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Financing Projects In Asia - Latest Trends - 30 March 2008
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Financing Projects In Asia - Latest Trends - 30 March 2008

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Presentation made in March 2008 at the Infrastructure Finance Forum in Dubai

Presentation made in March 2008 at the Infrastructure Finance Forum in Dubai

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  • 1. Financing Projets in Asia Latest Trends Pierre-Philippe Martin Co-Head, Structured Finance Asia, Calyon Dubai, March 2008 [email_address] Tel +852 2826-7347
  • 2. Contents
    • Calyon and the Crédit Agricole Group
    • Latest trends in the Project / Infrastructure Financing Market in Asia
    • Case Studies
    • Conclusion and Discussion
  • 3.
    • The corporate and investment banking arm of Credit Agricole group: among the Global Top 5 Banking Groups, Balance Sheet > US$ 1 Trillion
    • A full range of services through global Business Lines:
      • - Investment banking & brokerage
      • - Capital Markets
      • - Structured Finance
      • - Corporate Banking
    Calyon was created in May 2004 , from the merger of the corporate and investment banking activities of Cr é dit Agricole Indosuez and Cr é dit Lyonnais . 58 countries more than 13,000 employees 72% of commercial revenues generated by the international network Calyon and the Crédit Agricole Group RATINGS (Short term / long term) P1 / Aa1 Moodys A1+ / AA- Standard & Poor’s F1+ / AA FitchRatings
  • 4. Calyon in Asia-Pacific
    • Strong historic positions in 13 countries
    • A large customer base: International clients coming to Asia & Asian clients going global
    • More than USD 15Bio assets in Asia
    • Reinforced core business lines:
      • Project Finance, Acquisition Finance, Telecom Finance, Real Estates & Hotels
      • Ship and Aircraft Finance
      • Syndication
      • Fixed Income / Global Equity Derivatives
  • 5. Calyon - Top 5 Asian Syndicated Loans Bookrunner in ‘07
  • 6. Calyon - Asian and Global “PF Bank of the Year” in 05, 06 and 07
    • EuroWeekAsia: Asia-Pacific Project Finance Bank of the Year 2007
    • PFI: Global Bank of the Year 2006
    • PFI: Asia Pacific Bank of the Year 2006
    • The Asset: Asia’s Best Project Finance House 2006
    • The Asset: Asia’s Best Project Finance House 2005
    • Finance Asia: Best Project Finance House 2005
    Calyon a leader in Project Finance in Asia Pacific
  • 7. Calyon - Asian Project Finance Deal Awards in 2006 and 2007
    • Deals of the Year 2007
      • HMC (Thailand) - Asia Petrochemicals Award (PF Mag)
      • Crimson Power (Philippines) - Asia Power Award (PF Mag)
      • Blue Ocean (Korea) - Asia Transport (Ports) Award (PF Mag)
      • Tata Corus (India) - Asia Acquisition Award (PF Mag)
    • Deals of the Year 2006
      • Reliance (India) - Asia Pacific Petroleum Award (PFI, PF Mag)
      • Ratchaburi (Thailand) - Asia Pacific Power Award (PFI, PF Mag)
      • Rivercity Motorway (Australia) - Asia Pacific PPP Award (PFI, PF Mag)
      • Uijeongbu LRT (Korea) - Asia Pacific Infrastructure Award (PF Mag)
      • eMobile (Japan) - Asia Pacific Telecom Award (PFI, PF Mag)
  • 8. Contents
    • Calyon and the Crédit Agricole Group
    • Latest trends in the Project / Infrastructure Financing Market in Asia
    • Case Studies
    • Conclusion and Discussion
  • 9. Project Finance in Asia-Pacific
    • Asia-Pacific’s Project Finance market represent about 20% of the global market, and continues to grow fast, supported by the development of the regional economies and their increasing infrastructure needs.
    • Financial markets liquidity contributed to bring down the barriers between “Domestic” and “International” PF markets. About 50% of Asia PF was done in domestic markets (local projects financed by local banks) in 2005 and 2006, down from 75% in 2003 or 2004. International banks including Calyon have already entered the RMB market in China and the KRW market in Korea.
    • Commercial banks and government agencies have remained dominant in infrastructure financing in Asia, with limited reliance on capital markets and no reliance on securitization
  • 10. Recent trends in Project Finance in Asia-Pacific
    • Thanks to high liquidity in the market over the past few years, project finance has become more efficient and “user-friendly”:
    LIBOR + [1]% = all-in 5-6% LIBOR + [2-3]% = all-in 8-10% Interest Rate = CHEAPER Single tranche bank loan, smaller groups, simpler documents Multi-tranche, multi-party negotiation, “least common denominator” Documentation = SIMPLER Acquisition: 1-2 mths Greenfield: 2-6 mths 1-2 years from mandate to closing Process = FASTER Last 2-3 years 10 years ago
  • 11. The Market Today: the “New Clothes” of Project Finance The same + Financial investors, sometimes in leading roles Industry Sponsors: Developers, Utilities, Construction Companies Sponsors / Investors All areas to all areas Before 1998: West to Asia 1999-2001: Asia to Asia 2002-2004: Asia to Global Direction of Investment Flows 1/3 Greenfield 1/3 refinancing / recap 1/3 acquisition Mostly Greenfield Financed Assets The Market in 2007-2008 Traditional Project Finance
  • 12. Beyond Single-Asset: Portfolio Financing
    • To finance, at the holding company level, a portfolio of infrastructure assets
    • Assets can be wholly, majority or minority owned
    • Portfolio debt serviced by dividends received from the subsidiaries
    • Advantages to shareholder:
      • S impler than financing each asset on a project basis = one loan only
      • Flexibility of SPV jurisdiction, generally faster than project financing in the country of the assets
      • Diversification of funding sources = access to banks not operating the country of the assets
      • Enables the raising of junior debt thanks to asset diversification
      • Increased leverage capacity of the asset portfolio
  • 13. Impact of the Credit Crunch
    • Post Asian crisis, the region has been financially conservative: low leverage in the regional economies, little securitization activity.
    • In this context, Asia is not directly hit by today’s credit crunch, but only as “collateral damage”.
    • Impairment of global banks’ balance sheets = less capital available for loans.
    • Economic fundamentals and funding needs of the infrastructure sector = unchanged.
    • Unchanged demand vs reduced supply of funds = higher credit margins.
  • 14. Impact of the Credit Crunch (Continued)
    • But: lower USD base rates, both ST and LT => all-in interest rates may not increase substantially or may even be reduced (for USD)
    • And: the “domino effect” of the sub-prime crisis has been somehow muted on local Asian banks, also limiting the “damage” on local currency financing
    • Financial institutions focus on core business => marginal players may exit, while the main project finance players remain in the market
    • Less banks means less underwriting and syndication, more “club deals”
    • Overall, still a healthy deal flow, as infrastructure remains a core need of “still under-equipped” while “fast developing” Asia
  • 15. Contents
    • Calyon and the Crédit Agricole Group
    • Latest trends in the Project / Infrastructure Financing Market in Asia
    • Case Studies
    • Conclusion and Discussion
  • 16. Case Study 1: Glow IPP (Thailand, 2005)
    • Refinancing of a 700MW IPP
    • No more multi-source export credit
    • Cost of debt reduced by 100-200 bp
    • Halving of equity ► upstream of cash to the shareholders
  • 17. Case Study 2: Mezzanine Financing Structure (2005-2006)
    • This actual 2005-2006 transaction was made possible thanks to the lender’s comfort with the project assets
    • Advantage to the Shareholders: in a competitive bidding, acquire the underlying assets in a short period of time, using bank loans with maximal leverage, rather than going through a more lengthy and more uncertain equity-raising exercise
    Investment Fund Power Holding Co Various IPP projects in Asia Shareholders Equity Equity Equity stakes (minority to 100%) “ Mezzanine” Debt Holding Co Debt Project Financing for each subsidiary
  • 18. Case Study 3: Uijongbu LRT (2006)
    • A greenfield mass transit system in a fast growing suburb of Seoul, sponsored by GS E&C.
    • Calyon, as Financial Advisor, ran a full competitive bidding process with ECAs, international banks and Korea banks to raise debt financing. These groups of potential lenders were competing on equal terms for the first time.
    • Total debt financing of about USD350m, mandated to a group of 4 banks (including Calyon that joined after the end of the bidding process).
    • Debt financing as a combination of EUR and KRW. It is the first time when foreign banks extend long-term KRW funding to a domestic project.
    • Equity and mezzanine were raised from the sponsor and from financial institutions. Domestic insurance companies also participate in the senior debt.
    • Advantages to the Shareholders:
      • best lending terms obtained in the domestic KRW market so far, thanks to full and open competition;
      • simplicity of documentation, with no separate “international tranche”.
  • 19. Case Study 4: “Blue Ocean” (2006-2007)
    • The spin-off of a group of container ports in the US, Japan and Taiwan, formerly owned and operated for own use by Hanjin Shipping.
    • The acquirer is a 40/60 JV between Macquarie and Hanjin Shipping, which will open the ports to third party traffic with a view to maximizing shareholder value.
    • Financing in the form of one multi-facility package of USD500m, denominated and booked as a combination of USD, JPY and TDW.
    • 5-year bullet loan enabling the sponsors to (i) enjoy early dividends and (ii) refinance / recapitalize at a later stage to profit from traffic growth.
    • Underwritten and fully funded in December 2006, syndicated early 2007, Calyon one of 2 bookrunners.
    • Advantages to the Shareholders:
      • maximizing of IRR;
      • speed and simplicity of delivery.
  • 20. Case Study 5: Mirant Asia-Pacific (2006-2007)
    • Portfolio comprising two 100%-held coal-fired power plants
      • and a 20% stake in a gas-fired power plant in the Philippines
      • with long-term PPAs, for about 2,200MW
    • Step 1 = a 6-year term loan of USD700m
      • Used to refinance / releverage the assets
      • Oversubscribed, Calyon is one of the MLAs
      • At the time of closing, the largest ever loan for a project in the Philippines with no PRI
    • Step 2 = a 1-year acquisition bridge loan of USD 2,800m
      • Assets being acquired by Tokyo Electric and Marubeni
      • Non-recourse to the shareholders
      • Single-tranche, fully underwritten by 4 banks including Calyon
      • Largest bank loan ever in the Philippines, still no PRI
      • Committed and fully documented in a few weeks
  • 21. Case Study 5 (continued): Mirant Asia-Pacific (2006-2007)
    • Step 3 = a 17-year loan financing of USD2,700m :
      • Maximal maturity given asset life, maximal leverage
      • Best price, ensured through competitive bidding among potential arrangers
      • A combination of JBIC direct funding and PRI-covered bank loan, fully underwritten by 5 banks including Calyon
    • Advantages to the Shareholders
      • Step 1: reduction of equity
      • Step 2: large size of commitment to help asset valuation and win the bid – speed of commitment to ensure certainty of funding and win the bid
      • Step 3: large size, long maturity and favourable terms enable the realization of maximal shareholder value
  • 22. Case Study 6: Tuas Power (2008)
    • The sale of Tuas Power, one of Singapore’s 3 generation companies, conducted by Temasek through a competitive bidding process.
    • China Huaneng Group won and acquired Tuas on March 24, 2008, for a total consideration of about S$4.25b.
    • Acquisition financed by equity / subordinated loans (S$2b) and a non-recourse acquisition bridge loan of S$2.25b extended by 6 banks including Calyon.
    • Bridge loan with maturity of 18 months secured over the acquired assets; fully documented on bid date; to be refinanced by a long-term loan in the coming months.
    • Advantages to the Shareholders:
      • Simplicity
      • Certainty of funding
      • Cost-effectiveness
  • 23. Contents
    • Calyon and the Crédit Agricole Group
    • Latest trends in the Project / Infrastructure Financing Market in Asia
    • Case Studies
    • Conclusion and Discussion
  • 24. Conclusion: latest trends in Project Finance in Asia
    • Not so much “project finance” as flexible “infrastructure finance”.
    • The bond market remains a marginal component of the Asian infrastructure finance market (15% globally, but much less in Asia). Limited scope for a reversal in the short term, as the bank market remains more aggressive.
    • However, non-bank institutions, notably hedge funds, will continue to be a major source of funds together with banks.
    • Multi-laterals and Export Credit Agencies are “niche” players, mostly active in the more “exotic” locations.
    • Increased asset values globally, far exceeded the book value for producing assets; however replacement and construction costs had grown in parallel, limiting the downside risk.
  • 25. Conclusion: latest trends in Project Finance in Asia (continued)
    • The good times have rolled until last year; a more challenging environment is unfolding.
    • We have seen a major liquidity reversal over the past 6-9 months, and while the impact has been to some extent buffered in Asia, it is nevertheless being felt, resulting in stronger structures, higher pricings and more club deals.
    • Good projects can still be financed under reasonable credit terms.
    • Strong banks like Calyon are still open for business.
    • With reduced asset valuations, players with cash available will be able to access attractive investment opportunities.
  • 26. Q&A
    • Thank you!