements). No independent third party has reviewed thereasonableness of any such statements or assumptions. No member of the Macquarie Group represents or warrants that such Forward Statements will be achieved or willprove to be correct. Actual future results and operations could vary materially from the Forward Statements. Similarly, no representation or warranty is made that theassumptions on which the Forward Statements are based may be reasonable. No audit, review or verification has been undertaken by the Macquarie Group or anindependent third party of the assumptions, data, results, calculations and forecasts presented or referred to in this presentation.The recipient acknowledges that neither it nor Macquarie intends that Macquarie act or be responsible as a fiduciary to the recipient, its management, stockholders,creditors or any other person. Each of the recipient and Macquarie, by accepting and providing this presentation respectively, expressly disclaims any fiduciary relationshipand agrees that the recipient is responsible for making its own independent judgments with respect to any transaction and any other matters regarding this presentation.The Macquarie Group may have interests in the securities and other investment products referred to in the presentation, including being directors of, or may have or may inthe future act in various roles including as underwriter, dealer, broker, lender or financial adviser to their issuers and may receive fees, brokerage or commission for actingin those capacities. Further, the Macquarie Group may act as a market maker or buy or sell those securities and other investment products as principal or agent and assuch may effect transactions which are not consistent with this information.None of the entities noted in this presentation are an authorised deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia). Theobligations of these entities do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542. Macquarie Bank Limited does not guarantee orotherwise provide assurance in respect of the obligations of these entities.© Macquarie Group 2011
  3. 3. 3Infrastructure financingAustralia has led the world in the structuring and funding of majorinfrastructureVictorian Desalination – 2009 –$A4.9bn Sydney toll roadsWe currently face a major challenge to procure and fund the infrastructure required tosustain the growth of our mining industry.
  4. 4. 4IntroductionSubstantial capital is available for the ‘right’ projects― Resources infrastructure CAN be funded but requires:― Careful planning at early stages― An understanding of the interaction between key project decisions, fundingand investor requirements― A willingness to accept all funding sources have individual benefits but alsohooks and constraints – the funding decision requires understanding thetrade-offs and choosing those that are right for your project.
  5. 5. 5What is resources infrastructure?
  6. 6. 6― According to the Department of Mines and Petroleum the Iron Ore & SteelIndustry in WA has projects on the drawing board:― With a capital expenditure of in excess of $A37 billionScale of funding requirements in WA and beyond― Why is this a frightening statistic?― It does not include all projects― At the same time, the oil and gas industry is undertaking projects with acapital expenditure of $A118 billion, employing 19,000 people duringconstruction― These projects will compete― While some projects have sponsors who have access to substantial balancesheets, many project sponsors will seek third party financing― The number of greenfields iron ore projects or related infrastructure which hasobtained substantial project financing in the last two years?― Which will employ 23,000 people during construction
  7. 7. 77Four key reasonsWhy are funding requirements different from thepast?1The sheer scale of funding requirements means diversified funding sourcesare required2 A reduced willingness of Governments to fund resources infrastructure3The open access requirement for many port and rail assets introduces newfunding and development challenges4Post GFC, investors prioritising investments with sustainable cash flows,in particular so called brownfields assets
  8. 8. 8The key questionsAs part of the project planning and prior to getting to the BFS stage,the following questions should be asked:How do key project decisions impact on funding?BWhat funding sources are right for my project?CWhat can I do to maximise the prospect of successfullyfunding my project?DAShould the resources infrastructure critical to my project befunded separately from the mine?
  9. 9. 9A. Should resources infrastructure be fundedseparately from the mine?There are a number of key considerations which need to be juggledSeparate financing Integrated fundingversus
  10. 10. 10Likely to take additional time to reachfinancial close given interface and financingprocessLikely to require stronger credit supportarrangements for take or pay obligationsand/or ongoing securityCapital providers unlikely to value futuretonnes and demand for rail and port capacityPotentially reduces sources of capitalprovidersTies up capital in arguably lower returninginfrastructureIncreases funding requirementA. Should resources infrastructure be fundedseparately from the mine?Separate financing Integrated fundingversus Access to broader base of capital providers Pass down of risk/responsibilities Flexibility to enable Project Sponsors to retainoperations and maintenance role Reduces complexity, enables quickerexecution and implementation Project Sponsors have direct control overassets Operational flexibility
  11. 11. 11Project and funding decisions are essentially one big jigsaw puzzleChoosingequitypartnersB. How do key project decisions impact onfunding?
  12. 12. 12It is important to lay out all of the pieces upfrontB. How do key project decisions impact onfunding?ChoosingequitypartnersHow much drilling is requiredprior to seeking funding?What form of procurementstrategy should be adopted?How many packages?What is the credit profile of keycontractors?Can your equity partnersprovide additional liquidityduring the developmentphase?Do your equity partners havebanking or governmentrelationships that may providediversified funding sources?Who should be responsible forthe interface betweenpackages?Who is responsible for costoverruns?Can ECA finance be securedvia procurement?What tenor should any off-takebe?What is the credit profile anddiversity of your customerbase?Is the nature or location ofyour customer base likely toinfluence funding sources?Can prepayment of off-takerevenues fill a funding gap?When are you likely to expandthe project?Should you seek to beregulated upfront?How do you preserve yourrights as a FoundationCustomer (without increasingproject financial risk?)When is new user expansionexpected?
  13. 13. 13Identity ofcustomersandoff-taketermsProcurementstrategyProjectExpansionProfileChoosing equitypartnersThird partyaccessExplorationtimeframesCareful planning will enable each of these pieces to fit togetherB. How do key project decisions impact onfunding?
  14. 14. 14Funding type— Senior debt— Mezzanine— HybridFunding type— Commercial banks— Specialist funds— Bond investors— Offtaker(s)— ECAsC. What funding sources are right for my project?
  15. 15. 15― There are increasingly diverse markets with different funding sources― Each market has its own benefits and constraintsDebt funding type Source “The good” “The bad”“The sometimesugly”Bank debtCommercialbanksHigh level ofsophisticationHigh levels of DDrequirementsConservativepricing curvesPublic capitalmarkets144A, Reg SDeep liquid markets;Limited maintenancecovenantsHard (andexpensive) toredeem, requirescredit ratingDirectors, lawyersand financialadviser responsiblefor disclosurePrivate capitalmarketsPrivate placementmarketSophisticatedinvestors; Range ofrisk appetitesBank styledocumentation,reporting, covenanttestingLimited investorset; Volumesinsufficient for largeprojectECAsOff-take,construction,procurement andequity-linkedProvide attractively-priced credit;Political riskinsuranceLengthy – can bedouble the time ofother fundingsourcesNever a full fundingsolutionC. What funding sources are right for my project?
  16. 16. 16― China is seen as a very deep source of capital with substantial incentives tofund infrastructure which brings product to market more quickly― However, Chinese financiers should be considered in the context of a range offunding solutions.What about China?C. What funding sources are right for my project?Difficulties thatmay be created― Where Chinese banks are majority financiers it may discourage otherfinanciers from investing― Timeframes may be hampered by approval processes (Chinese andFIRB)― The quid pro quo if Chinese funding underpins the project― Lack of transparencyWhere canChinese playersadd value?― Substantial liquidity― Capacity to package with construction elements of the project― Tenor of funding― Willingness to take a robust view on commodity pricing
  17. 17. 17 Recognise that the development of the funding strategy for a project is not anindependent process Get your story straight before you go to financiers or investors― Where possible keep it simple and neatly packaged Make contingency plans, dont put all your eggs in one basket Be aware that financiers and investors are being presented with many differentopportunities― Differentiate your project to maximise attractiveness.D. What can I do to maximise the prospect ofsuccessfully funding my project?

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