Securing long-term funding for large projects in the energy sector Sven De Smet Deputy Director Acquisitions, Investments & Financial Advisory, GDF Suez 1st French - Russian Financial Forum, Paris Europlace - Moscow, 9 December 2010 Main Events 2008
How to finance multi-billion dollar energy projects? Before the crisis During the crisis Today Main Events 2008
It was better before with liquidity increasing In 10 years, the number of banks participating in the PF market has more than doubled, from 81 to over 200 250 Source: PFI # of banks involved 200 150 151 168 211 200 168 215 159 250 200 150 USD Bn Others MLAs 11-20 MLAs 1-10 PF Loan Market Total Loans: +98% 127 123 100 81 90 105 100 Top 10 MLAs +7% 50 50 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1H 2008 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
It was better before with margins decreasing
It was better before with tenors increasing 25 24 23 Years Ras Abu Fontas B2 Fujairah 1 Taweelah A1 Refi Mesaieed Fujairah 2 22 21 20 Shuweihat 1 Umm Al Nar Al Ezzel Shoaiba Shuqaiq Marafiq 19 18 17 16 15 14 Taweelah A1 Al Kamil Salalah Ras Abu Fontas AES Barka Jubail Tihama Taweelah A2 Ras Laffan B Sohar Taweelah B Barka II Tihama II Salalah Refi Sohar Refi 13 12 11 Middle-East Power Deals Tenors AES Barka Refi 10 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07
then came the crisis On Monday 15 September 2008, Lehman Brothers filed for Chapter 11 bankruptcy protection. The effect that this event had on the financial markets in general was immediate and very significant. Interbank liquidity immediately became almost non-existent and with banks not trusting other banks, new financings plummeted. Just over 10 months after that fateful event, the power project finance market has begun to show signs of a return. Some 2008 legacy projects have progressed to financial close, including Al Dur IWPP at the end of June 2009. but the shape of the financings for those projects has significantly changed from the deals that reached financial close in 2007 or early 2008. After the crunch: credit terms for power projects A survey report by Ashurst LLP and CONSILIUM July 2009
and gloomy perspectives? Up to mid 2009 the project finance market could be summarized in 4 slogans: Underwritings are OUT Club deals Structure driven by the lowest common denominator no hairy deals lender friendly Cash sweeps are IN Early refinancings Margins and fees are UP Driven by cost of funding? Scarcity of liquidity or opportunistic approach from the bank market? Tenors are DOWN Mini-perm structures : 5-8 years tenor (with balloon) The fact of the matter being that the number of players in the project finance market decreased drastically: end 2007 about 159 lenders were active in project finance, this number decreased to 30 serious global / regional players in 2009
Where is the market today? (1/2) There is a market again for project financing of power projects Local liquidity still very limited (except for countries like Saudi Arabia) Participation of ECAs and multilaterals for large transactions remains important What is the potential of project bonds? Increasing importance of Islamic finance Diversification of lending currencies Multi-sourcing : involve every possible available funding source on the market which is the structure that will attract most liquidity? Bank landscape - the number of participating banks is still limited Slight increase in number of participating banks and banks are willing to do business again Banks remain selective and support mainly their key customers important advantage for a large group like GDF Suez Track record and strength of balance sheet of sponsors and developers are even more important than before Underwriting appetite coming back very moderately Complexity of negotiation management Increased closing times
Where is the market today? (2/2) ECAs are a key component in each financing plan They have become very commercial Efficient processes to reach financial close Ready to accept the standard template/structure to ensure competitiveness Margins are slowly coming down but are not comparable (yet??) to pre-crisis levels Margins/upfront fees reflect limited liquidity (number of banks) in the market The structures (DSCR, tenor, etc...) are mostly in line again with the pre-crisis situation Mini-perm structures have not become the standard; they were only a solution to a temporary problem For the active PF-banks, long tenors (+20 yrs) are not an issue; neither the DSCR, EBLs, D/E-ratio, etc... Also overall loan documentation is only marginally more conservative than pre-crisis
Illustration of a typical financing plan Nord Stream (March December 2010) Nord Stream 1224 km gas pipeline to link Russia and the European Union via the Baltic Sea Will transport up to 55 billion cubic meters p.a. - enough to supply more than 26 million households Due for completion in 2011-2012 (development in two phases) Total investment projected at 7.4 billion EUR Shareholders : OAO Gazprom, Wintershall Holding, E.ON Ruhrgas, Nederlandse Gasunie and GDF Suez (9%) Financing plan for Nord Stream Amounts (MEUR) Tenor d-t-d (y) Phase 1 Phase 2 Phase 1 Phase 2 Hermes facility 1600 750 15,63 16,03 SACE facility 500 500 15,63 16,03 Bank facility 800 750 9,63 10,03 UFK facility 1000 500 15,63 16,03 26 participating banks in Phase 1 some 40 banks approached for Phase 2 (ongoing) 10
Illustration of a typical financing plan Riyadh IPP (June 2010) Riyadh IPP in Saudi Arabia 1730 MW gas fired power plant investment cost 2.1 billion USD Financing plan Senior Debt: 1.5 billion USD financed through 3 tranches: International USD-tranche: 510 MUSD Local SAR-tranche: 550 MUSD US-EXIM: 380 MUSD Equity: about 550 MUSD financed through a 3-year Equity Bridge Loan Key features Limited number of international banks (8) and Islamic banks (4), although post-bid a substantial number of international banks have shown interest to participate mainly key relationship banks Long tenors : PCOD+14 years for US-Exim and PCOD +17 years with 20% balloon for the others 3 year tail Margins 250-340 bps DSCR minimum 1.2x US-EXIM able to reach financial close in less than 3 months