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

    • Financing Projets in Asia Latest Trends Pierre-Philippe Martin Co-Head, Structured Finance Asia, Calyon Dubai, March 2008 [email_address] Tel +852 2826-7347
    • Contents
      • Calyon and the Crédit Agricole Group
      • Latest trends in the Project / Infrastructure Financing Market in Asia
      • Case Studies
      • Conclusion and Discussion
      • 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
    • 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
    • Calyon - Top 5 Asian Syndicated Loans Bookrunner in ‘07
    • 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
    • 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)
    • Contents
      • Calyon and the Crédit Agricole Group
      • Latest trends in the Project / Infrastructure Financing Market in Asia
      • Case Studies
      • Conclusion and Discussion
    • 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
    • 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
    • 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
    • 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
    • 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.
    • 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
    • Contents
      • Calyon and the Crédit Agricole Group
      • Latest trends in the Project / Infrastructure Financing Market in Asia
      • Case Studies
      • Conclusion and Discussion
    • 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
    • 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
    • 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”.
    • 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.
    • 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
    • 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
    • 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
    • Contents
      • Calyon and the Crédit Agricole Group
      • Latest trends in the Project / Infrastructure Financing Market in Asia
      • Case Studies
      • 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.
    • Q&A
      • Thank you!