obstacles and solutions to project bond funding in south-east asia - clifford... · 2015-11-26 ·...
TRANSCRIPT
Obstacles and solutions to project bond funding in South-East Asia 25th November 2015
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Clifford Capital: introduction
Mersin Port
Container Port
US$ 450m z
Project Bond
Anchor Investor
August 2013
CP Latina
2xKFELS Jackups
US$ 175.5m z
Senior Secured Notes
Bond Investor
October 2013
Energy Drilling
Tender Rigs
Confidential Value z z
Senior Term Loan z
MLA
April 2014
FPSO Tartaruga Verde
150,000 bpd FPSO, Brazil US$1.3 bn
Senior Term Loan z
Lead Arranger
September 2015
Desalination Plant, Oman US$180 m
Senior Term Loan z
MLA
October 2015
Qurayyat IWP
Provider of long-term financing for infrastructure and offshore marine assets Private company (not a bank, not an insurance/pension fund) Shareholders: Temasek/ SMBC/ Standard Chartered/ DBS/ Prudential/ John
Hancock Debt issuance rated AAA, guaranteed by Singapore Government Supporting clients with substantial Singapore presence, globally Commenced operations in 2012 and committed close to USD 1bn to date
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Clifford Capital: focus sectors and products
Infrastructure and Offshore Marine are key sectors:
Power / water / oil and gas / petchem / waste / transportation / PPP /
FPSO / drillships / jack-ups / semi-subs / OSVs and PSVs / accommodation rigs / etc
Active across the capital structure:
Senior project and asset-backed financing (debt) – bonds or loans
Mezzanine / subordinated / holdco debt
Global remit:
Financed projects in Turkey, Brazil, Middle East, Asia
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Infrastructure project bonds globally
Infrastructure financing (loans + bonds) has historically comprised of c. 5-20% of Project Bonds
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Infrastructure project bonds in SE Asia overview
SE Asian Project Bonds represent less than 10% of the total Project Bond market and less than 1.5% of total project financing globally (loans + bonds)
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Why are issuance levels low in SE Asia?
Greenfield nature of the market
Bid situations, negative carry, volatility of rates, execution risk
Structure (drawdown profile, prepayments)
Ongoing deal management (processing of waivers/ consents)
Standalone risk profile of projects
Sovereign ratings
Bank liquidity
Investor profile (USD or Local Currency) and international vs. domestic investors
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Potential solutions
Stronger supply of bankable projects, with strong risk mitigation
Effective credit enhancement of key counterparties and/ or issuance
Stimulus of domestic bond market to unlock domestic liquidity (rating agencies, expertise of domestic investors)
“Anchor investors” and key institutional buyers
Dedicated infrastructure debt funds
8 CONFIDENTIAL
Country Turkey
Project Refinancing for Mersin International Port, a 1.8m TEUs integrated port in the Eastern Mediterranean coast of Turkey
Issuance US$450m Fixed Rate Notes due August 2020
Clifford Capital Take
US$79.5m
Sponsors PSA International and Akfen Holding
Financial Close August 2013
Tenor 7 years
Rating at Issuance Baa3 (Moody’s); BBB– (Fitch)
Case study: Mersin International Port, Turkey
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Case study: Mersin International Port, Turkey
Why was this asset suited to a bond issuance?
Brownfield asset with a history of successful operations and stable revenue stream
USD-linked revenues allowed access to USD investor base
No “single counterparty” credit risk, since asset has multiple users and is free to sell services to the market
Investment grade issuance (Baa3/ BBB–)
Anchoring role of key investors: Clifford Capital, European Bank of Reconstruction and Development, International Financing Corporation (World Bank Group)
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Regulatory aspects and enabling environment
Governing Law of project documents
Understood and well-defined body of law, or English Law
Arbitration International jurisdiction recognised for strong independent judicial system
Land, permits Land acquisition facilitated by government under a fair process
Credit quality of project counterparties
Credit enhancement often critical (effective breach of contract/ PRI cover from MIGA/ADB/ECAs)
Enforcement of lender security
Ability to register and enforce security. Acknowledgement of lenders’ interests (e.g. via direct agreements) by government stakeholders
Fiscal stability, change in law
Appropriate reliefs for changes in law affecting project economics
What regulatory/ legal aspects do investors and financiers focus on in emerging markets?
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Final remarks
International capital markets issuance may not be the most effective way to mobilise institutional investment into greenfield infrastructure
Domestic capital markets may be more effective in the longer term, but are generally at nascent stage
“Frontier” markets still not suited for capital markets issuances, unless effective credit enhancement is present (from World Bank/ ADB/ etc)
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Thank you
Marat Zapparov
Director of Infrastructure
Clifford Capital