BRD-NET Lancement Commercial - Cnr -cme
Transcription
BRD-NET Lancement Commercial - Cnr -cme
Financing Power Projects A Lender Perspective Costinesti, 15th of June, 2016 1 BRD – Groupe Société Générale Summary I. Financing Power Projects - the Lenders’ perspective II. Environmental issues III. BRD – major player on the energy market IV. Conclusion 2 BRD – Groupe Société Générale I. Financing Power Projects – the Lenders’ view 1. General Context Romanian Power and especially the power generation sector is dominated by old capacities (most of the power plants have been built between 1950 and 1980) Modest investment during the last years resulting in low efficiency and high emissions Strategy of the Government aims to modernize and revamp old capacities in order to cope with the new environmental standards, to build new capacities in order to replace the ones shut down and to switch to renewable energy as the natural resources are limited. 3 BRD – Groupe Société Générale Power projects are capital intensive requiring huge investments. Therefore the financing of these projects is complex. The traditional source of financing has been the government budget or government sponsored borrowing (loans guaranteed by the state) as most part of this sector is state owned or recently privatized. Under the new rules of competition and state aide clearance established by EU, the government support has been very much diminished/limited. EU funds 2007-2013 limited to specific investments, especially related to the environmental issues and energy efficiency measures. EU grants under 2014-2020 programmes are financing: Clean energy and energy efficiency in order to support a low carbon economy (~218 MEUR) Energy efficiency of the centralized DH systems in selected cities (~275 MEUR) Smart & sustainable energy transport system (~75 MEUR) 4 BRD – Groupe Société Générale 2. Two main sources for funding investments: Equity and Debt Financing Equity Sources: private or public sponsors (shareholders), stategic investors, equity funds, others (employees, individual investors etc) Returns: dividends Security of investment: none 5 BRD – financement de projets Equity and Debt Financing Debt Sources: commercial banks, international financing institutions (EBRD, EIB, IFC, WB etc), Export Credit Agencies (COFACE, HERMES…), supplier credit, financial investors, private equity funds, sovereign loans etc. Security of investment (No recourse) • Assets of the project • Assignment of contracts Security of investment (Recourse or corporate based) • Balance sheet of the owner 6 BRD – Groupe Société Générale Recourse (corporate) Financing Power projects in developing countries are traditionally built as extensions of an existing power plant. Funds are provided on the account of the entire company. As loan security, lenders have full recourse to the assets and revenues of the entire company rather than recourse only to funds related to the new plant. The corporate loan is a simple mechanism: the company is granted the loan by one bank or a club of banks in order to finance the project and the loan is reflected in the balance sheet of the company Conditions/securities: Acceptable Debt/Equity ratio and some key financial covenants Collateral/Guarantees to cover the amount of the loan 7 BRD – Groupe Société Générale Recourse (Corporate) Financing Advantages of the Corporate Loans Can be arranged quickly if conditions are met Simple documentation and security arrangements Disadvantages of the Corporate Loans Risks are mainly carried by the Company Loan is registered on the B/S of the Company increasing the debt burden Repayment periods are not very long (5-10 years) 8 BRD – Groupe Société Générale Bond issue Less extended on the Romanian markets, bonds represent a legally binding obligation by the issuer to repay a principal amount at a future date (medium to long term) and a stream of interest (usually fixed rate interest). It is a debt which is intended to be tradable and therefore is subject to the control of regulatory authorities (CNVM or BVB or other foreign stock exchanges). Funds are provided by investors (insurance companies, pension funds, asset managers, private equity funds, private individuals…). 9 BRD – Groupe Société Générale Bond issue Issuers range from governments, banks, municipalities and corporate involving different scale of risk; usually large creditworthy companies. Banks could cover a range of roles such as intermediation, placement of the issue in the primary market or custodial services. Rating Agencies: such as moody’s, S&P and Fitch may provide an opinion on the credit risk associated to the bond issue Conditions/security: Usually bonds are issued without collateral In some cases one can see covenants relating to ownership, parri passu or financial covenants Tenor up to 10-15 years (longer for sovereing or sub-sovereign) 10 BRD – Groupe Société Générale Bond Issue Advantages of Bonds A clear alternative to traditional bank loan (volatile liquidity, no capital requirements for banks) Long term financing appropriate especially for refinancing assets Disadvantages of the Bond Issue Arranging a Bond issue may be a long process (approx. 6 months or more) Fully drawn up-front, so no flexibility in terms of drawings Likely to be used especially by corporate with solid financial standing and visibility on further development. 11 BRD – Groupe Société Générale Non Recourse or Limited Recourse Financing An alternative to the corporate loan, especially when we are talking about the construction of a new unit, is the setting up of an SPV, dedicated to the development and operation of a new project. In this case, the SPV is the Borrower in relation to the bank The Sponsor contributes with equity in the SPV The assets and the future cash flow of the project itself secure the debt and not the other Sponsor’s available resources Since the repayment of the loan is primarily dependent on the success of the project, lenders pay close attention to the project risks. 12 BRD – Groupe Société Générale Non Recourse or Limited Recourse Financing Which are the main risks ? – Risk matrix Political Risk Regulatory Risk Environmental Risk Completion Risk (construction, cost-overrun, delays) Supply Risk (proven technology) Operating Risk (mentainance, balancing, managemen Market/price Risk (energy price, GC price) FX risk Interest risk 13 BRD – Groupe Société Générale Non Recourse or Limited Recourse Financing: conclusion Project Finance mechanism is complex: The SPV is granted the loan in order to finance the project The risks are numerous and diversified The source of debt service (interest, principal and fees) is primarily the cash flow generated by the project The lender has no or limited recourse on the Sponsor Conditions/covenants: Acceptable Debt/Equity ratio and other key financial covenants Fuel supply security Reliable general contractor and operation and maintenance contractors Reliable cash flow projection based on LT power purchase agreements Acceptable debt service coverage ratio 14 BRD – Groupe Société Générale Non Recourse or Limited Recourse Financing: conclusions Security package: Assets pledged in favor of the bank Assignments of all project contracts Accounts pledged in favor of the bank Construction and Performance Bonds assigned/pledged Pledge on shares In case of limited recourse, corporate guarantee from the Sponsor covering some risks related to the project (overrun costs, cash flow shortfall etc). Who are the lenders: Commercial banks International Finance Institutions (EBRD, EIB, IFC, WB, NIB etc) Export Credit Agencies (COFACE, HERMES, SACE etc) Mezzanine funds (specialized infrastructure funds) 15 BRD – Groupe Société Générale Non Recourse or Limited Recourse Financing: conclusions Advantages: Minimum risk carried by the Sponsor Loan does not appear in the balance sheet of the Sponsor Long maturities (12 – 15 years) Disadvantages: Takes longer time to reach financial closing Involves complex legal documentation and contractual arrangements (external lawyers) and consultants (insurance brokers etc.) Strict requirements for due diligence (technical, environmental, legal due diligence) High compliance for administration & reporting requirements including for environmental matters. 16 BRD – Groupe Société Générale Public Private Partnership (PPPs) It is a partnership between the public sector and the private sector for the purpose of delivering a project or a service traditionally provided by the public sector The overall aim of PPPs is to structure the relationship between the public sector and the private sector, so that the risks are borne by those best able to manage them Increased value is achieved for public services through the exploitation of private sector skills and competencies Transfer of appropriate level of risks and responsibility But, government maintains control where appropriate 17 BRD – Groupe Société Générale III. Environmental Issues Power Projects are particularly subject to environmental concerns since the conventional power plants are most of them factors of pollution Lenders requires that project Sponsors address relevant environmental impacts since environmental issues might result in serious financial losses Lenders impose under the loan documentation strict guidelines/reportings for environmental impacts 18 BRD – Groupe Société Générale IV. BRD Groupe Société Générale – major player on the energy market BRD – an universal bank Retail Banking Corporate Banking Investment Banking BRD - visit card An affiliate of Société Générale Groupe Second largest bank in Romania More that 50% of the large corporate are banking with BRD in Romania 19 BRD – Groupe Société Générale IV. BRD Groupe Société Générale – major player on the energy market BRD – focus on energy sector The exposure of the bank approaches 1 billion EUR Facilities arranged both on short term and long term, corporate or limited recourse, Clients based in production, transport, distribution and supply Large coverage of both public and multinational companies, Participation in all EU/EBRD’s energy efficiency frame facilities put in place in Romania (EEFF & RoSEFF for companies and MEFF for municipalities), including financing of ESCOs 20 BRD – Groupe Société Générale V. Conclusions Power is a strategic sector with huge investment needs Banks are interested to finance power projects based either on balance sheet of the Sponsor or on a Project Finance basis While corporate based loans are quite simple, the Project Finance and Bond issues mechanisms are more complex and require many levels of due diligence and documentation Environmental matters are one of the key elements and banks are using more and more responsible methods to address these issues Société Générale Groupe and its local affiliate are among the leading banks in power project financing and applies responsible rules for environmental assessment. 21 BRD – groupe Société Générale Q&A Thank you ! Contact: Carmen Arhip Tel.: +40 21 301 4552 E-mail: [email protected] 22