46 INFRASTRUCTURE INVESTOR ANNUAL REVIEW | MARCH 2016

ROUNDTABLE

46 INFRASTRUCTURE INVESTOR

SPECIAL FEATURE

Q What were the key trends for Deutsche Bank in 2015? And

how is 2016 shaping the business? CT: Last year was a very successful year for Global Transaction Banking’s project finance product offering, culminating in a number of deal nominations and awards, the pinnacle being named as Global Cor-porate Trust Services Provider of the Year Award with Infrastructure Investor for the sixth year in a row.

Transactions continue to become more complicated – across asset classes – with both banks and new non-traditional par-ticipants, such as debt funds, insurance companies and pension funds now active in lending directly into project finance.

The ever-growing complexities and challenges of these financings demand greater administrative oversight and require Deutsche Bank to tailor its service offering to the project/transaction and the finance parties.

Whilst our portfolio is rather broad, both in terms of sophistication and asset classes, complicated transactions are our forte and where we best demonstrate our value in supporting our clients.

Q Who do you think is driving the market – banks or institutional

lenders?CT: Banks should continue to lead deals as a mainstay, although we are aware of regulatory challenges in respect to long-term lending. We continue to support Deutsche Bank in its arranging/origina-tion capacity in the infrastructure space

and with the addition of Stephen Paine as the bank’s new global head of infrastruc-ture & utilities, the message around the bank’s wider focus in this market is clear.

In Europe, we have been mandated on a number of deals. Some have been structured as private placements, some have a single institutional investor, some have European Investment Bank (EIB)

Dean Kennedy, Bryan Gartenberg, Thalia Delahayes and Vincent Wong of Deutsche Bank’s Corporate Trust (CT) team explain why the bank’s services have never been more in demand

PROJECT FINANCE

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Transactions are becoming more complicated, with multiple levels of creditors which do not necessarily have the ability or are conflicted to perform the important functions required for such financings”

Navigating complexity in a changing world

Deutsche sees offshore wind as a promising growth sector

47INFRASTRUCTURE INVESTOR ANNUAL REVIEW | MARCH 2016

FEATURE

involvement as a lender or benefit from the credit enhancement product, and others have small clubs of investors. Many deals have not had bank involvement apart from ourselves as administrator showing the market is adapting.

With the abolition of UK withholding tax for private placements (PP), announced by the government in the autumn, we expect PPs to continue to take centre stage in the UK, which could, perhaps, eventually lead to a more harmonised pan-European PP market in the coming years. We expect this will be helped to a certain extent by the Loan Market Association with standardised documentation already being used for pro-ject finance transactions.

However, we do see more collaboration with an increase in institutional tranches

appearing alongside commercial bank facilities, for both greenfield and brownfield projects. We have been dealing with a broad range of creditors in the Americas for some time and now we are seeing this evolve in Europe, and new players – especially funds – are appearing every week.

This is happening to the extent that we now find ourselves discussing how best to support those non-traditional lenders around the administration of their wider portfolio, not just deal by deal, but also by collaborating with our fund services business.

In the Asia Pacific (APAC) region, we saw the Asian Infrastructure Investment Bank (AIIB) become operational on 16 January 2016. With AIIB focusing on infrastructure, as well as financing roads, railways and power

grids across Asia, we expect them to be a key player for our APAC business in the future.

Japan’s negative interest rates are attempting to spur additional bank lend-ing, but the Yen’s unstable fluctuation may hurt and it is not clear where this could take us in the coming 12 months.

Q Refinancings have been going on for a few years now. Are they

likely to remain a prominent feature in the near future?CT: In short: yes. We have seen this hap-pening in recent months, highlighted in the offshore wind space with the refinanc-ing of the original debt for the construc-tion of a wind park, in Germany. This was a refinancing with numerous project bonds, public and privately placed, issued in the US and in Europe, including domestically in Germany. This gave Deutsche Bank the chance to show its cross-border and cross-regional capabilities in supporting complex multi-sourced financings with a broad mix of creditors.

With potential further rate rises and the cost of swap breakages not so restrictive to borrowers in securing more favourable terms in the capital markets, we expect to see more of the same in the coming year. We also see the opportunity to support projects in finan-cial distress – or those that are progressing to a workout scenario – to avoid a financial default, as opposed to a technical default or an all-out default.

From an Asia perspective – with the expected interest rate hikes in the US, a weak CNY and slowing Chinese growth – many borrowers may have difficulties in repaying debt and are likely to continue refinancing, as it is a fairly viable option.

As suggested by Moody’s recently, we do not expect Asia’s high-yield default rate to return to the peak level of 14 percent registered in 2009, given accommodating monetary policy stances in the region, good liquidity in local bond markets and bank-ing systems and manageable refinancing needs in 2016.

SPECIAL FEATURE

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Deutsche sees offshore wind as a promising growth sector

48 INFRASTRUCTURE INVESTOR ANNUAL REVIEW | MARCH 201648 INFRASTRUCTURE INVESTOR

Q What are the most exciting sectors and geographies?

CT: With our involvement in two recent transactions, the offshore wind space is where we hope to see more opportunity in Europe. We are seeing suggestions that this sector is scaling up and new technology in respect to the development of floating wind farms is out there, suggesting there is increased focus, whether for small or large-scale projects.

From a geographical perspective, Ire-land should prove interesting with more public private partnership (PPP) projects on the horizon and we were fortunate enough to be involved in two transport PPPs recently. The UK, Italy and Turkey could also see more traction in renewable and social infrastructure opportunities.

For our Americas business, North and South America continue to be growth mar-kets. Latin American focus is expected in energy, including renewable energy, and infrastructure/transportation, mainly in Chile, Columbia, Mexico, Peru and Uruguay.

In North America, we expect activity across the sectors to continue with wind, solar PV, thermal and ‘peaker’ plants stand-ing out. Road and rail infrastructure pro-jects will also be growth areas.

A major market event in the US was the decision by Congress in December 2015 to extend the renewable energy tax credits for multiple years, providing the wind and solar sectors with the legislative stability needed to fuel their growth.

With the Production Tax Credit (PTC) for wind extended through 2019 and the Investment Tax Credit (ITC) for solar extended through 2021 – both with pha-seouts – we expect there will be significant investments in the US renewable sector over the next few years.

For our APAC team, energy continues to drive most projects, such as green energy projects from Japan, or power plants (coal or otherwise) in Southeast Asian countries like the Philippines and Indonesia. China’s ‘iron diplomacy’ continues, with projects to build railways in other countries (Indo-nesia, Thailand) recently agreed.

Japan is expected to see a lot of activ-ity. The airports projects, currently under bidding processes, will be landmark trans-actions if they reach financial close. The Tokyo Olympic Games in 2020 will necessi-tate the financing of substantial infrastruc-ture projects, as will the development and construction of casinos and other facilities for the government’s planned “integrated resort”.

Q How much appetite do lenders really have to take on greenfield

risk?CT: With pension funds looking for the most stable long-term income streams to replace bond coupons, appetite for the favourable characteristics of brownfield sites among investors has increased the prices of those assets, due to the recent fall in oil and commodities prices, at a faster rate than infrastructure at both the greenfield and secondary stages combined.

In the Americas, where capital markets and project bonds have been in play for years with experienced and sophisticated institutional investors, this is not an issue. The fundamental nature of project finance structures is to allocate risk to the various par-ticipants in the transaction, so they assume individual risks (construction risk, forex risk, interest rate risk, sovereign risk, etc).

In Europe, however, the appetite to invest in greenfield assets through a pro-ject bond, without the presence of a con-trolling creditor, has taken time to evolve post-crisis. We now see large institutions, especially insurance companies acting through their investment arms, actively pursuing these assets.

These institutions have employed experts in the infrastructure space from banks and other financial institutions to be able to make important credit decision when required. These investors are now prominent in the European project bond space and are taking some big tickets as sole investor in some cases. Last year has seen this appetite grow with smaller, less experienced investors, such as pension funds, now starting to deploy capital in

this space. This is where our experience as an independent agent in the market can show its real value.

Q What makes Deutsche Bank’s transaction banking roles

particularly relevant in today’s market?CT: As we have mentioned, transactions are becoming more complicated, with multi-ple levels of creditors which do not neces-sarily have the ability or are conflicted to perform the important functions required for such financings.

As a bank with many years of experience in the project finance space – and able to provide such services independently of any investment banking activities – we can sup-port the market as it continues to evolve no matter which parties are involved, whether in the good or bad times of a project’s life. We can also extend these services more widely to investors as their portfolios grow and there is a need to either outsource or partner with an established institution to provide support going forward.

We continue to commit ourselves in the project and infrastructure finance space, where we are further developing and adapting our services to cater to an evolving market, such as Project Agent in EMEA, and continued investment into global transaction banking. With this focus, innovation and investment, we look for-ward to partnering further with existing clients and developing new relationships in this space going forwards. n

Dean Kennedy is responsible for Product

Management, Global Transaction

Banking EMEA; Bryan Gartenberg works

in Business Development Corporate

Trust Americas; Thalia Delahayes is

Head of Project Finance Corporate

Trust Americas; and Vincent Wong is

responsible for Product Management,

Global Transaction Banking APAC

SPONSORED BY DEUTSCHE BANK ISSUER SERVICES

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This advertisement is for information purposes only and is designed to serve as a general overview regarding the services of Deutsche Bank AG, any of its branches and affiliates. The general description in this advertisement relates to services offered by Global Transaction Banking of Deutsche Bank AG, any of its branches and affiliates to customers as of February 2016 which may be subject to change in the future. This advertisement and the general description of the services are in their nature only illustrative, do neither explicitly nor implicitly make an offer and therefore do not contain or cannot result in any contractual or non-contractual obligation or liability of Deutsche Bank AG, any of its branches or affiliates. Deutsche Bank AG is authorised under German Banking Law (competent authorities: European Central Bank and German Federal Financial Supervisory Authority (BaFin)) and, in the United Kingdom, by the Prudential Regulation Authority. It is subject to supervision by the European Central Bank and the BaFin, and to limited supervision in the United Kingdom by the Prudential Regulation Authority and the Financial Conduct Authority. Details about the extent of our authorisation and supervision by these authorities are available on request. Copyright © February 2016 Deutsche Bank AG. All rights reserved.

Deutsche Bank Global Transaction Banking

Award-winning support for project financeWe’re proud to have been recognised again by the industry for our Corporate Trust services. From the simplest to the most complex project finance transactions, we consistently provide trustee and agency services – including facility, intercreditor, administrative, collateral and project agent roles – that earn both the loyalty of our clients and some of the industry’s most coveted awards.

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