financing projects in the forest industry in eastern europe juhani numminen, senior advisor - pulp,...
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Financing ProjectsFinancing Projectsin the Forest Industryin the Forest Industry
in Eastern Europein Eastern Europe
Juhani Numminen, Senior Advisor - Pulp, Paper and Juhani Numminen, Senior Advisor - Pulp, Paper and Forest Products Industries, EBRDForest Products Industries, EBRD
EEBF Stockholm 26 November 2004EEBF Stockholm 26 November 2004
ContentsContents
Introduction
Role and Activities of the EBRD
How to Work with the EBRD
Financing Instruments of the EBRD
How Banks Evaluate Project Risks
EBRD and the Forest Industry
Case: Estonian Cell
IntroductionIntroduction
The main output of the forestry sector is wood raw material Demand for most end products of the Forest Products industries
still grows steadily Eastern Europe is forecast to have the fastest growth of paper
and board demand to 2015 Western Europe (excl. Nordic) is a big net importer of fibre Eastern Europe, esp. Russia, has untapped forest resources It is expected that investment in the Forest Products industries in
Eastern Europe by local and foreign companies will gather pace Most Forest Products industries are very capital intensive Financing is critical to the development of this sector
ContentsContents
Introduction
Role and Activities of the EBRD
How to Work with the EBRD
Financing Instruments of the EBRD
How Banks Evaluate Project Risks
EBRD and the Forest Industry
Case: Estonian Cell
What is the EBRD?What is the EBRD?
0
6
12
18
24
'98 '99 '00 '01 '02 '03 '04
International financial institution, promotes transition to market economies in 27 countries from central Europe to central Asia
Owned by 60 countries and two inter-governmental institutions
Capital base €20 billionCumulative commitments €24.1 billion
Unaudited June 2004
Network of 32 Offices in 27 CountriesNetwork of 32 Offices in 27 Countries
EBRD – Focused on Private SectorEBRD – Focused on Private Sector
State loans 26%
Equity 20%
Guarantees, etc 4%
Private loans 50%
ContentsContents
Introduction
Role and Activities of the EBRD
How to Work with the EBRD
Financing Instruments of the EBRD
How Banks Evaluate Project Risks
EBRD and the Forest Industry
Case: Estonian Cell
Key Requirements for FinancingKey Requirements for Financing
Every EBRD investment must:
– Help move the country closer to full market economy
– Take risk supporting private investors, not crowding them out
– Apply sound banking principles
– Be environmentally sound
EBRD’s RoleEBRD’s Role
Functioning as a catalyst for change, the EBRD:
Promotes co-financing and foreign direct investment
Mobilises domestic capital
Provides technical assistance
Strengths of the EBRDStrengths of the EBRD
Strong, internationally recognised financial partner with long-term perspective and mission
Willing to share risks, including political risks (customised to each transaction)
Preferred Creditor Status in all Countries of Operations
Excellent working relationship with commercial banks
Excellent working relationships with governments
Strengths of the EBRD (cont’d)Strengths of the EBRD (cont’d)
Experience gained in problem resolution
Door opener for foreign private investors
Nationals from our countries of operations are among the multi-national staff (390 banking professionals)
Extensive knowledge of local economy, business environment and practices
EBRD’s ProceduresEBRD’s Procedures
• Operates like any other bank/investor with Credit Committee and Board approvals for all projects
• Dedicated banker to follow project through and manage it internally and externally
• Bankers supported by lawyers, other specialists and consultants
Important to contact the EBRD early on in process
Provide the EBRD with overview of proposed investment
Commitment to work together– clarify role of the EBRD– mandate the EBRD to initiate the transaction– mutual understanding of corporate integrity
issues Visit EBRD website for “A Guide to EBRD financing”
http://www.ebrd.com/pubs/find/index.htm
How to Obtain FinanceHow to Obtain Finance
Project Information Required for Project Information Required for EBRD FinancingEBRD Financing
Business plan covering 3 main areas:
1. Project Information:
A brief description of the project, detailing how the Bank’s financing will be used
Information on the sponsor, including operating experience, financial status
How the sponsor will support the project in terms of equity, management, operations, production and marketing
Details of the product or service that will be developed and how it will be produced
A review of the market, including target customers, competition, market share and sales volume, pricing strategy and distribution
Project Information Required for Project Information Required for EBRD Financing (cont’d)EBRD Financing (cont’d)
2. Financial Information:
Breakdown of the project costs and how the funds will be used
A summary of the implementation requirements, including the appointment of contractors, and an overview of the procurement process
Identification of additional sources of funding
An analysis of the project’s anticipated financial performance
Project Information Required for Project Information Required for EBRD Financing (cont’d)EBRD Financing (cont’d)
3. Environmental and regulatory information:
A summary of any environmental issues, environmental audits or impact assessments
Details of government licences or permits required, subsidies available, import/export restrictions, border tariffs or quotas and currency restrictions
EBRD’s Environmental ProceduresEBRD’s Environmental Procedures
Initial environmental screening to identify potential environmental issues
Environmental assessment and/or audit undertaken by the sponsor
Public consultation requirements
Development of an Environmental Action Plan to document key environmental issues and the action to be taken to address them adequately
Incorporation of environmental conditions into legal documentation
Environmental monitoring and evaluation of projects
ContentsContents
Introduction
Role and Activities of the EBRD
How to Work with the EBRD
Financing Instruments of the EBRD
How Banks Evaluate Project Risks
EBRD and the Forest Industry
Case: Estonian Cell
Financing InstrumentsFinancing Instruments
Loans
Equity, including
combination of loan
and equity
Guarantees, including
credit enhancements
(performance bonds
etc.)
SME loans
Equity funds
Micro/small business programmes
Credit lines
Trade Facilitation Programme
Co-financings
Direct Indirect
Project Financing GuidelinesProject Financing Guidelines
Significant equity contributions (in cash/in-kind) required from sponsor(s)
Prudent capital structure (normally 60% long term debt in total financing)
the EBRD 35%
Co-investors 65%
Typical Capitalisation StructureTypical Capitalisation Structure
Equity
Equity
LoanLoan
Loan
Foreign sponsor
25%
the EBRD 35%
Syndicated 15%
Local sponsor 15%
Others 10%
EBRD’s Risk ProfileEBRD’s Risk Profile
Takes financial risks Takes political risks Takes long maturity Shares equity risk
Have sound management
Take operational risks
Take commercial risks
the EBRD Sponsors
Financial FlexibilityFinancial Flexibility
Financing structured to meet project-specific needs, including repayment schedules
Tailored to particular situation of country/region and sector
Pricing reflects risks with project, borrower and country
Wide range of loans
Fixed or floating rate
loans
Choice of currencies
Short to long-term
maturities
Hedging
ContentsContents
Introduction
Role and Activities of the EBRD
How to Work with the EBRD
Financing Instruments of the EBRD
How Banks Evaluate Project Risks
EBRD and the Forest Industry
Case: Estonian Cell
How Banks Evaluate Project RisksHow Banks Evaluate Project Risks
Who is the investor? track record/experience/resources/ integrity
Completion (no completion = no cash flow = no debt service)Cost overrun Delays in construction/implementationTechnology – proven or experimentalRaw material supply – availability/certainty/pricingLogistics/transportation/costsAvailability of necessary skills, labour and managerial staff
How Banks Evaluate Project Risks (2)How Banks Evaluate Project Risks (2)
Start-up and operation at planned capacity
Environmental compliance
Operating costs
Relative project competitiveness
Markets/demand/marketing/sales/pricing
Contractual/legal
Political/legislative
Financial/macroeconomic
ContentsContents
Introduction
Role and Activities of the EBRD
How to Work with the EBRD
Financing Instruments of the EBRD
How Banks Evaluate Project Risks
EBRD and the Forest Industry
Case: Estonian Cell
EBRD OrganisationEBRD Organisation
Financial Institutions
Industry and Commerce
Infrastructure
Automotive
Chemicals
FOREST INDUSTRY
Non-Ferrous Metals
Steel
Aerospace
Southern & Eastern Europe
Combining Industry Knowledge with Experience and Contacts in
the Region to deliver tailored solutions to financing and
political risk
Combining Industry Knowledge with Experience and Contacts in
the Region to deliver tailored solutions to financing and
political risk
Russia and Central Asia Central Europe
Selected EBRD Investments in Forest Selected EBRD Investments in Forest IndustriesIndustries Project Foreign Investor EBRD Financing
Year Company Product Country Owner/Partner Country €million Type
2004 Frati-Sebes Chipboard, MDF, Resin
Romania Kronospan Group Austria 70 Loan
2004 Estonian Cell Pulp Estonia Larvik Cell Heinzel Holdings
Norway Austria
19 Equity
2003 Kronospan MDF, Resin Russia Kronospan Group Austria 63 Loan
2003 Rubizhansky Paperboard, Packaging
Ukraine D.S. Smith U.K. 12 Loan
2003 Pestovo Saw mill Russia UPM Finland 15 Loan
2002 Imavere Saw mill Estonia 7 Loan
2002 Stora Enso MPF* Saw mills, Packaging
Regional Stora Enso Finland 100 Loan
2000 Kostrzyn, KZP Paper Poland Trebruk Sweden 12
11
Equity
Loan
1999 Ambro Pulp, Paper Romania Rossman/Sical France 6 Loan
1999 Imavere Saw mill Estonia 5 Loan
1997 Imavere Saw mill Estonia 7 Loan
1997 Krono-Wood Mielec
Chipboard Poland Kronospan Group Austria 19 Loan
*: Multi-project facility
Selected EBRD Investments in Forest Selected EBRD Investments in Forest IndustriesIndustries Project Foreign Investor EBRD Financing
Year Company Product Country Owner/Partner Country €million Type
1996 Kostrzyn, KZP Paper Poland Trebruk Sweden 13 Loan
1995 Sepap Steti Pulp, paper Czech Rep. AssiDoman Sweden 57 Loan
1994 Kronospan Szczecinek
MDF, Resin Poland Kronospan Group Austria 31 Loan
1994 Kwidzyn Pulp, paper Poland International Paper U.S. 28 Loan
1994 Papirnica Kolicevo
Paperboard Slovenia Saffa/Sarrio Italy 3
10
Equity Loan
1994 Zapsibinvest Solid wood board
Russia Loschen Germany 4 Loan
1993 Kostrzyn, KZP Paper Poland Trebruk Sweden 18 Loan
1993 Polspan Szczecinek
Chipboard Poland Kronospan Group Austria 16 Loan
1993 Malta-Décor Paper Poland Kronospan Group Austria 6 Loan
1993 Kner Nyomda Packaging Hungary Cofinec France 4
2
Equity
Loan
1993 PCA-Budafok Packaging Hungary PCA U.S. 3 Loan
Total 541
ContentsContents
Introduction
Role and Activities of the EBRD
How to Work with the EBRD
Financing Instruments of the EBRD
How Banks Evaluate Project Risks
EBRD and the Forest Industry
Case: Estonian Cell
Introduction – Estonian CellIntroduction – Estonian Cell
EUR 19 million equity investment into green-field Aspen BCTMP pulp mill in Estonia, 140,000 t/a
Total project cost EUR 153 million
Second largest foreign direct investment in Estonia
Three equal shareholders: EBRD, Larvik Cell, Heinzel
State-of-the-art technology and high-demand product
Low cost producer
Deal StructureDeal Structure – Estonian Cell – Estonian Cell
Larvik Cell AS,Norway
1/3 Shareholder & Sponsor
Estonian Cell AS
Estonia
Estonian State Forest
Management Centre Long-term wood supply
contract
Nor-Est Wood AS
EstoniaLong-term wood supply contract
Gas / Electricity Utilities
RWE IN / Tessag KSHwith Andriz as the main equipment
supplier
Wilfried Heinzel AG
Austria
Wood SupplyAgreements
Heinzel Holding GmbH Austria,
1/3 Shareholder
RZBSenior Debt Underwriter
OeKBAustrian Export Agency
EBRD1/3 Shareholder
Agency Agreement EPC Contract
LT Supply Agreements
EUR 19 mln
EUR 108 mln
How to Contact the EBRDHow to Contact the EBRD
Juhani NumminenSenior Adviser, LondonPulp, Paper and Forest Products Industries+44-20-7338 7056numminej@ebrd.com
Timo HartikainenPrincipal Banker, LondonBusiness Development+44-20-7338 6272hartikat@ebrd.com
www.ebrd.com
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