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
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
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 + % = 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
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
Halving of equity ► upstream of cash to the shareholders
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
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”.
Latest trends in the Project / Infrastructure Financing Market in Asia
Conclusion and Discussion
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.
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.