Financing in the Energy Sector. EDMUNDO S. SORIANO Executive Vice-President & Head Corporate Banking Group BDO Unibank, Inc.

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1 Financing in the Energy Sector EDMUNDO S. SORIANO Executive Vice-President & Head Corporate Banking Group BDO Unibank, Inc. 1

2 Status of local banking years ago Local banks could not compete with foreign banks due to limited resources High dependence on foreign financial institutions, multilaterals (e.g. IFC, ADB) and export credit agencies (ECA) Low risk appetite to take on projectfinancing/without-recourse risk Preference for short-to-medium term exposure only 2

3 In Peso Trillions The industry has grown significantly following several mergers and capital-raising activities In Peso Trillions In Peso billions In Peso Trillions Source: BSP (Data is for all Philippine banks); as of June

In Peso Trillions In Peso billions In Peso Trillions

4 Banks are now more aggressive and sophisticated to address customer needs Source: BSP (Data is for all Philippine banks); as of June

5 Current state of local banking Notwithstanding global concerns, loan growth has expanded by 9% in the past 5 years spurred by increased economic activity and a better interest rate environment Local banks have grown more sophisticated over the years in response to changing corporate and consumer demands Most local banks are adequately-capitalized and have a higher capacity for lending More pronounced transfer of technology from foreign-trained bankers 5

sophisticated over the years in response to changing corporate and consumer demands Most local banks are

6 Types of Available Financing to the Energy Sector Short-Term Facilities Working Capital Lines Bridge-financing Standby Letter of Credit Import Letter of Credit Project Financing (without recourse) Term Loans (with recourse) Structured Trade Finance/ECA Leasing 6

of Credit Import Letter of Credit Project Financing (without

7 Financing terms may be customized according to the Project s requirements Size of financing not an issue Multi-currency facilities Combination of fixed rate or floater Can break up fixed-rate into various tranches Local bank-financing combined with ECA and Supplier-Financing No off-take agreement with Philippine Government 7

floater Can break up fixed-rate into various tranches Local bank-financing

8 Criteria for Lending Optimal project design should properly balance the risks and rewards among all stakeholders Cashflows Sponsors Project Completion Technical Risk Regulatory RISK REWARD Project IRR Equity IRR Dividends BDO s process will take from 6-8 weeks from mandate to closing if there are no significant issues with the project 8

Regulatory RISK REWARD Project IRR Equity IRR Dividends BDO s process will take from

9 Criteria for Lending Stable cashflows and financial ratios Long-term Power Supply Agreements Stable fuel supply Reputable sponsors & reliable EPC contractor Turn-key EPC contract with performance guarantees 9

fuel supply Reputable sponsors & reliable EPC

10 Typical Project Structure Fuel Supplier Off-taker Secure market/secure supply Project Sponsors Equity Enhanced order book/delivery of power station Returns Energy Power Company Debt Secure market/secure supply Debt Service Lenders Long-term contract/efficient power delivery EPC O&M 10

station Returns Energy Power Company Debt Secure market/secure supply

11 Criteria for Lending (Coal) Long-term PSA with creditworthy off-taker/s; Fuel supply agreements with reputable coal suppliers Regulatory approvals PSA that allows fuel cost passthrough 11

12 Criteria for Lending (Renewables) Peak-months should be sufficient to cover revenues during lean months Permits and licenses should be in place (i.e. ECC, NCIP, NIA, etc.) Hydrology, wind mapping, and irradiation studies to be provided by reliable technical advisors If vying for FIT allocation, project should be viable under a non-fit scenario (i.e. WESM) 12

) Hydrology, wind mapping, and irradiation studies to be provided by reliable technical

13 Sample project-financing terms TENOR STRUCTURE INTEREST RATES Fixed: Floater: CURRENCY REPAYMENT GRACE PERIOD SECURITY Up to years Bilateral or Syndicated Fixed or Floating remaining balance remaining balance 10 years + remaining balance PDST-F + margin subject to a floor rate US$ or PHP Sculpted or Equal Amortization Subject to a floor rate Up to Commissioning Date (maximum of 3.5 years) a) 1 ST -ranking Lien on project assets b) Pledge of sponsors shares c) Assignment of cash waterfall accounts and DSRA d) Assignment of all contracts & insurances COVENANTS DSCR; D/E; Dividend stoppers, etc. 13

to a floor rate US$ or PHP Sculpted or Equal Amortization Subject to a floor rate Up to Commissioning Date (maximum of 3.

14 Approval Process BDO s process will take from 6-8 weeks from mandate to closing if there are no significant issues with the project Financial Close Documentation Pre-clear Proposed Project Secure Project Mandate Credit Approval Due Diligence Credit Evaluation 14

project Financial Close Documentation Pre-clear Proposed Project

15 Documentary Requirements 15

16 Key Takeaways 16

17 BDO is at the forefront of a fast-growing banking industry The Philippines largest bank in terms of assets, loans, deposits and capital A full-service universal bank with one of the widest networks One of the country s strongest Board of Directors in terms of Banking experience Corporate governance Part of the SM Group with associated synergies and benefits 17

widest networks One of the country s strongest Board of Directors in terms of Banking

18 A market leader across major business segments Has leading market positions in its core business lines including corporate and middle-market banking, consumer banking, credit cards, asset management, remittances, and leasing and finance Wide distribution network with 794 branches and more than 1,800 on-site and off-site ATMs Listed at the PSE with market cap of Php 290 billion Corporate Banking team that focuses on local energy sector 18

and leasing and finance Wide distribution network with 794 branches and more than 1,800 on-site and off-site

19 A universal bank with full-service operations 19

20 Notable recently-completed PF transaction in the power sector GN Power Mariveles US$720 million Project-Financing for 600-MW coal-fired power plant in Mariveles, Bataan Asia-Pacific Power Deal of the Year for 2010 by Project Finance International Magazine Asia-Pacific Multi-Sourcing Financing Deal of the Year for 2010 by Euromoney Project Finance China Project Finance Deal of the Year by China Law & Practice Infrastructure and Project Finance Deal of the Year by China Business Law Journal Project Finance Deal of the Year by International Financial Law BDO CAPITAL acted as Mandated Lead Arranger and Underwriter for US$306 million on-shore debt portion 20

Euromoney Project Finance China Project Finance Deal of the Year by China Law & Practice Infrastructure and Project Finance Deal of the Year by China Business Law

21 BDO s Energy Deals Arranger for P 30 billion 300-MW Coal Power Plant of Therma Arranger for P 30 billion 300-MW South Coal in Power Mindanao Plant in Mindanao Arranger for P 17 billion 2 x 300 MW Coal Power Plant of Sem-Calaca in Batangas Arranger for US$ 180 million 67- MW Wind Farm of Alternergy in Luzon Arranger for P 11.5 billion 2 x 150-MW Calaca expansion of Southwest Luzon Power Arranger for US$ 280 million 100-MW Coal Power Plant of Sarangani Energy in Mindanao Arranger for US$ 425 million refinancing of 460-MW Coal Power Plant of Quezon Power in Quezon Arranger for P 15.8 billion 216- MW Co-gen plant of SMC Power in Limay, Bataan Arranger for P 8.7 billion 135-MW Coal plant of South Luzon Thermal in Calaca, Batangas 21

22 BDO has won several accolades* for its strength & leadership in the industry Best Bank in the Philippines Best Private Banking Services Overall Leading Counterparty in the Philippines Best Retail Bank in the Philippines Best Investment Bank in the Philippines Best Trade Finance Bank in the Philippines Best FX Bank for Corporates Best Investment Bank in the Philippines Best Equity House in the Philippines Best Private Wealth Management *awards received in

23 Trusted Brand Gold Award Best Domestic Investment Bank in the Philippines Best Bank in Asia Best Bank in the Philippines Best Private Bank in the Philippines Best Equity House in the Philippines Best Investment Bank in the Philippines Credit Card Initiative of the Year *awards received in 2013 Asia s Best CEO Asia s Best CFO Best Investor Relations Company 23

24 Conclusion 24

25 WE FIND WAYS! THANK YOU. 25

Financing Energy: A Philippine Bank Perspective Energy Investment Forum 4 December 2014

Financing Energy: A Philippine Bank Perspective Energy Investment Forum 4 December 2014 Edmundo S. Soriano Executive Vice-President BDO Unibank, Inc. 1 OUTLINE Philippine Banking Then and Now Key Players