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

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Financing Projects In Asia - Latest Trends - 30 March 2008

  1. 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. 2. Contents <ul><li>Calyon and the Crédit Agricole Group </li></ul><ul><li>Latest trends in the Project / Infrastructure Financing Market in Asia </li></ul><ul><li>Case Studies </li></ul><ul><li>Conclusion and Discussion </li></ul>
  3. 3. <ul><li>The corporate and investment banking arm of Credit Agricole group: among the Global Top 5 Banking Groups, Balance Sheet > US$ 1 Trillion </li></ul><ul><li>A full range of services through global Business Lines: </li></ul><ul><ul><li>- Investment banking & brokerage </li></ul></ul><ul><ul><li>- Capital Markets </li></ul></ul><ul><ul><li>- Structured Finance </li></ul></ul><ul><ul><li>- Corporate Banking </li></ul></ul>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. 4. Calyon in Asia-Pacific <ul><li>Strong historic positions in 13 countries </li></ul><ul><li>A large customer base: International clients coming to Asia & Asian clients going global </li></ul><ul><li>More than USD 15Bio assets in Asia </li></ul><ul><li>Reinforced core business lines: </li></ul><ul><ul><li>Project Finance, Acquisition Finance, Telecom Finance, Real Estates & Hotels </li></ul></ul><ul><ul><li>Ship and Aircraft Finance </li></ul></ul><ul><ul><li>Syndication </li></ul></ul><ul><ul><li>Fixed Income / Global Equity Derivatives </li></ul></ul>
  5. 5. Calyon - Top 5 Asian Syndicated Loans Bookrunner in ‘07
  6. 6. Calyon - Asian and Global “PF Bank of the Year” in 05, 06 and 07 <ul><li>EuroWeekAsia: Asia-Pacific Project Finance Bank of the Year 2007 </li></ul><ul><li>PFI: Global Bank of the Year 2006 </li></ul><ul><li>PFI: Asia Pacific Bank of the Year 2006 </li></ul><ul><li>The Asset: Asia’s Best Project Finance House 2006 </li></ul><ul><li>The Asset: Asia’s Best Project Finance House 2005 </li></ul><ul><li>Finance Asia: Best Project Finance House 2005 </li></ul>Calyon a leader in Project Finance in Asia Pacific
  7. 7. Calyon - Asian Project Finance Deal Awards in 2006 and 2007 <ul><li>Deals of the Year 2007 </li></ul><ul><ul><li>HMC (Thailand) - Asia Petrochemicals Award (PF Mag) </li></ul></ul><ul><ul><li>Crimson Power (Philippines) - Asia Power Award (PF Mag) </li></ul></ul><ul><ul><li>Blue Ocean (Korea) - Asia Transport (Ports) Award (PF Mag) </li></ul></ul><ul><ul><li>Tata Corus (India) - Asia Acquisition Award (PF Mag) </li></ul></ul><ul><li>Deals of the Year 2006 </li></ul><ul><ul><li>Reliance (India) - Asia Pacific Petroleum Award (PFI, PF Mag) </li></ul></ul><ul><ul><li>Ratchaburi (Thailand) - Asia Pacific Power Award (PFI, PF Mag) </li></ul></ul><ul><ul><li>Rivercity Motorway (Australia) - Asia Pacific PPP Award (PFI, PF Mag) </li></ul></ul><ul><ul><li>Uijeongbu LRT (Korea) - Asia Pacific Infrastructure Award (PF Mag) </li></ul></ul><ul><ul><li>eMobile (Japan) - Asia Pacific Telecom Award (PFI, PF Mag) </li></ul></ul>
  8. 8. Contents <ul><li>Calyon and the Crédit Agricole Group </li></ul><ul><li>Latest trends in the Project / Infrastructure Financing Market in Asia </li></ul><ul><li>Case Studies </li></ul><ul><li>Conclusion and Discussion </li></ul>
  9. 9. Project Finance in Asia-Pacific <ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>Commercial banks and government agencies have remained dominant in infrastructure financing in Asia, with limited reliance on capital markets and no reliance on securitization </li></ul>
  10. 10. Recent trends in Project Finance in Asia-Pacific <ul><li>Thanks to high liquidity in the market over the past few years, project finance has become more efficient and “user-friendly”: </li></ul>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. 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. 12. Beyond Single-Asset: Portfolio Financing <ul><li>To finance, at the holding company level, a portfolio of infrastructure assets </li></ul><ul><li>Assets can be wholly, majority or minority owned </li></ul><ul><li>Portfolio debt serviced by dividends received from the subsidiaries </li></ul><ul><li>Advantages to shareholder: </li></ul><ul><ul><li>S impler than financing each asset on a project basis = one loan only </li></ul></ul><ul><ul><li>Flexibility of SPV jurisdiction, generally faster than project financing in the country of the assets </li></ul></ul><ul><ul><li>Diversification of funding sources = access to banks not operating the country of the assets </li></ul></ul><ul><ul><li>Enables the raising of junior debt thanks to asset diversification </li></ul></ul><ul><ul><li>Increased leverage capacity of the asset portfolio </li></ul></ul>
  13. 13. Impact of the Credit Crunch <ul><li>Post Asian crisis, the region has been financially conservative: low leverage in the regional economies, little securitization activity. </li></ul><ul><li>In this context, Asia is not directly hit by today’s credit crunch, but only as “collateral damage”. </li></ul><ul><li>Impairment of global banks’ balance sheets = less capital available for loans. </li></ul><ul><li>Economic fundamentals and funding needs of the infrastructure sector = unchanged. </li></ul><ul><li>Unchanged demand vs reduced supply of funds = higher credit margins. </li></ul>
  14. 14. Impact of the Credit Crunch (Continued) <ul><li>But: lower USD base rates, both ST and LT => all-in interest rates may not increase substantially or may even be reduced (for USD) </li></ul><ul><li>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 </li></ul><ul><li>Financial institutions focus on core business => marginal players may exit, while the main project finance players remain in the market </li></ul><ul><li>Less banks means less underwriting and syndication, more “club deals” </li></ul><ul><li>Overall, still a healthy deal flow, as infrastructure remains a core need of “still under-equipped” while “fast developing” Asia </li></ul>
  15. 15. Contents <ul><li>Calyon and the Crédit Agricole Group </li></ul><ul><li>Latest trends in the Project / Infrastructure Financing Market in Asia </li></ul><ul><li>Case Studies </li></ul><ul><li>Conclusion and Discussion </li></ul>
  16. 16. Case Study 1: Glow IPP (Thailand, 2005) <ul><li>Refinancing of a 700MW IPP </li></ul><ul><li>No more multi-source export credit </li></ul><ul><li>Cost of debt reduced by 100-200 bp </li></ul><ul><li>Halving of equity ► upstream of cash to the shareholders </li></ul>
  17. 17. Case Study 2: Mezzanine Financing Structure (2005-2006) <ul><li>This actual 2005-2006 transaction was made possible thanks to the lender’s comfort with the project assets </li></ul><ul><li>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 </li></ul>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. 18. Case Study 3: Uijongbu LRT (2006) <ul><li>A greenfield mass transit system in a fast growing suburb of Seoul, sponsored by GS E&C. </li></ul><ul><li>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. </li></ul><ul><li>Total debt financing of about USD350m, mandated to a group of 4 banks (including Calyon that joined after the end of the bidding process). </li></ul><ul><li>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. </li></ul><ul><li>Equity and mezzanine were raised from the sponsor and from financial institutions. Domestic insurance companies also participate in the senior debt. </li></ul><ul><li>Advantages to the Shareholders: </li></ul><ul><ul><li>best lending terms obtained in the domestic KRW market so far, thanks to full and open competition; </li></ul></ul><ul><ul><li>simplicity of documentation, with no separate “international tranche”. </li></ul></ul>
  19. 19. Case Study 4: “Blue Ocean” (2006-2007) <ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>Financing in the form of one multi-facility package of USD500m, denominated and booked as a combination of USD, JPY and TDW. </li></ul><ul><li>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. </li></ul><ul><li>Underwritten and fully funded in December 2006, syndicated early 2007, Calyon one of 2 bookrunners. </li></ul><ul><li>Advantages to the Shareholders: </li></ul><ul><ul><li>maximizing of IRR; </li></ul></ul><ul><ul><li>speed and simplicity of delivery. </li></ul></ul>
  20. 20. Case Study 5: Mirant Asia-Pacific (2006-2007) <ul><li>Portfolio comprising two 100%-held coal-fired power plants </li></ul><ul><ul><li>and a 20% stake in a gas-fired power plant in the Philippines </li></ul></ul><ul><ul><li>with long-term PPAs, for about 2,200MW </li></ul></ul><ul><li>Step 1 = a 6-year term loan of USD700m </li></ul><ul><ul><li>Used to refinance / releverage the assets </li></ul></ul><ul><ul><li>Oversubscribed, Calyon is one of the MLAs </li></ul></ul><ul><ul><li>At the time of closing, the largest ever loan for a project in the Philippines with no PRI </li></ul></ul><ul><li>Step 2 = a 1-year acquisition bridge loan of USD 2,800m </li></ul><ul><ul><li>Assets being acquired by Tokyo Electric and Marubeni </li></ul></ul><ul><ul><li>Non-recourse to the shareholders </li></ul></ul><ul><ul><li>Single-tranche, fully underwritten by 4 banks including Calyon </li></ul></ul><ul><ul><li>Largest bank loan ever in the Philippines, still no PRI </li></ul></ul><ul><ul><li>Committed and fully documented in a few weeks </li></ul></ul>
  21. 21. Case Study 5 (continued): Mirant Asia-Pacific (2006-2007) <ul><li>Step 3 = a 17-year loan financing of USD2,700m : </li></ul><ul><ul><li>Maximal maturity given asset life, maximal leverage </li></ul></ul><ul><ul><li>Best price, ensured through competitive bidding among potential arrangers </li></ul></ul><ul><ul><li>A combination of JBIC direct funding and PRI-covered bank loan, fully underwritten by 5 banks including Calyon </li></ul></ul><ul><li>Advantages to the Shareholders </li></ul><ul><ul><li>Step 1: reduction of equity </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>Step 3: large size, long maturity and favourable terms enable the realization of maximal shareholder value </li></ul></ul>
  22. 22. Case Study 6: Tuas Power (2008) <ul><li>The sale of Tuas Power, one of Singapore’s 3 generation companies, conducted by Temasek through a competitive bidding process. </li></ul><ul><li>China Huaneng Group won and acquired Tuas on March 24, 2008, for a total consideration of about S$4.25b. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>Advantages to the Shareholders: </li></ul><ul><ul><li>Simplicity </li></ul></ul><ul><ul><li>Certainty of funding </li></ul></ul><ul><ul><li>Cost-effectiveness </li></ul></ul>
  23. 23. Contents <ul><li>Calyon and the Crédit Agricole Group </li></ul><ul><li>Latest trends in the Project / Infrastructure Financing Market in Asia </li></ul><ul><li>Case Studies </li></ul><ul><li>Conclusion and Discussion </li></ul>
  24. 24. Conclusion: latest trends in Project Finance in Asia <ul><li>Not so much “project finance” as flexible “infrastructure finance”. </li></ul><ul><li>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. </li></ul><ul><li>However, non-bank institutions, notably hedge funds, will continue to be a major source of funds together with banks. </li></ul><ul><li>Multi-laterals and Export Credit Agencies are “niche” players, mostly active in the more “exotic” locations. </li></ul><ul><li>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. </li></ul>
  25. 25. Conclusion: latest trends in Project Finance in Asia (continued) <ul><li>The good times have rolled until last year; a more challenging environment is unfolding. </li></ul><ul><li>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. </li></ul><ul><li>Good projects can still be financed under reasonable credit terms. </li></ul><ul><li>Strong banks like Calyon are still open for business. </li></ul><ul><li>With reduced asset valuations, players with cash available will be able to access attractive investment opportunities. </li></ul>
  26. 26. Q&A <ul><li>Thank you! </li></ul>

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