Gas Pipeline Project Financing Gas Pipeline Project Financing - - PowerPoint PPT Presentation

Gas Pipeline Project Financing Gas Pipeline Project Financing

Achmad Fadhiel

Chief Financial Officer The 7th International Indonesia Gas Conference & Exhibition Jakarta, Januari 2015

Challenges on Structuring a Gas Infrastructure Project

• Domestic Liquidity Issue : USD based Currency Loan vs Rupiah Loan
• Bank : Limited Player in the Industry
• Domestic Banks funding ability vs Foreign Bank.
• Long-Term tenor requirement.
• Higher Project Risk Profile: Current gas reserves are located offshore in the

eastern region that leads to higher Capex requirement in absence of good eastern region that leads to higher Capex requirement in absence of good infrastructure.

• Higher Infrastructure Cost : Most of the domestic gas consumers are located in

Java and Sumatera.

• Indonesia country risk is perceived to be higher compared to some of its

adjacent neighbors.

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Competitive and Innovative Project Financing – is the Key

• Structure of a project financing scheme for a new gas infrastructure projects is

very important since it will have cost impact on Pricing of Gas and Capital expenditure.

• Naturally if the gas infrastructure project is being developed in remote or
• ffshore, Bank will either require some sort of credit enhancement or slightly

larger equity participation from Project Sponsor. larger equity participation from Project Sponsor.

• Bank will rely its credit assessment based on project’s projected income and

security over the financed assets. If it is a green field project then the Bank will charge higher cost of borrowing.

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Corporate Financing vs Project Financing

items Corporate Financing Project Financing

Borrower Corporate SPV (Project Company) Recourse Full financial recourse to Project Sponsor Limited Recourse to Project Sponsor Loan repayment From overall corporate business. In case of shortfall of cash flow from the project, the repayment may come from From cash generated by the project.

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project, the repayment may come from

• ther business.

Credit viability analysis Based on historical and projected cash flow

• f the corporate rather than the project.

Based on projected cash flow from the project Security Limited “perfection of security” Complex documentation to perfect security Sponsor’s Equity Large sponsor equity investments necessary to maintain B/S ratios Less equity required that leads to higher sponsor’s equity returns Interest During Construction Can be structured to be paid by the Project Sponsor. Capitalized into project loan and amortized during repayment tenor Tenor Depends on combined cash flow of the corporate. Depends on the project cash flow.

Advantages / Disadvantages

Advantages

• Provide Non-recourse/limited recourse

scheme for Project Sponsor.

• Can avoid restricted covenants for sponsor’s
• ther business / transactions.
• Provide risk sharing.
• Collateral can be either assets or cash from

Disadvantages

• Higher risk exposure for the creditor(s)

which is translated into higher fee and interest rate.

• Tight supervision of the project from

creditor(s) and may request for project reporting based on the progress of the project.

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• Collateral can be either assets or cash from

the project.

• Creditor will participate to solve the problem

should anything happen that may defect the project going concern and will not directly liquidate the collaterals. project.

• Often require credit enhancement such as

coverage from insurance company or Export Credit Agency(s) and guarantee from parent company.

PROJECT FINANCING CASE: GAS PIPELINE PROJECT

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Case One

Investor

Financial Partner:

• Strategic Partner
• Infrastructure & Pension Fund
• Sovereign Wealth Funds
• Regional Development Funds & Multilaterals
• Trading Partners / Off takers

Equity injection Right of First Purchase 7

Pipeline Project Company

Jointly owned by Investor and Financial partner(s)

Bank

Debt For Capex Debt Repayment

Domestic Buyers Gas Supplier

Gas offtake Arrangement or Transport Contract “use or pay” for contracted pipeline capacity Dividend Payment Gas Supply Arrangement

Potential Partners Profile

Financial Partner Target Equity Returns (IRR) Advantages Considerations Strategic Partners High – target above industry average ▲Long-term partners ▲Enhance credit standing and provide access to additional funding sources ▲Brings additional operational sector knowledge/personnel ▼Potentially challenging competitive dynamics in some cases ▼May want ability to influence day-to-day

• perations

Infrastructure & Pension Funds Average – in line with sector norm ▲Substantial capital available at relatively low cost ▲Long-term partners ▼Require board seat(s) and active role ▼Reluctant to take development risk ▼Often require ongoing cash distributions 8 Funds sector norm ▲Long-term partners ▲Willingness to take minority positions ▼Often require ongoing cash distributions Sovereign Wealth Funds Flexible – target LT investment with strategic rationale ▲Provide political and financial support ▲Willing to take minority positions ▲Opportunity to develop additional partnerships regionally ▼Requires substantial scale to attract interest ▼Limited industry knowledge or expertise ▼Typically look for valuation affirmation from another “strategic participant” Regional Development Funds & Multilaterals Flexible – target LT investment with strategic rationale ▲New entrants seeking opportunity to deploy capital in the sector ▲Limited impact on current business plan ▲Potential to bring industry expertise ▼Typically desire control ▼Long time horizon to close ▼Typically not involved in late stage ‘growth equity’ market ▼Will likely require preference Trading Partners High – trading margins ▲Good sources of deal flow ▲Entry points into new markets ▼Short term approach to transactions ▼Seek return upfront as opposed to strategic alignment and limited equity capital ▼Seek to load Project Co. with own equipment

PROJECT FINANCING CASE: STRUCTURED FINANCING (ECA BACKED PROJECT FINANCING)

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Structured Buyer’s Credit Export (ECA backed)

Operating Company EPC Contractor

EPC Contract 15% Down Payment

• Project. Completion
• Mech. Completion Guarantee

Performance Guarantee Payment 85% of invoice 10

Bank Holding/Parent Company

Loan Payment Guarantee 95% Coverage of :

• Political Risk
• Commercial Risk

E C A

Insurance Premium Pa 85%

Project Financing + ECA Backed

Project

• Proj. Owner

Cash flow from

• ther business

Proj.

• Disburs. Acc.

Project Revenue Proj. Receiv Acc. Invoice Invoice Limited Equity < 30% Assignment from

• Proj. Sales Revenue

Cash Waterfall Arrangement 11 EPC Contractor

• Proj. Financing Bank

Debt Reserve Acc. Principal & Interest Acc. Company Project

• Proj. Construction &

Development Phase

• Proj. Commercial

Operation Phase

• Loan
• Proj. Opr.

Account

• Proj. Operational Fund

E C A Cap Market Hedging Instr. Private Risk Insurance Provide Cover /Guarantee

Export Credit Agency (ECA)

• Government institutions or a quasi-government institutions which primary focus to

support exporters for its capital good transactions.

• Financing facilities are in the forms of Direct loan, Guaranteed Loan and Credit Insured

Loan.

• In some OECD countries, ECA(s) may provide direct financing that are no different than

regular commercial banks.

• Financing facilities covered by ECA can be in the form of tied program or untied program.

Financing facilities covered by ECA can be in the form of tied program or untied program.

• In financing a project, ECA may:
• cooperate with other ECA from foreign countries since the equipment for the project may come

from various countries (multi source).

• Cooperate with the equipment provider of the project (supplier’s financing) or the Project

Sponsor/Owner (buyer’s financing).

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• Italy - SACE S.p.A. Servizi Assicurativi del Commercio Estero
• Japan- Japan Bank for International Cooperation (JBIC), Nippon

Export and Investment Insurance (NEXI)

• Jordan - Jordan Loan Guarantee Cooperation (JLGC),

Loan Guarantee & Export Credit Guarantee

• South Korea - Korea Trade Insurance Corporation (K-SURE), The

Export-Import Bank of Korea (KEXIM)

• Luxembourg - Office du Ducroire (ODD)
• Mexico - Banco Nacional de Comercio Exterior (Bancomext)
• Netherlands - Atradius

World ECA

• Australia - Export Finance and Insurance Corporation (EFIC)
• Austria - Oesterreichische Kontrollbank AG (OeKB)
• Belgium - Office national du Ducroire/Nationale

Delcrederedienst (ONDD)

• Canada - Export Development Canada (EDC)
• China - Export-Import Bank of China
• Hong Kong - Hong Kong Export Credit Insurance Corporation
• Colombia - Banco de Comercio Exterior de Colombia

(Bancóldex)

• Czech Republic - Export Guarantee and Insurance Corporation
• Netherlands - Atradius
• New Zealand - Export Credit Office (ECO)
• Norway - The Norwegian Guarantee Institute for Export Credits

(GIEK)

• Poland - Korporacja Ubezpieczén Kredytów Eksportowych (KUKE)
• Portugal - Companhia de Seguro de Créditos
• Slovakia - Export-Import Bank of the Slovak Republic (Eximbank SR)
• Spain - Compañía Española de Seguros de Crédito a la Exportación,

Secretaría de Estado de Comercio (Ministerio de Economía)

• Sweden - Exportkreditnämnden (EKN)
• Switzerland - Swiss Export Risk Insurance (SERV)
• Turkey - Export Credit Bank of Turkey (Türk Eximbank)
• United Kingdom - Export Credits Guarantee Department (ECGD)
• United States - Export-Import Bank of the United States (Ex-Im Bank)
• Czech Republic - Export Guarantee and Insurance Corporation

(EGAP), Czech Export Bank

• Denmark - Eksport Kredit Fonden (EKF)
• Estonia - Kredex Krediidikindlustus (EST)
• Finland - EFinnvera Oyj, Finnish Export Credit Ltd (FEC)
• France - Compagnie Française d'Assurance pour le Commerce

Extérieur (COFACE), Direction des Relations Economiques Extérieures (Ministère de l'Economie) (DREE)

• Germany - Euler Hermes Kreditversicherungs-AG,

AuslandsGeschäftsAbsicherung der Bundesrepublik Deutschland

• Greece - Export Credit Insurance Organisation (ECIO)
• Hungary - Hungarian Export Credit Insurance Ltd (MEHIB),

Hungarian Export-Import Bank

• India - Export-Import Bank of India, Export Credit Guarantee

Corporation of India (ECG) 13

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