Energy revolution part 3


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Energy revolution part 3

  1. 1. Revolutionising Irans Private Sector Part 3: 21st Century Funding Chris Cook I.C.C.I.M, Tehran, 2nd July 2012
  2. 2. Introduction Wimpole Is a Network of experts with unrivalled capabilities in the architecture and implementation of market instruments and infrastructure Institute for International Energy Studies (IIES) For Research on international energy markets and energy economic issues2 13/06/10
  3. 3. Session Three - Executive Summary Conventional Funding  Debt & Equity  Hybrids Capital Partnership  Origins  Nondominium  Partnership Types Energy Applications  Capital Equipment  Refinancing 3 13/06/10
  4. 4. Conventional Funding of Productive Assets Debt  Interest-bearing credit created by credit institutions ie banks  Secured by a claim over the asset – a mortgage or charge Equity  Ownership shares in a Limited Liability Joint Stock Company  Shares receive a dividend 4 13/06/10
  5. 5. Conventional Funding - Conflicts Conflict of interest between the ownership claim of the shareholders and the debt claim of the bank Conflict of interests between the shareholders and the management – the Principal/Agent problem 5 13/06/10
  6. 6. Hybrid Funding Equity hybrids – preference shares, redeemable preference shares Debt hybrids – convertibles, subordinated loans, mezzanine New ownership instruments – Unit Trusts, Real Estate Investment Trusts (REITs), Exchange Traded Funds (ETFs), Master Limited Partnerships, Income Trusts etc etc Complex, and some conflict always remains 6 13/06/10
  7. 7. Capital Partnership Origins – Hilton Deal 2002 Gross Revenues Capital Partnership LLP 10 UK Hotels % % Hilton Group Consortium LLP Capital User Capital Provider % % % Property Hotel Bank Developer Specialist
  8. 8. UK Limited Liability Partnership (LLP) An “Open” legal vehicle – no need even for a written agreement Enables infinitely flexible structures There are many Public/Private LLPs City of Glasgow now has five These municipal LLPs are public/private organisations which borrow from banks and employ staff and managers in the conventional way Capital Partnership can bring finance and management inside LLP 8 13/06/10
  9. 9. Generic Capital Partnership - Nondominium Users Value Custodian % Stock Units Investors Managers
  10. 10. Asset-based - Land Partnership Occupiers Rent Custodian %Stock Units Investors Managers
  11. 11. People-based - Film Partnership Viewers Revenues Custodian % % Me, Actors Investors Producer
  12. 12. Domestic Refinery Partnership Oil Suppliers ‫واحدها‬ Oil Product Stock Refinery (Held by Custodian) Money Product Units Services Stock Investors Managers
  13. 13. How it Works Problem: if the refinery sells products forward by issuing stock it is exposed to a rise in costs eg crude oil and labour Solution: for as long as the Manager provides services, or the Supplier provides oil, they are entitled to a % of product flow There is no purchase and sale of crude oil Oil supplier and manager receive product stock which will be widely acceptable in exchange
  14. 14. Gas Partnership – Flared Gas Gas Pool (Public Sector) Units % of Units Liquefaction Plant (Held by Custodian) Money Units Services % of Units Investors Managers
  15. 15. Refinancing Existing Loans Existing interest-bearing loans may be replaced with energy loans eg stock returnable in payment for gas Outcomes – Cost of funding reduced because no money is paid for the use of money – New asset class for investors with a return in energy 15 8 Nov 2011
  16. 16. Example – Qatar Gas Loan Qatar requires $2bn to repay existing loan for LNG train  Qatar issues and sells 400 million Gas Units each redeemable in payment for 1 MMbtu at $5.00 per Unit  Chinese and Japanese participants each buy 200 million Units Outcome: a Gas Loan  Qatar – interest-free funding and a a forward hedged sale of 400MMbtu of future gas production  China and Japan – an inflation hedge investment in natural gas as an alternative to acquiring $ denominated 0% Treasury Bills giving negative real returns 16 8 Nov 2011