Introduction to Introduction to Project Finance Project Finance Presenter: Presenter:
Dec 18, 2015
INTRODUCTION
Introduction to Project Introduction to Project FinanceFinance
Presenter:Presenter:
• Introduction to Project Financing– Project Financing
• Public Finance• Corporate Finance (B/S or Secured Assets or Preferential
Claims outside the ring-fenced project structure)• Limited/non recourse• Hybrid
– Ring-fenced or not– Limited recourse (limited recourse to sponsor B/S or
Assets) and– Non-recourse Project Finance (Cash flushed projects
”from a bank’s perspective”)
PROJECT FINANCE
• Raising and contributing funds from the public either through :– Taxes and tariffs– Public Borrowing (Sovereign
guarantees/bonds/notes)– Both
• To finance asset creation (infrastructure)• Service provision
FINANCING OF PPP PROJECTS - Public Finance
GOVERNMENT
LENDERS / DEBT•Sovereign guarantee
Loan
PRIVATE CONSTRUCTIONCONTRACTOR
TAX PAYERS/ TARIFFS
Public Finance
FINANCING OF PPP PROJECTS - Corporate Finance
• Financing of PPP projects– Corporate Finance (B/S)
• Security Recourse to the Balance Sheet of a Participant
Assets outside of the Project
Preferential Claims
Corporate Finance
• Raising finance on the basis of a Company’s existing financial strength, also termed as ‘direct lending’ or ‘balance sheet financing’ – could be rolled over into PF
Lenders
Government Private Company School
Tax Payers
ConstructionOperation, Maintenance & Service ProvisionConcession
Taxes
Fees
Service
LoansRepayment
Corporate B/Sheet
FINANCING OF PPP PROJECTS - Limited Recourse Project Finance
• PPPs– Capital intensive– Leverages private sector money (debt and equity)– PF structure optimises private sector participation– Allows high debt levels - Cash Flow driven
• Cash flow determines debt levels• Debt vs Equity risks
– Robust due diligence by Financing Institutions– Project Cash flow/Cession of Rights/Legal
Documentation = Security– Recourse to B/S of Participants for Limited Period– Managerial skills and other Efficiencies
FINANCING OF PPP PROJECTS – Limited Recourse Project Finance
(continue)
• Logical and simple approach– KIS
• Efficient way of mobilising private sector investment for large infrastructure projects – no wants B/S hooked-up
• Efficient way of mobilising the debt financing from Financing Institutions– Banks– Institutional financiers– DFIs
FINANCING OF PPP PROJECTS – Limited Recourse Project Finance
(continue)
• Project Finance (Limited recourse/non-recourse)– Off-Balance Sheet
– Limited / non-recourse project finance
– Balance Sheets only until Project Completion
– Ring-fenced project cash flow
– Complex legal structures, but very logical approach
– Cash-flow driven
– Ratios – D:E / DSCR / LLCR / PLCR and ALL
Generic Project Structure
SPV
GOVERNMENT•Concession Contract•Licence Agreement
EQUITY INVESTORS•Project Sponsors•Passive Equity
•Subordinated debt10 - 50 %
DEBT•DFIs•ECAs
•Commercial Banks•Capital Markets
90 - 50 %
CONSTRUCTIONDESIGN OPERATIONS MAINTENANCE
Performance based delivery and supported by Sponsors
Performance based delivery and supported by Sponsors
BEE/HDIs
GENERIC PROJECT STRUCTURE
GOVERNMENT
EQUITY
PROJECT SPONSORSSPONSORS
SPV PASSIVE EQUITY
SHAREHOLDERS LOANSUB/DEBT
DEBT
SENIOR DEBT
SUBORDINATED DEBTMEZZANINE DEBT
DESIGN CONSTRUCTION OPERATIONS MAINTENANCE
GENERIC PROJECT STRUCTURE RISK ALLOCATION - EQUITY PARTICIPANTS
PROJECT SPONSORSSPONSORS
PASSIVE EQUITY
SHAREHOLDERS LOANSUB/DEBT
COMPLETION
RISK
TECHNOLOGY AND
TECHNICAL ASSISTANCE
BIDDING AND DEVELOPMENT
COST
RETURN on INVESTMENT
PARTICIPANT RISK i.e. OPERATOR FAILURE / BEE FINANCING COST i.e.
CHANGES TO INTEREST
RATES/HEDGINGALLOCATION AND MITIGATION OF RISKS
GENERIC PROJECT STRUCTURERISK ALLOCATION - LENDERS
SENIOR DEBT
SUBORDINATED DEBTMEZZANINE DEBT
Participants Risk
Political Risk
Syndication Risk
Foreign Exchange
Interest Rate/Hedging
Contract Risk
GENERIC PROJECT STRUCTURE RISK ALLOCATION - D&C PARTICIPANTS
Site
Environmental i.e. pollution
Completion- time /cost
Management
Technology
Engineering
DESIGN
CONSTRUCTION
GENERIC PROJECT STRUCTURERISK ALLOCATION - O&M/FM PARTICIPANTS
Cost
Labour Relations
Management
Technical
Technology BEE/HDI
OPERATIONS
MAINTENANCE
GENERIC PROJECT STRUCTURE RISK ALLOCATION - GOVERNMENT
Supporting Infrastructure
Public Sector Inefficiencies
Force Majeure
Political Risk
Changes in Law/Enabling Environment
Foreign Exchange
GOVERNMENT
GENERIC PROJECT STRUCTURERISK ALLOCATION - SPV
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SPV
SPV is left with Risks not allocated or mitigated
WATER TREATMENT PLANT - BOT
51% Equity
Vivendi
100% Equity
CGE
OTV Group
100% Equity
OTVFrance SA– sponsor -
100% Equity
DTMC- Implementing Agent - SAPREF
3,3Ml/day
Mondi30Ml/day
Marubeni10%
Umgeni12%
Zethachem2%
Khulani12,75%
Celtic12,25%
OTV – RSA- Contractor -- Operator -
Co
nce
ssio
n co
ntra
ct
Pe
rfo
rm
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ce
G
ua
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,6
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il &
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DWR
- Concessionaire -
Off-take AgreementShareholdingDesign and construction contractsOperations and maintenance contractsFinancing AgreementsSponsor Support AgreementConcession AgreementPerformance guarantee
Diagram of Contractual Structure
RMB- R23,637 mil -
DBSA- R17,464 mil -
DBSA French Treasury
- FF7,5 mil -
DBSABuyer Credit- FF7,9 mil -
Sponsor Support for project completion
FINANCING STRUCTUREANNEXURE 6
DIAGRAM : FRENCH EXPORT CREDIT FACILITY
OTV France SA- Supplier of Goods
and Services -
DWR- Concessionaire -
French TreasuryFacility - FF7,5 mil
- NATEXIS -
French BuyerCredit Facility - FF,7,860mil
- SOC GEN -
DBSA- Buyer Credit
FF7,860mil
DBSA- French TreasuryFacility FF7,5mil
French Government
South African Government
FRANCE
Agreem
ent -
Paym
ent F
F o
r
Euro
Guarantee
Repayment inFF or Euro
Proto
colSOUTH AFRICA
LIMITED RECOURSE PF4PPPs
• Are you confused?• It is difficult …..but• Logical – 25% financial, 25% legal, 25%
technical, and 25% common senese• Keep it Simple “Stupid” (KISS) – vanilla
structure, no complicated other structuring
Questions???
Presenters DetailsPresenters Details