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Funding Presentat ion
Project Finance
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Contents
Project Finance 3Export Credit Agencies 4Development Banks 9Investment Banks 10Private Equity Firms 11
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Project Finance Structure 12Process 13Timelines 15Generic Terms 16Project Documentation 17Websites 18
Project finance is the long-term financing of infrastructure and industrial projects based upon the projected cash flows of theproject rather than the balance sheets of its sponsors. Usually, a project financing structure involves a number of equityinvestors, known as 'sponsors', as well as a 'syndicate' of banks or other lending institutions that provide loans to theoperation.
They are most commonly non-recourse loans, which are secured by the project assets and paid entirely from project cashflow, rather than from the general assets or creditworthiness of the project sponsors, a decision in part supported by financialmodelling.
Project Finance
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Description / Characteristics Advantages / Limitations
Export Credit Agencies • Financing is linked to procurement of goods and / or services
• Provides comprehensive guarantees for loans extended to support exports
▲Very predictable and competitive terms and conditions
▼Export tied eligibility criteria
Multilateral Agencies • Institution owned by more than one country
• Supports social and economic progress in their member countries
• Focus on financing developmental projects
▲Relatively flexible eligibility requirements (untied)
▼Needs to adhere to certain statutory requirements such as environmental, social and workers’ rights
▼Can be a fairly lengthy execution timeframe
Development Finance Agencies •Government institution that supports overseas investments into the emerging markets
• Focus on financing of developmental projects related to own government objectives
•Wide range of products
▲Continuous innovative solutions
▲Withholding tax exemption
▼Needs to adhere to certain statutory requirements such as environmental, social and workers rights
There are a variety of different types of international and local official agencies that are relevant in Africa as they have the mandate to support, amounts other things, infrastructure financings
Export Credit Agencies
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Export Credit Agencies, commonly known as ECAs, are public agencies and entities that provide government and private-backed loans, guarantees and insurance to corporations from their home country that seek to do business overseas indeveloping countries and emerging markets.
TAG has relationships with numerous ECAs and some are listed below:
Export Credit Insurance Corporation – South Africa Coface – France EDC Canada Euler Hermes – Germany ICIEC – Saudi Arabia Miga – World Bank ECGD – United Kingdom US Eximbank – United State of America Afreximbank - Egypt
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Export Credit Agencies
General benefits of ECA financing
Benefits / Featuresto Borrowers
Capacity: ECAs may support large projects for up to several billion US$
Stable Credit Costs: ECA risk premiado not fluctuate in line with commercial market pricing ECA premiaare primarily determined by tenor profile, country risk and availability period
ECAs are influenced by borrower credit risk, but their corporate spread curve is not as steep as the commercial market’s
Diversification of Funding Sources and Preservation of Bank Lines: ECA guaranteed portion between 95% and 100% of the debt does not count against client bank lines
Fixed Interest Rate: Many ECAs offer Commercial Interest Reference Rate (CIRR), offering arbitrage opportunities without swap cost or credit lines. No swap breakage costs. Borrowers can monetise rate benefits embedded in a CIRR
Stable Deal Execution: ECAs provide reliable liquidity to the market and as they are funded by governments, they are not impacted as much by market liquidity issues
Long Tenors: Under OECD guidelines, ECA repayment periods (exclusive of construction periods) are between 5 to up to 18 years depending on country and purpose
Long Availability Period and Drawdown Flexibility – set to match payments under the commercial contract
Reach back: Can finance past as well as future CAPEX
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Export Credit Agencies
Ex-Im Bank (US) ECGD/Hermes/EKN/Coface (Europe)
ECIC (South Africa) JBIC/Nexi (Japan) Asian ECAs (Korea/China)
Financing Amount
i. Up to 85% of the Export Contract Value
ii. Local costs up to 30% of Export Contract Value
iii. Premium
i. Up to 85% of the Export Contract Value
ii. Local costs up to 30% of Export Contract Value
iii. Premium
i. Up to 85% of the Export Contract Value
ii. Local costs up to 30% of Export Contract Value
iii. Premium
i. Up to 85% of the Export Contract Value
ii. Local costs up to 30% of Export Contract Value
iii. Premium
i. Up to 85% of the Export Contract Value
ii. Chinese programs (China-Exim and Sinosure) flexible on foreign content amounts
Type of Facility •Guarantee•Direct Lending
•Comprehensive Insurance •Comprehensive Insurance •JBIC: Direct Loan •Nexi: Comprehensive Insurance•Can be combined
•Direct Loan and Co-financing•Korea Exim does
some guarantees
Coverage •100% •95–100% •100% •JBIC: Up to 100%•Nexi: Up to 95% comprehensive
•Korea: Up to 100%, but may require co-financing•China: Between 50–90% of
project amount
Pricing Guidelines
•OECD •OECD •OECD but not bound •OECD •Korea: OECD•China: OECD, but
not bound
We have vast experience structuring ECA-supported financings for our clients and can quickly assess the viability of an ECA solution based on the source, amount and type of equipment being imported.
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Export Credit Agencies
A number of the OECD countries also have funding programs that are mandated to fund under ECA facilities to support their exporters on both fixed and floating basis as well as in various currencies
Funding Programs• Key countries have agencies to fund ECA guarantees such as the US, Sweden, Finland, Canada, Denmark and UK• The majority of these agencies can fund in most major currencies and provide their support in fixed or floating rates
Commercial Interest References Rates (“CIRR’s”)• The CIRRs are fixed rate offered by the OECD ECAs to support their exports• The CIRR is a fixed rate that is reset monthly (on the 15th of each month) to the average of the preceding calendar month’s average applicable
government bond yield plus 1.0%• CIRR is quoted in multiple lending currencies, including USD and EUR in three separate repayment tenor ranges
(2–5 years (or < 5 years), 5–8.5 years, more than 8.5 years)• The offering of the CIRR fixed rate does not require banks to book credit lines as there is no swap exposure for banks involved• For some amortization profiles the USD CIRR has been swapping into extremely attractive levels at or (in some cases) below EURIBOR in recent monthsInvestment Base built over time• We have been working extensively with passive bank investors and buy-to-hold institutional investors (insurance companies and pension funds) to
enable the wider syndication of ECA backed transactions• ECA backed transactions for infrastructure development in emerging Africa are very attractive to such institutional investors as it allows them to fulfil
certain sustainable lending criteria at the same time as providing an asset that they can manage in terms of understanding the risk profile and returns
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Export Credit Agencies
Development Banks are financial institutions set up by one individual country to finance development projects ina developing country and its emerging market, hence the term bilateral as opposed to multilateral.
TAG has relationships with numerous Development Banks and some are listed below:
DBSA – South Africa Proparco– France DEG – Germany FMO – Nederland AfDB – Ivory Coast PTA – Kenya IDC – South Africa
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Development Banks
Investment Banks are financial institutions that underwrite new debt and equities for all types of corporations. InvestmentBanks play a big role in Developing and Emerging markets by either providing a corporate loan facility or project financefacility.
TAG has relationships with numerous Investment Banks and some are listed below:
Nedbank Capital – South Africa Standard Bank – South Africa Investec – South Africa and United Kingdom ABSA Capital – South Africa Rand Merchant Bank – South Africa Citi Bank – United Kingdom and South Africa HSBC – United Kingdom Barclays Bank – United Kingdom Canara Bank – India and South Africa Royal Bank of Scotland – United Kingdom
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Investment Banks
A Private Equity and Infrastructure Fund is an asset class consisting of equity securities and debt in operating companiesthat are not publicly traded on a stock exchange. A private equity or infrastructure investment will generally be made bya private equity or infrastructure firm to ensure that there is adequate equity in the project of transaction in order to obtain thecorrect debt vs equity formula.
TAG has relationships with numerous Investment Banks and some are listed below:
PAIDF– South Africa EMIF– United Kingdom Nesograph Investments – South Africa CBO Capital – Nigeria Blackstone – United Kingdom Actis – United Kingdom TGL Capital – United Kingdom Quantum Global - Switzerland
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Private Equity Funds
Project Finance Structure
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Supplier / Contractor
Infrastructure Project
Project Income
Local Escrow Account
Off Shore Debt Service
Reserve Account
Off Shore Debt Service
Account
Bank
Private Equity
ECA Insurance100% PRI
85% CI
Pvt Insurance95% PRI
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Process
Complete Project Information Sheet
Information Sheet with relevant documentation
submitted to TAGReview of the Information
TAG Contact Financial Institutions
TAG reverts back to the Applicant and provide a
Mandate Proposal
Applicant signs the Mandate ProposalMeeting held over two days
Project Meeting held at Applicant premises or in the
UK
TAG obtain all information including KYC Documents
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Process
TAG Prepare Application for Financial Institutions
TAG Submit Application to Financial Institutions
Various meetings held with Debt and Equity Institutions
Financial Institutions Due Diligence Visits
Credit / Investment Committee Submission
Loan & Equity Documentation SignedLegal Council Appointment
Credit Approval / Termsheet
Condition Precedent completion and Financial
Closure
Item Week
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 - 24
• Identification of Suppliers• Award of Mandate
• Preparation and submission of Info Package to ECA
• Agencies review Application, Info Memo, Business Plan and Environmental due diligence documents
• Due Diligence visit if required• Q&A on the Project
• Appointment of legal counsel and drafting of documentation
• Preliminary Agency approval
• Facility documentation negotiation
• Receipt of final approval from ECA
• Finalization of loan documentation
• Collection of CPs
• Financial Close
Typical ECA financings can take between 1- 6 months, largely dependent on the degree of environmental due diligence required. Proven experience with the ECAs, ensures that timely and seamless execution can be achieved
Timelines
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Each of the above mentioned institutions will have their own criteria and terms and conditions. It would be irresponsible ofTAG to list any form of terms and conditions as this will normally be negotiated with the specific financial institution that weapproach. Government transactions have different criteria and in most cases a sovereign guarantee will be required tosupport the transaction.
In private transactions institution on the debt side will most probably look at a debt vs equity ratio of 70:30, but this will largelydepend on the industry and the strength of the project promoter supported by an equity fund.
Terms and conditions will always for part of the negotiations between the project promoter and the financial institution. TAGwill play an integral role in discussing these terms and conditions with the financial institutions.
Private Equity Firms will always consider the amount of equity the project sponsor commit to the transactions and willcalculate the value of the equity in order to provide the project sponsor with an equity position. The project sponsor willalways have the opportunity to claw back equity during the period of the investment.
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Generic Terms
Project Information Sheet Executive Summary Business Plan / Feasibility Study Financial Model Company Presentation Project Presentation KYC Documentation All Government Approvals, Permits and Licenses Any additional documentation that might be required by the financial institutions
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Project Documentation
Examples of ECA’s
http://www.exim.gov/ - US Exim Bank (USA) https://www.gov.uk/government/organisations/uk-export-finance - ECGD (United Kingdom) http://www.ecic.co.za/ - Export Credit Insurance Corporation (South Africa) http://www.jbic.go.jp/en - Japan Bank for International Cooperation (Japan) http://www.ekn.se/en/ - EKN (Sweden) http://www.coface.fr/ - Coface (France) http://www.eulerhermes.com/ - Hermes (Germany)
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Websites
Examples of Development Banks
http://www.dbsa.org/ - Development Bank of Southern Africa (South Africa) http://www.proparco.fr – Proparco (France) https://www.fmo.nl/ - FMO (Nederland) https://www.deginvest.de/ - DEG (Germany) http://www.afdb.org/en/ - African Development Bank (Ivory Coast) http://www.ptabank.org/ - PTA Bank (Kenya) http://www.idc.co.za/ - Industrial Development Corporation (South Africa)
Examples of Investment Banks
http://www.rmb.co.za/ - Rand Merchant Bank (South Africa) https://www.investec.co.uk/ - Investec Bank (United Kingdom) http://investmentbank.barclays.com/ - Barclays Bank (United Kingdom) http://cib.absa.co.za/ - ABSA Capital (South Africa) http://www.capital.nedbank.co.za/ - Nedbank Capital (South Africa) http://icg.citi.com/icg/corporateandinvestmentbanking/invest_banking.html - Citi Bank (United Kingdom)
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Examples of Private Equity & Infrastructure Funds
http://www.harith.co.za/ - Harith Fund Managers (South Africa) http://www.quantumglobal.ch/ - Quantum Global (Switzerland) http://www.act.is/content/Home.aspx - Actis (United Kingdom) http://www.emergingafricafund.com/ - Emerging Africa Infrastructure Fund (United Kingdom)
Websites
You don’t build a business. . . you build people and then those people build the business.
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www.thealtgroup.uk
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