industrial project finance in gcc countries forum federation of gcc chambers of commerce october 12,...

Industrial Project Finance in GCC Countries ForumFederation of GCC Chambers of CommerceOctober 12, 2010 Dammam, Saudi Arabia

Financing Energy Investments in the aftermath of the financial crisis

APICORP’s perspective

Nicolas ThévenotArab Petroleum Investments [email protected]

October 12, 2010

Arab Petroleum Investments Corporation (APICORP), has been since inception in 1975 a financial institution dedicated to the financing of the development and transformation of the Arab energy industry;

APICORP is noticing certain signs of recovery of the energy capital investments in the MENA region;

However, APICORP considers that the financing of these investments will be challenging and will require a dramatic shift in the financing strategy of project sponsors.

Outline of the PresentationOutline of the PresentationOutline of the PresentationOutline of the Presentation

APICORP All Rights Reserved © 2

ARAB PETROLEUM INVESTMENTS CORPORATION ARAB PETROLEUM INVESTMENTS CORPORATION (APICORP), A PIONEER IN FINANCING ENERGY (APICORP), A PIONEER IN FINANCING ENERGY

INVESTMENTS IN THE ARAB REGIONINVESTMENTS IN THE ARAB REGION

ARAB PETROLEUM INVESTMENTS CORPORATION ARAB PETROLEUM INVESTMENTS CORPORATION (APICORP), A PIONEER IN FINANCING ENERGY (APICORP), A PIONEER IN FINANCING ENERGY

INVESTMENTS IN THE ARAB REGIONINVESTMENTS IN THE ARAB REGION


Arab Petroleum Investments Corporation (APICORP) is an inter Arab joint stock company established in 23 November 1975 in accordance with an international agreement between governments of the ten member states of the Organization of Arab Petroleum Exporting Countries (OAPEC).

Mission and ObjectivesMission and ObjectivesMission and ObjectivesMission and Objectives

APICORP’s Mission is to contribute to the development and the transformation of the Arab hydrocarbon and energy industries through equity and debt financing, advisory and research.

APICORP’s Objectives Priority given to Arab Joint Ventures which benefit OAPEC member

states Active throughout the energy value chain Equity participation in new ventures Financial Advisory Arrangement of debt Business conducted on a commercial basis Teams made up of financiers, engineers and economists

4APICORP All Rights Reserved ©

APICORP is wholly owned by the member states of OAPEC as listed below:

ALGERIA LIBYAQATAR

UNITED ARAB EMIRATES

SAUDI ARABIA

KUWAITIRAQ

EGYPT

SYRIA

BAHRAIN

ShareholdersShareholdersShareholdersShareholders


US$ “000” 2006 2007 2008 2009

Total assets 2,600,000 3,573,357 3,563,802 4,119,100

Shareholder’s equity 897,000 1,020,000 894,750 1001,635

Issued and paid-up capital 550,000 550,000 550,000 550,000

APICORP RatingAPICORP RatingAPICORP RatingAPICORP Rating

Foreign currency issuer ratings• A1 (long term)• Prime 1 (short term)• Stable Outlook


Industry SegmentsIndustry SegmentsIndustry SegmentsIndustry Segments

Industry Segments Upstream development and production

(including rigs) Refining Petrochemicals Fertilizers Natural Gas Liquefaction (NGL) Gas-To-Liquids (GTL) Power Generation Combined Power and Water Production Oil Shipping Oil and Gas Terminals Geotechnical and Seismic Survey Manufacturing Operations and Maintenance Services


APICORP Added ValueAPICORP Added ValueAPICORP Added ValueAPICORP Added Value

As Partner in Developing the Hydrocarbon Industry

Strong ties throughout the Arab world due to our pan-Arab ownership;

Strong technical and advisory capabilities in the hydrocarbon sector with experienced teams of engineers, economists, and financiers;

Extensive experience and knowledge in all aspects of project development:

Selection of technology suppliers and contractors Product markets Feedstock supply and off-take arrangements Legal issues and documentation related to companies formation

Leadership position in investing in hydrocarbon-based projects and in syndicating regional oil and gas financings.


Core Business StructureCore Business StructureCore Business StructureCore Business Structure


DirectDirectEquity InvestmentsEquity Investments


Investment Criteria Investment Criteria Investment Criteria Investment Criteria

Due consideration shall be given to the geographical diversification of the investments within the Arab world particularly in the member state countries.

The size of the Corporation’s equity stake should ensure at least one Board seat in the investee company.

The paid up equity capital of the project shall be sufficient to ensure the success of the project. (Opportunity offers a US$ 5 million equity capital injection by APICORP).

The targeted internal rate of return (IRR) on investment shall not be less than 15%.

The equity part of the project’s financial structure shall not be less than 30% of the total project cost.

The financial indicators of the investment opportunity and the associated risks shall be within the industry norms.


Targeted Investment OpportunitiesTargeted Investment OpportunitiesTargeted Investment OpportunitiesTargeted Investment Opportunities

New technologies that are economically sound with high growth potential.

Opportunities utilizing regional feedstock.

Opportunities that enjoy a comparative advantage with high added value.

Opportunities that contribute to the support and integration of Arab petroleum industries.

Opportunities that offer a substantial financial return in accordance with the Corporation’s investment criteria.


Our StrengthOur StrengthOur StrengthOur Strength

Experienced Management Team with a successful record

Extensive experience and expertise in both energy and hydrocarbon related investments

Strong footprint in the GCC and other Arab countries

Excellent working relationships with multilateral institutions and governmental agencies

Wide-range network of strong relationships with business groups in the Arab regions, and with international industry partners

Proven ability to create deals

Strong pipeline of projects

Effective combination of academia and industry

Professionals with engineering and economics background

Enhanced accessibility through offices in Saudi Arabia and Bahrain


Roles and ResponsibilitiesRoles and ResponsibilitiesRoles and ResponsibilitiesRoles and Responsibilities

Development

Identifying potential investment opportunities Carrying initial assessment Evaluating full feasibility studies Actively participating in establishment of potential investee companies

Monitoring

Pursuing implementation progress of projects Active participation in the Board of Directors of investee companies Periodic evaluation/assessment

Exiting

Tracking exit opportunities Evaluating, negotiating, and concluding exit agreements

Technical Support

Providing technical support to project finance and financial advisory activities Participating in technical meetings and preparing technical reports and studies


Investment CycleInvestment CycleInvestment CycleInvestment Cycle

Steps Type of Study Objective

Identification General opportunity studies

• Identify opportunity • Determine critical areas for support studies• Determine areas for pre-feasibility & feasibility

studies

Pre-selection and preliminary analysis

Support studies • Determine which of the possible choices is the most viable• Identify the choice of project criteria

Pre-feasibility studies• Determine provisional viability of project• Appraise whether the feasibility study should be

launched

Final analysis

Support studies• Investigate in detail the selected criteria requiring in-

depth study

Feasibility study • Make the final choices of project characteristics• Determine the feasibility of the project and selected

criteria

Project evaluation Evaluation study • Make final investment decision

Project appraisal Appraisal report •For Investment Committee’s decision


Project and TradeProject and TradeFinanceFinance


Key Objective Key Objective Key Objective Key Objective

To be a partner of choice for

arranging debt and providing financial

advisory services on energy related

projects promoted by governments and

private sector from the Arab region.


Financing TypesFinancing TypesFinancing TypesFinancing Types

Project Financing

Islamic Financing (lease, murabaha, tawarruq, istisnaa, etc…)

Asset based Financing (Ships, rigs, FPSO, equipment, etc…)

Reserve based financing (proven oil and gas reserves)

Trade Financing (pre-export, LCs, risk participation, etc…)

Acquisition Financing (companies, plants, etc…)

Equity Financing


APICORP Contribution to FinancingsAPICORP Contribution to FinancingsAPICORP Contribution to FinancingsAPICORP Contribution to Financings

In addition to being in most cases a mandated arranger and underwriter, APICORP aims to play an instrumental role in financings.

Role Credentials

Bookrunner AMPTC, Saudi Polyolefins Company, Qatargas 3, ELNG Train1, Petro-Rabigh, Oryx-GTL, Egyptian Fertilizers Company, Vitol, and Exmar Lux.

Technical BankEquate Petrochemical Company, Qatar Vinyl Company, Egyptian Fertilizers Company, Saudi Polyolefins Company, Oman Polypropylene Company, BAPCO and Oman Aromatics.

Documentation Bank ADWOC, JANA, Egyptian Fertilizers Company, Ibn Zahr, Oman Polypropylene Company, Vitol, EGAS and GASCO.

Agent ADWOC, EGAS and GASCO.

Account Bank EGAS.

Modelling Bank ADWOC, JANA, Saudi Polyolefins Company, EAgrium, Ibn Zahr, GASCO and EFC.

Onshore Security Agent Saudi Kayan and Yansab.

Offshore Security Agent EGAS.


Lending GuidelinesLending GuidelinesLending GuidelinesLending Guidelines

Quality of sponsors and their degree of commitment and interest. Economic rationale and competitiveness of the project (for example:

feedstock cost advantage). Degree of “off-shorisation” of the project (for example: revenues in US$

for US$ loan). Degree of protection of the project from local factors (for example:

exchange rate). Resilience of the project against negative changes in certain parameters. Maximisation of export-credits and multilateral loans in financings in

difficult countries. Transaction to benefit Arab energy industry. Preference towards supporting existing and future equity investments of

APICORP. Role and visibility of APICORP in the financing. Preference for transactions where APICORP can provide support as

financial advisor / structuring bank. Remuneration.


APICORP as Financial Advisor of ChoiceAPICORP as Financial Advisor of ChoiceAPICORP as Financial Advisor of ChoiceAPICORP as Financial Advisor of Choice

Competitive proposal

Comprehensive and clear mandate document

Fast track basis

Dedicated team of professionals

Qualified team leader

In-house technical and legal support

Significant local insight in the Arab region

Comprehensive project financing database

Extensive network of third party consultants

Total confidentiality


Financial Advisory ActivitiesFinancial Advisory ActivitiesFinancial Advisory ActivitiesFinancial Advisory Activities

Phase: 1

Phase: 2

Phase: 3

Phase: 4


SIGNS OF RECOVERY OF THE ENERGY CAPITAL SIGNS OF RECOVERY OF THE ENERGY CAPITAL INVESTMENTS IN THE MENA REGIONINVESTMENTS IN THE MENA REGION

SIGNS OF RECOVERY OF THE ENERGY CAPITAL SIGNS OF RECOVERY OF THE ENERGY CAPITAL INVESTMENTS IN THE MENA REGIONINVESTMENTS IN THE MENA REGION


Figure 1: Rolling 5-year reviews of energy investment

Rebound of the energy capital investments in the Arab regionRebound of the energy capital investments in the Arab regionRebound of the energy capital investments in the Arab regionRebound of the energy capital investments in the Arab region

Gradual recovery of global demand for energy and stabilization of crude oil prices within an anchor price range of US$ 70-90/bbl.;

Higher capital investments prospects and lower amount of projects postponed or shelved.


Geographical pattern of these energy investmentsGeographical pattern of these energy investmentsGeographical pattern of these energy investmentsGeographical pattern of these energy investments

A reflection of the distribution pattern of crude oil and natural gas reserves in the region;

Three countries largely below potential: Iraq, Iran and Kuwait;


Sectoral pattern of these energy investmentsSectoral pattern of these energy investmentsSectoral pattern of these energy investmentsSectoral pattern of these energy investments

Oil supply chain accounts for 41%;

Gas supply chain accounts for 35%;

Power generation accounts for 24% and is expanding.


A critical challenge: funding accessibilityA critical challenge: funding accessibilityA critical challenge: funding accessibilityA critical challenge: funding accessibility


The challenges of Funds availabilityThe challenges of Funds availabilityThe challenges of Funds availabilityThe challenges of Funds availability

Reduced lending capacity

Balance sheet constraints;

Increased funding and liquidity costs.

Flight to quality

More stringent due diligence;

More conservative structures;

Emphasis on core sponsors in core countries.

Cautiousness in respect to syndication

Underwritings versus club deals.

Addressing liquidity mismatch


International Bank Market

Decision to lend to be determined by relationship considerations

International Capital Markets

Credit rating needed Conditions in

international credit markets remain challenging

Islamic Financial Institutions

To date, only a few IFIs active in project finance market

Prefer to focus on local market

Local Funds Can lend up to 15

years tenor PIF recently has

increased its lending limit up to US$ 1.6 Bn per project

SIDF can lend up to US$ 160 Mn per project

ECAs Likely to emerge as

most sought after source of finance in the current environment

All ECAs from major OECD countries open to GCC

Familiarity with regional project finance market requirements

Saudi Bank Market 7 banks truly active in

project finance market Currently almost no

lending in US$

Regional Bank Market 4 regional banks

historically active in GCC project finance market

Appetite severely constrained

Need to access all potential sources of finance ….Sukuk Sukuk markets still in

development phase Pre-completion risks

complex to understand

The challenges of Funds availability. Cont’dThe challenges of Funds availability. Cont’dThe challenges of Funds availability. Cont’dThe challenges of Funds availability. Cont’d


Key features of a successful project finance transactionKey features of a successful project finance transactionKey features of a successful project finance transactionKey features of a successful project finance transaction

Transaction structure :

Compliance with all standard Project Finance contractual requirements;

Completion guarantees;

Tighter financial covenants;

Shorter tenors;

Solid economics.

Credit profile:

Government-owned sponsors as well as private sponsors with high credit rating and solid experience /track record;

Strategic industry;

Strategic project


Key features of a successful project finance transaction Key features of a successful project finance transaction (cont’d(cont’d))

Key features of a successful project finance transaction Key features of a successful project finance transaction (cont’d(cont’d))

Financing structure :

Multi-currency tranches;

Islamic and Conventional;

ECAs and other government related funding;

Capital market instruments.

Syndication strategy:

Club deals

Relationship banks;

Key role of the financial advisor.


Why Financial Advisory is CriticalWhy Financial Advisory is CriticalWhy Financial Advisory is CriticalWhy Financial Advisory is Critical

Prepare a suitable financing structure and information package.

Attract financing from various debt providers at competitive terms.

Identify key project risks and develop ways to mitigate them.

Provide input on commercial issues in key project agreements.

Assess various sources of debt (capital markets, commercial banks, Islamic banks, multilateral agencies and export credit agencies).

Bridge the gap between the Sponsors and the debt providers.

Ensure that the interests of the Sponsors are being served at all times.

Facilitate achieving financial close in a timely manner.


APICORPP.O. Box 9599Dammam 31423Kingdom of Saudi Arabia

Telephone (+966) 3 847 0444Fax (+966) 3 847 0011 / 0022Telex 870068 APIC SJ

E-mail [email protected] www.apicorp-arabia.com

APICORPBahrain Banking Office26th Floor, Al Moayyed TowerAl Seef DistrictP.O. Box 18616ManamaKingdom of Bahrain

Telephone (+973) 1 756 3777Fax (+973) 1 758 1337

THANK YOUTHANK YOU


industrial project finance in gcc countries forum federation of gcc chambers of commerce october 12,...

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