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CEE Power 2004, Warsaw . S e c u r i n g a n d S t r u c t u r i n g F i n a n c i n g f o r t h e C z e c h E n e r g y S e c t o r. Dr. Ernst Giese Mgr.Slavomír M. Čauder. 18 June, 2004. CEE Power 2004, Warsaw. Contents. Firms Profile - PowerPoint PPT Presentation
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S e c u r i n g a n d S t r u c t u r i n g F i n a n c i n g f o r t h e C z e c h E n e r g y S e c t
o r
Dr. Ernst GieseMgr.Slavomír M. Čauder
18 June, 2004
CEE Power 2004, Warsaw
Contents1. Firms Profile2. Structuring M&A Transaction and its Financing3. Structuring Project Financing Transaction in the Czech
Republic4. Parties to Project Financing5. Securing Investment and Loans6. Regulatory / Competition Legal Aspects and Implications7. Risks and Challenges of Investment / Project Financing in
the Czech Republic
CEE Power 2004, Warsaw
1. Giese & Partner, v.o.s.• Found in 1997 • Partner office of Coudert Brothers / Schürmann & Partner• 18 lawyers:
• German, US, Czech & Slovak• Specialty:
• M&A, Financing, Construction & Energy Law• 90% cross-border business legal advisory• Languages:
• English, German, Czech, Slovak, French, Swedish & Norwegian
CEE Power 2004, Warsaw
2. Structuring M&A + Financing in CZ Energy Sector
CEE Power 2004, Warsaw
A. Forms of Transaction– Share Deal– Asset Deal
B. Measures– Documents– Steps
A. Forms of Transactions1. Share Deal
• Transfer of Liabilities• Transfer of Labour• Large Amount of Representations and Warranties• Importance of Due Diligence• Registration of Acquisition of Shares with Security Centre• Exclusion of Transfer Tax for Real Estate• State or Seller´s Guarantee for Liabilities (tax, unrevealed
debts,…)
CEE Power 2004, Warsaw
2. Structuring M&A + Financing in CZ Energy Sector
• No Transfer of Delivery Contracts and Other Key Agreements• No Transfer of Licenses• Specification of Assets• Transfer of Liabilities (if the whole enterprise is acquired)• Hiring of Key Personnel (holder of licenses, executives, etc.)• Loss of Tax Benefits and Other Incentives
2. Asset Deal
CEE Power 2004, Warsaw
2. Structuring M&A + Financing in CZ Energy Sector
A. Forms of Transactions
B. Measures1. Documents
• Confidentiality Agreement• Letter of Intent• Preparation of Transfer Documents• Framework Agreement and Share Transfer Agreement (Share
Deal)• Movables, Goodwill, Licenses and Immovables Transfer (Asset
Deal)• Financing Documentation
CEE Power 2004, Warsaw
2. Structuring M&A + Financing in CZ Energy Sector
B. Measures2. Steps
• Tender• Due Diligence• Appraisal• Signing of Agreement• Closing• Registration of Transfer (Company Register / Security
Centre)• Anti-Trust Proceeding (Competition Authority)
CEE Power 2004, Warsaw
2. Structuring M&A + Financing in CZ Energy Sector
1. Equity2. Loan3. Grants
CEE Power 2004, Warsaw
2. Structuring M&A + Financing in CZ Energy Sector
C. Financing
CEE Power 2004, Warsaw
• Investors Cash Injection• Technology, Know-how• Contributions-in-Kind (e.g. Machinery)• Financial Investors
– Strategic– Institutional
• Bond Issues• Going Public (IPO)
2. Structuring M&A + Financing in CZ Energy Sector
C. Financing1. Equity
2. Structuring M&A + Financing in CZ Energy Sector
2. Loans
C. Financing
CEE Power 2004, Warsaw
• EBRD, KfW, EIB• Commercial Loans (Banks)
3. Structuring a Project Financing Transaction
CEE Power 2004, Warsaw
• Letter of Intent / Memorandum of Understanding / Letter of Information– Info on PC – the Project, Ownership Structure– Financial Projections
• Licence (Concession) Contract • Loan Agreements
– Standard: Amount, Interest rates, Term of Repayment, Representations & Warranties, Covenants and Events of Default
– Special: Completion• Securities / Guarantees
A. Legal Documentation
3. Structuring a Project Financing Transaction
A. Legal Documentation• Power Purchase Agreement (PPA)• Production Sharing Agreement (PSA)• Engineering, Procurement & Construction Agreement
(EPC)• Operation & Maintenance Agreement (O&M)• Fuel Supply Agreement
CEE Power 2004, Warsaw
3. Structuring a Project Financing Transaction
CEE Power 2004, Warsaw
• Assessment• Calculation• Outcome
B. Financial Assessment Process
3. Structuring a Project Financing Transaction
CEE Power 2004, Warsaw
• Project Financing – new or retrofit electricity generation– Limited recourse financing– Corporate financing
• Project Financing - energy efficiency projects– Corporate financing– Add-on facilities
C. Financing Models
• Project Company• Sponsors• Constructor• Operator• Supplier• Purchaser• Lender
CEE Power 2004, Warsaw
• Private Equity & Venture Capital Funds
• Multilateral Financing Organisation
• Export Credit Agency (ECA)• Insurer• Experts• Host Government
4. Parties to Project Financing
CEE Power 2004, Warsaw
5. Securing Investment and Loans A. Securities
• Pledge of Shares of the Project Company (PC)• Pledge of all Real Estate of the PC• Pledge of Movables of the PC• Pledge of Intangibles of the PC• Pledge of Governmental Licence / Concession Contract• Assignment of Receivables• Subordination Agreements• Hedging Agreements (interest & currency exchange)
CEE Power 2004, Warsaw
5. Securing Investment and Loans
B. Guarantees
• Governmental• Letter of Comfort• Third-party Guarantee
• Primary Sources – Integration Agreements• Secondary Sources:
– Directive 2003/54/EC – E-Directive– Directive 2003/55/EC – G-Directive– Regulation 1228/2003– Directive 2001/7/EC– Directive 2004/8/EC
6. Regulatory / Competition Legal Aspects
CEE Power 2004, Warsaw
A. EU - Legislation
• Regulated Sectors: Electricity, Natural Gas, Heating• Legislation:
– Primary Legislation:• Energy Act No. 458/2000 Coll., • Energy Management Act No. 406/2000 Coll.
– Secondary Legislation:• Issued by Ministry of Industry & Trade• Issued by Regulatory Body (ERU)
6. Regulatory / Competition Legal Aspects
CEE Power 2004, Warsaw
B. Czech Legislation
6. Regulatory / Competition Legal Aspects
• Scope of Competence:– Licencing– Price Regulation– Issuance of Legislative Regulations / Decrees– Disputes Resolution– Publishing of Energy Regulation Bulletin
CEE Power 2004, Warsaw
C. Energy Regulatory Office
7. Risks and Challenges
CEE Power 2004, Warsaw
• Pre-completion Risks:– Time Overrun– Capital Cost Overrun
• Post-completion Risks:– Technology– Market– Political & Legal– Operation– Fuel– Financial
A. Risks
7. Risks and Challenges
CEE Power 2004, Warsaw
• Adverse, unforeseen events– Cross-border Jurisdictional Issues– Delays in Development, Construction or
Operating Phase– Failure of a Transaction´s Financing– Collapse of Particular Sector of Economy
A. Risks
CEE Power 2004, Warsaw
• For the Foreign Investor:– Access to new markets– Well developed infrastructure– Favourable geographical position of Czech Republic– Lower wages and ancillary wage costs– High degree of education of Czech labour
• For the Czech Partner:– Transfer of technology– New investment– Improvement of capital resources– Better utilization of production capacity– Strengthening of domestic market position– Access to foreign markets
7. Risks and ChallengesB. Incentives & Challenges
Project
SPV
Shareholders Agreement
Ordinary Shares and Shareholder Loans
IntermediateIntermediate
IntermediateIntermediate
IntermediateShareholderEntity 1
Sponsor 2 Sponsor 3
Sponsor 4 Sponsor 5
Sponsor 1
Government orUtility
Concession Agreement, PPA, etc.
SPV Shareholder Structure
Project
SPV
Shareholders Agreement
Ordinary Shares and Shareholder Loans
Intermediate
IntermediateIntermediateMultilateral and
BilateralLenders
CommercialB Lenders
ECAs
Multilateral andBilateral A & B Loans
Security Agent/Trustee
ECA and ECA-guaranteed
Loans
Intercreditor andSecurity Sharing
Agreement
Intermediate
IntermediateShareholderEntity 1
Sponsor 2
Sponsor 3 Sponsor 4
Sponsor 5
Sponsor 1
Typical Project Financing Structure
Project
Pledge of Shares of Project
Company
SPV
Shareholders Agreement
Ordinary Shares and Shareholder Loans
IntermediateIntermediate
IntermediateMultilateral andBilateralLenders
CommercialB Lenders
ECAsSecurity Agent/
Trustee
Security Interest
in SPV’s Assets
Intercreditor and
Security Sharing
Agreement
Intermediate
IntermediateShareholderEntity 1
Sponsor 2
Sponsor 3 Sponsor 4
Sponsor 5
Sponsor 1
SPV Security Documents
Typical Project Financing Security Structure
Your contact at Giese & Partner, v.o.s.
Dr. Ernst GieseManaging Partner
Mgr. Slavomír M. ČauderUtilities Counsel
Palác MyslbekOvocný trh 8117 19 Praha 1Czech Republic
Telephone: 00420 221 411 511Fax: 00420 222 244 469E-mail: giese@giese.cz, cauder@giese.cz
Thank youfor
your attention!
CEE Power 2004, Warsaw
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