Long term local and foreign currency project finance 9th March 2019 - PowerPoint PPT Presentation

Long term local and foreign currency project finance 9th March 2019

OBJECTIVES & AVENUES – PROJECT FINANCE PROJECT FINANCE - OBJECTIVES FUNDING AVENUES Access to large quantum of funds Funding Requirements based on the nature of the transaction FCY LCY and project. Financing Financing The structure should provide Timeliness/ commitment so as to ensure that funds Brown Field / Greenfield Project Off-shore funding for Project Commitment are available for utilization for Financing: Costs: milestones in a timely manner. • Multi-laterals/Development • Bank Borrowing • Conventional / Islamic Finance Institutions Fund raising in a cost effective manner. Cost Effectiveness • ECA Backed Financing • Capital Markets • Commercial Borrowing • Bonds • Capital Markets • TFCs / Sukuks Depending on the nature of the FCY Availability of Foreign Given the requirement of a transaction , a combination of avenues shall component of project cost arrangement Currency be applied to achieve the necessary target of FCY financing for the project. Typical Project Finance Requirements and Considerations Project Dynamics Available Support/ Additional Sponsor Profile and Plan Concession Requirements  Sponsors’ history/  Demand/Supply analysis  Implementation Agreement  Turnkey EPC contract borrowing ability  Project cost  Letter of Support  O&M agreement  Sponsors ’ financial  Capital structure  GOP backed agreements  Services agreement strength  FCY debt requirement  Offtake Agreements  Technical Advisor  Project related experience  Pricing for debt  Supply Agreements  Legal Advisor  Management experience  Project viability/Cash flows  Sponsor Support etc.  Insurance Advisor etc. etc. 1

FUNDING AVENUES 1. LOCAL CURRENCY FINANCING AVENUES In-line with the transaction objectives, Project Financing is available for both Green Field and Brown Field projects Avenues   Bank Borrowing / Long Term Loans Capital Markets Bank Borrowings Avenues / Governance Takeaways / Considerations  Banking sector has the aptitude and expertise to access Long-Term financing can be availed under both Islamic and Conventional means. Incase of Renewable Energy projects SBP’s project risk  Sizeable quantum of debt available refinance scheme can also be availed.  Debt available for longer tenor (10-14 years in case of Project Will be governed through Prudential Regulations for Financing) Corporates and Prudential Regulations for Infrastructure Project  Banks’ per party as well as group exposure limits restrictive Finance. Capital Markets Avenues / Governance Takeaways / Considerations  Participants in the local capital markets tend to be more Several avenues are available to raise financing from capital markets: active while investing in offerings from established corporates and brownfield projects, however little activity for  Bonds greenfield projects is witnessed in the market.  TFCs  Target market  Requirements  Insurance companies  Credit Rating  Sukuks  Asset Management Companies  SECP approvals (If listed)  Other incl. Commercial Paper (Short Term)  Pension and Provident funds  Market maker (If OTC  Banks / DFIs placed) Various regulations to be followed i.e. SECP, PSX, amongst  Corporates  Registrar and transfer others.  Retail Investors agent 2

FUNDING AVENUES - continued 2. FOREIGN CURRENCY FINANCING AVENUES A large number of funding options for acquiring FCY financing are available which can be used for Project Financing Available Options Multilateral Agencies/DFIs ECA Backed Financing  MLAs/DFIs provide foreign currency i.e. loans and partial risk  An Export Credit Agency provides insurance cover to the FCY guarantees lending institution, given the supply contract is originated from the  Viable option for greenfield projects, however they are more country where the ECA is established inclined towards lending to renewable energy projects  Subject to country exposure limits  MLAs and DFIs like World Bank, Asian Development Bank, Asian  ECA backed financing is available for longer tenor but it includes Infrastructure Investment Bank, FMO, DEG, CDC etc. are possible cost for the ECA cover in addition to liquidity premium which options for getting FCY financing makes it expensive  MLAs/DFIs provide liquidity for longer tenor with low pricing Offshore Commercial Banks Offshore Capital Markets   Bonds (Green bond, Panda bond etc.) Mostly lend to good corporate entities   Subject to an array of regulatory requirements May provide liquidity if ECA cover is available   Credit rating is a prerequisite Usually take selective country risk   Little activity in offshore capital markets for greenfield projects Commercial banks lend for medium term but place a high cost on  Short to medium term offerings with higher pricing the funds 3

Funding Examples Renewable Energy Projects Project Dynamics for 50 MW Wind Power Project Financing Options  Multilateral Agencies and Development Finance  Unlike power projects which use fossil fuel, wind power Institutions are more inclined towards lending to wind projects don’t have a detrimental impact on the power projects. Typical tranche may vary between $ 25- environment. 50 Mn.  Environmental and Social implications like resettlements  Pricing between 4.25% - 4.5% over LIBOR for 14 year and water usage are less severe for wind power projects. tenor  Wind power projects are promoted by environmental  LCY Funding under SBP’s refinance scheme for renewable agencies around the world. energy projects.  Pricing of 6% flat for a 1+10 years tenor Coal Based Power Plants Project Dynamics for 660 MW coal-based projects Financing Options  Coal based power projects have a negative social and  Buyers’ credit cover from Sinosure up to 85% of the EPC environmental impact. This include emissions of SOx and value. Liquidity to be provided by Chinese banks. NOx, resettlements and water usage.  Sinosure premium of 5-7% upfront on a 14 years tenor  Multilaterals and International Financial Institutions have loan. Loan Pricing of 4 - 4.5% over LIBOR stringent financing conditions for coal based projects  Balance debt to be financed by local banks on a 14 years which makes it difficult to get funding from them. tenor. Pricing ranges between 2.75% - 3.5% over KIBOR  Large amount of financing is required ($ 700-800 Mn)  Country exposure limitations

Contact Details For further information please contact… HBL Investment Banking Desk 24 th Floor, Investment Banking Department HBL Tower, Plot No. G-4, Block No.7, Clifton Karachi, Pakistan Phone: 021-33117425, 021-33116030 Fax: 021-35192306

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