INTRODUCTION

Introduction to Project Introduction to Project FinanceFinance

Presenter:Presenter:

• Introduction to Project Financing– Project Financing

• Public Finance• Corporate Finance (B/S or Secured Assets or Preferential

Claims outside the ring-fenced project structure)• Limited/non recourse• Hybrid

– Ring-fenced or not– Limited recourse (limited recourse to sponsor B/S or

Assets) and– Non-recourse Project Finance (Cash flushed projects

”from a bank’s perspective”)

PROJECT FINANCE

• Raising and contributing funds from the public either through :– Taxes and tariffs– Public Borrowing (Sovereign

guarantees/bonds/notes)– Both

• To finance asset creation (infrastructure)• Service provision

FINANCING OF PPP PROJECTS - Public Finance

GOVERNMENT

LENDERS / DEBT•Sovereign guarantee

Loan

PRIVATE CONSTRUCTIONCONTRACTOR

TAX PAYERS/ TARIFFS

Public Finance

FINANCING OF PPP PROJECTS - Corporate Finance

• Financing of PPP projects– Corporate Finance (B/S)

• Security Recourse to the Balance Sheet of a Participant

Assets outside of the Project

Preferential Claims

Corporate Finance

• Raising finance on the basis of a Company’s existing financial strength, also termed as ‘direct lending’ or ‘balance sheet financing’ – could be rolled over into PF

Lenders

Government Private Company School

Tax Payers

ConstructionOperation, Maintenance & Service ProvisionConcession

Taxes

Fees

Service

LoansRepayment

Corporate B/Sheet

FINANCING OF PPP PROJECTS - Limited Recourse Project Finance

• PPPs– Capital intensive– Leverages private sector money (debt and equity)– PF structure optimises private sector participation– Allows high debt levels - Cash Flow driven

• Cash flow determines debt levels• Debt vs Equity risks

– Robust due diligence by Financing Institutions– Project Cash flow/Cession of Rights/Legal

Documentation = Security– Recourse to B/S of Participants for Limited Period– Managerial skills and other Efficiencies

FINANCING OF PPP PROJECTS – Limited Recourse Project Finance

(continue)

• Logical and simple approach– KIS

• Efficient way of mobilising private sector investment for large infrastructure projects – no wants B/S hooked-up

• Efficient way of mobilising the debt financing from Financing Institutions– Banks– Institutional financiers– DFIs

FINANCING OF PPP PROJECTS – Limited Recourse Project Finance

(continue)

• Project Finance (Limited recourse/non-recourse)– Off-Balance Sheet

– Limited / non-recourse project finance

– Balance Sheets only until Project Completion

– Ring-fenced project cash flow

– Complex legal structures, but very logical approach

– Cash-flow driven

– Ratios – D:E / DSCR / LLCR / PLCR and ALL

Generic Project Structure

SPV

GOVERNMENT•Concession Contract•Licence Agreement

EQUITY INVESTORS•Project Sponsors•Passive Equity

•Subordinated debt10 - 50 %

DEBT•DFIs•ECAs

•Commercial Banks•Capital Markets

90 - 50 %

CONSTRUCTIONDESIGN OPERATIONS MAINTENANCE

Performance based delivery and supported by Sponsors

Performance based delivery and supported by Sponsors

BEE/HDIs

GENERIC PROJECT STRUCTURE

GOVERNMENT

EQUITY

PROJECT SPONSORSSPONSORS

SPV PASSIVE EQUITY

SHAREHOLDERS LOANSUB/DEBT

DEBT

SENIOR DEBT

SUBORDINATED DEBTMEZZANINE DEBT

DESIGN CONSTRUCTION OPERATIONS MAINTENANCE

GENERIC PROJECT STRUCTURE RISK ALLOCATION - EQUITY PARTICIPANTS

PROJECT SPONSORSSPONSORS

PASSIVE EQUITY

SHAREHOLDERS LOANSUB/DEBT

COMPLETION

RISK

TECHNOLOGY AND

TECHNICAL ASSISTANCE

BIDDING AND DEVELOPMENT

COST

RETURN on INVESTMENT

PARTICIPANT RISK i.e. OPERATOR FAILURE / BEE FINANCING COST i.e.

CHANGES TO INTEREST

RATES/HEDGINGALLOCATION AND MITIGATION OF RISKS

GENERIC PROJECT STRUCTURERISK ALLOCATION - LENDERS

SENIOR DEBT

SUBORDINATED DEBTMEZZANINE DEBT

Participants Risk

Political Risk

Syndication Risk

Foreign Exchange

Interest Rate/Hedging

Contract Risk

GENERIC PROJECT STRUCTURE RISK ALLOCATION - D&C PARTICIPANTS

Site

Environmental i.e. pollution

Completion- time /cost

Management

Technology

Engineering

DESIGN

CONSTRUCTION

GENERIC PROJECT STRUCTURERISK ALLOCATION - O&M/FM PARTICIPANTS

Cost

Labour Relations

Management

Technical

Technology BEE/HDI

OPERATIONS

MAINTENANCE

GENERIC PROJECT STRUCTURE RISK ALLOCATION - GOVERNMENT

Supporting Infrastructure

Public Sector Inefficiencies

Force Majeure

Political Risk

Changes in Law/Enabling Environment

Foreign Exchange

GOVERNMENT

GENERIC PROJECT STRUCTURERISK ALLOCATION - SPV

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SPV

SPV is left with Risks not allocated or mitigated

WATER TREATMENT PLANT - BOT

51% Equity

Vivendi

100% Equity

CGE

OTV Group

100% Equity

OTVFrance SA– sponsor -

100% Equity

DTMC- Implementing Agent - SAPREF

3,3Ml/day

Mondi30Ml/day

Marubeni10%

Umgeni12%

Zethachem2%

Khulani12,75%

Celtic12,25%

OTV – RSA- Contractor -- Operator -

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Pe

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G

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DWR

- Concessionaire -

Off-take AgreementShareholdingDesign and construction contractsOperations and maintenance contractsFinancing AgreementsSponsor Support AgreementConcession AgreementPerformance guarantee

Diagram of Contractual Structure

RMB- R23,637 mil -

DBSA- R17,464 mil -

DBSA French Treasury

- FF7,5 mil -

DBSABuyer Credit- FF7,9 mil -

Sponsor Support for project completion

FINANCING STRUCTUREANNEXURE 6

DIAGRAM : FRENCH EXPORT CREDIT FACILITY

OTV France SA- Supplier of Goods

and Services -

DWR- Concessionaire -

French TreasuryFacility - FF7,5 mil

- NATEXIS -

French BuyerCredit Facility - FF,7,860mil

- SOC GEN -

DBSA- Buyer Credit

FF7,860mil

DBSA- French TreasuryFacility FF7,5mil

French Government

South African Government

FRANCE

Agreem

ent -

Paym

ent F

F o

r

Euro

Guarantee

Repayment inFF or Euro

Proto

colSOUTH AFRICA

LIMITED RECOURSE PF4PPPs

• Are you confused?• It is difficult …..but• Logical – 25% financial, 25% legal, 25%

technical, and 25% common senese• Keep it Simple “Stupid” (KISS) – vanilla

structure, no complicated other structuring

Questions???

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