OECD 7th Forum on African Public Debt Management The Financing of Infrastructure Development
Gabriel Buck MD, Head of ECA & Capex Financing Solutions Group
5 The North Colonnade Tel +44 (0) 20 777 34092 Canary Wharf Fax +44 (0) 20 751 67502 London E14 4BB Mobile +44 (0) 7767 374323 United Kingdom [email protected]
1 World Bank Reports:
USD 45bn spent in Africa on infrastructure every year
USD 75bn required to be spent every year to redress Africa‟s infrastructure deficit
African Development Bank Reports:
Bank funding alone will not suffice
Financing will remain a major challenge
USD 93bn p.a. needed until 2020 for Africa to break even their infrastructure deficit
Even scaling up of infrastructure financing from the traditional sources, including taxes, government borrowing and aid, will not suffice
2 Infrastructure Demand Driven by:
One of the fastest growing economies A land mass requiring a vast SSA growth rate of 5.7% from 2013-18 integrated infrastructure network
GDP Germany Growth % Italy
7 France Eastern 6 Spain 5 Europe 4 3 2 USA 1 0 India Asia SS Africa LATAM CEE Adv. Econ GDP of USD 1.3trn 2.5% of world‟s GDP China
1bn people 13.1% of the world‟s population
UK Japan ______Source: IMF, Barclays Research, Absa Capital.
3 Africa Infrastructure
Africa infrastructure shortfall is glaring, even when comparing to other low-income countries
Electricity coverage
Electricity capacity
Internet
Mobile
Fixed lines
Total roads
Paved roads
0.0 0.2 0.4 0.6 0.8
______Sources: AICD, NASA, Absa.
4 Africa Infrastructure
Understanding where the money is going
Active projects, by sector Active projects, by country
Education Cameroon % capital Resid constr $bn % projects Tanzania Healthcare # Projects Housing Libya
Oil/gas pipe Mozambique Ind constr Algeria Comm constr Kenya Ports
Airports Uganda
Water Egypt Rail Nigeria Roads/bridges
Power South Africa
0 10 20 30 40 0 50 100 ______Sources: Africa Project Access, Business Monitor International, Ernst & Young, Absa. Sources: Africa Project Access, Business Monitor International, Ernst & Young, Absa 5 Despite the enormity of the scale, major CapEx programmes are getting done
Ghana Morocco Nigeria Egypt Ethiopia Kenya
Govt of Ghana Ghana Cocoa Board Royal Air Maroc C&I Leasing EgyptAir Ethiopian Airlines Kenya Airways Kenya Electricity Generating Company USD 101m USD 200m USD 470m USD 4.4m USD 430m USD 300m USD 430m ECIC-backed facility Medium Term Financing of ECIC Facility Financing of Financing of Financing of USD 5bn SHEP4 Programme Trade Finance Facility 5 Boeing & 2 Airbus Crew transport vessels 5 Boeing 3 Boeing 5 Boeing Financial Advisor and Arranger Services Arranger and Lender Initial MLA/Bookrunner Arranger & Agent Arranger & Agent Arranger & Agent Arranger & Agent Arranger & Agent 2012 2012 2007-2008 2013 2002 - 2008 2003 2002 - 2008 UNDER MANDATE
Govt of Ghana Ghana Cocoa Board Tanzania Mozambique
USD 175m USD 1.5bn
ECGD-backed facility Short Term
7 district hospitals Trade Finance Facility
Initial Lead Arranger Govt of Tanzania Govt of Tanzania Sasol New Energy October 2012 2012 USD 1.0bn USD 40m Advisory for Umbrella Structured Structured L/C and Financing of ECA Facility Loan facility Gas power plant
Lead Arranger / Agent Zimbabwe Zambia UNDER MANDATE 2000 UNDER MANDATE
PROJECT
MAAMBA South Africa Makomo Resources Govt of Zambia
USD 10m Up to USD 2.8bn USD 540m SMT ECIC backed Umbrella Structured ECA-backed facility financing ECA Facility 2x150MW Power Plant Govt of South Africa
Shaft Sinkers Telkom Xstrata South Africa NT1,2,3 Arranger & Agent USD 2.6bn 2012 UNDER MANDATE UNDER MANDATE USD 260m ECIC USD 1.6bn USD 1.0bn Re-Structured Backed Facility Umbrella Structured ECA Backed Facility Multicurrency ECA Facitliy 2x150MW Power Plant ECGD Facility Sole Adviser &Bookrunner Sole Advisor /Arranger Sole Advisor & MLA Angola Namibia Lesotho 2010 2010-2015 UNDER MANDATE 2000-2020
PROJECT
SEAGOLD TAAG Sonangol Natura Energy Liqhobong Mainstream Transnet SANRAL South African Airways Diamond Project USD 580m USD 100m USD 2.5bn USD 150m USD 1.0bn ZAR 78bn USD 1.0bn USD 345m Financing of Financing of 13 fixed ECA Backed Facility USD 75m ECA Backed Facility Umbrella Structured Umbrella Structured Financing of 7 Boeing & rotary wing aircraft Syndicated Loan HFO Power Plant ECIC-Backed 7 Renewables Projects ECA Facility ECA Facility 3 Airbus Project Finance Arranger & Agent Arranger & Agent Joint MLA Sole Advisor/Arranger Sole Advisor/Arranger Arranger & Agent 2006-2007 2005-2006 2008 UNDER MANDATE UNDER MANDATE UNDER MANDATE 2007-2012 2009-2014 2003
6 Funding Essentially comes from 3 sources:
1. Loan Market Funding
2. Bond Market Funding
3. ECA Market Funding
Borrowers, whether Governments, SOE‟s or Project Sponsors, need to address how best to fund from these 3 pools of liquidity
Due consideration will be given on factors such as:
Depth of liquidity
Maximum tenor
All in pricing – including negative cost of carry
FX / Interest Rate risk
Suitability/Flexibility especially when dealing with project risk, delays, cost overruns, etc
Documentation and the need for a credit rating from either Fitch, S&P or Moody‟s
7 Loan Markets: International Project Finance: Volumes are down The dynamics are evolving
Commentary EMEA project finance volumes The global project finance loan market fell back 7% $mn No. Deals last year to $198.7bn in 2012 150,000 600
Throughout 2012, a common theme was the fact that eurozone banks had limited lending 100,000 400 capacity Deal flow in the eurozone fell back as austerity bit 50,000 200
Volumes in EMEA region fell by 18.5% to $67.9bn 0 0 Into 2013, EMEA deal flow remains constrained 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 EM EA loan volumes No. of deals The proportion of capital provided by European banks continues on its downward trend EMEA project finance loans – 2007YTD
Liquidity issues and higher pricing were primarily a $bn Market Share 150 70% result of: 125 60% 50% 100 Increased regulatory requirements which have 40% 75 increased bank capital requirements and 30% 50 reduced lending capacity 20% 25 10% 0 0% Higher bank funding costs, and a move towards 2007 2008 2009 2010 2011 2012 matching funding with tenor of underlying IT/FR/ESP/POR UK & Ireland Continental & Nordic CIS assets Japan Other IT/FR/ESP/POR market share ______Source: Dealogic, Project Finance International.
8 Loan Markets: Domestic Bank Markets: Single Lending Capacity
Just taking South Africa as an example: Capital reserves determines each bank‟s single lending capacity Total Capital Single Reserve (less lending Institution impairments) capacity R‟000 R‟000 THE STANDARD BANK OF S A LTD 71,137,334 17,784,333.50 Even for the South African market, ABSA BANK LTD 57,589,691 14,397,422.75 capacity is not big enough to fund mega FIRSTRAND BANK LIMITED 54,875,293 13,718,823.25 NEDBANK LTD 44,937,989 11,234,497.25 infrastructure projects INVESTEC BANK LTD 20,392,451 5,098,112.75 AFRICAN BANK LIMITED 13,029,258 3,257,314.50 CAPITEC BANK 8,439,237 2,109,809.25 CITIBANK N.A 4,490,619 1,122,654.75 Top 20 RSA bank aggregate single JPMORGAN CHASE BANK 2,650,000 662,500.00 STANDARD CHARTERED BANK 2,068,226 517,056.50 lending capacity is USD 7.2bn THE HK & SHANGHAI BANKING CORP 1,866,371 466,592.75 BIDVEST BANK LIMITED 1,821,468 455,367.00 MERCANTILE BANK LTD 1,679,089 419,772.25 BANK OF CHINA LTD JHB BRANCH 1,608,023 402,005.75 For USD 250m-300m sized projects, loan CHINA CONSTRUCTION BANK 1,345,868 336,467.00 DEUTSCHE BANK AG 1,302,168 325,542.00 market funding now dependant on STATE BANK OF INDIA 751,685 187,921.25 multiple banks forming a syndication SASFIN BANK LTD 599,796 149,949.00 UBANK LIMITED 539,841 134,960.25 GRINDROD BANK LIMITED 526,374 131,593.50 Total R’000 292,132,080 73,033020 Total USD ‘000 28,628,944 7,157,236 This data reinforcing African Development Bank report that bank ______BA900 Returns for Mar 2013. funding will not suffice FX – ZAR:USD 0.098 as of 21/06/2013.
9 Bond Market: Substantial Growth in recent years
With emerging markets growth hitting record levels
Global new issue market overview Credit spreads have compressed
USDbn (%) 5,000 15% 15.0
14.0
13.0 4,000 12% 12.0 11.0
3,000 9% 10.0
9.0
8.0 2,000 6% 7.0
6.0 5.0 1,000 3% 4.0
3.0
0 0% 2.0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12'13ytd Nov-07 Jan-09 Apr-10 Jul-11 Oct-12 Global EM as % of global issuance (RHS) US credit EM credit
______Source: Barclays, Bloomberg, April 2013.
10 Bond Markets: African international issuance has increased, however, still small in context of broader EM
African „rarity value‟ factor has continued to drive investor demand
International African Bond Issuance All International Public African Issues – 2012 to 2013 YTD Rating Size Spread to (%) Date Issuer Maturity Coupon (%) Curr (US$m) FI Corporate (Current) ($mn) Bmk (bps) Sovereign Africa % EM (RHS) May-13 Afrexim Bank Baa2/BBB- TBD TBD USD TBD TBD 12,500 5.00 May-13 Fidelity Bank B/B May-18 6.875 USD 300 635 Apr-13 Rwanda B/B May-23 6.625 USD 400 498.7 Mar-13 Sea Trucks NR Mar-18 9.000 USD 575 - 4.43 Feb-13 Tanzania NR Mar-20 6mL+600 USD 600 - Feb-13 Edcon B3/B Mar-18 9.500 EUR 300 978 10,000 4.00 Nov-12 Sasol Baa1/BBB Nov-22 4.500 USD 1,000 288 Nov-12 African Bank Baa2/- Nov-16 4.000 CHF 134 - 3.57 Sep-12 Mondi Baa3/- Sep-20 3.375 EUR 652 221 Sep-12 Zambia B2/B+ Sep-22 5.375 USD 750 384 3.17 Aug-12 Angola Ba3/BB- Aug-19 7.000 USD 1,000 630 7,500 3.04 3.00 Jul-12 AngloGold Baa2/BBB- Aug-22 5.125 USD 750 380 Jul-12 Transnet A3/BBB Jul-22 4.000 USD 1,000 263 Jul-12 Access Bank B+/B Jul-17 7.250 USD 350 665 Jul-12 Investec Baa3/BBB- Jul-17 3.875 USD 300 - 2.25 Jul-12 Tunisia Baa3/BB Jul-19 1.686 USD 485 70 5,000 2.00 Jul-12 African Bank Baa2/- Jul-15 4.750 CHF 128 - Jun-12 Sappi Papier Ba2/BB- Jul-17 7.750 USD 400 702 Jun-12 Sappi Papier Ba2/BB- Jul-19 8.375 USD 300 727 Apr-12 Tunisia Baa3/BB Apr-17 2.500 USD 500 - 1.27 Mar-12 Afren B/B Apr-19 10.250 USD 300 - 2,500 1.00 Feb-12 African Bank Baa2/- Feb-17 8.125 USD 350 721 Jan-12 South Africa Baa1/BBB Jan-24 4.665 USD 1,500 270 Jan-11 Nigeria Ba3/BB- Jan-21 6.750 USD 500 - Jan-11 Afren B/B Feb-16 11.500 USD 500 - May-11 GT Bank BB-/B+ May-16 7.500 USD 500 -
0 0.00 Barclays led transactions 2008 2009 2010 2011 2012 2013ytd Source: Bloomberg EMRD Source: Barclays, Bloomberg, June 2013
11 Bond Markets: Zambia’s Recent Inaugural Bond
A good example: where there is appetite – tap it
“Zambia - Investors clamour for debut bond”
Initial issue at USD 500m “Zambia's record-breaking Eurobond rises in first day trade” Upsized to USD 750m due to strong demand
“Review: Zambia gets blowout response on 56% of investors from the USA USD debut”
16 times oversubscribed – investor appetite reached c. USD 12bn
10 year bond at a coupon of 5.375% - lower than that of the Kingdom of Spain
Have in mind: 1. Be prepared. The window may not always be open. It is susceptible to periods of market weakness. Important to be ready to launch to take advantage of market strengths
2. Bond Market funding may not always be appropriate for infrastructure financing given the negative cost of carry
12 ECAs: The Third Pillar of Liquidity
Global new issue market overview ECAs are willing and able to fill USD m 2,000,000 the gap post the 2007 crisis
1,500,000 Now USD 1.8trn funded by the ECAs 1,000,000 All of Africa is on cover with the 500,000 exception of a few “challenging” markets 0 2009 2010 2011 2012 With many ECAs having ST Export Credit Insurance Investment Insurance unlimited appetite MLT Export Credit Insurance & Lending 2012 MLT New Business – Insured during each year 2012 MLT Exposure: Top 10 Countries
Other USA Sovereigns Russia 23.4% 28.8% Other Public India Projects Turkey banks Brazil Corporates Saudi Arabia Unspecified UAE Lending China Indonesia ______Source: Exporta and Berneunion. Mexico
13 ECA’s provide some key advantages For African Infrastructure Projects
Key Benefits
ECAs are under lent to Africa
Many are extremely keen to do more and can provide FX & interest rate flexibility
Eligibility to tap ECAs is high as a significant % of Africa Infrastructure is imported
Don’t forget the 3 L’s:
Low margins: cheaper than the bank or bond markets and limited to no cost of carry
Longer tenors: build period + 18 years possible
Liquidity: separate pool & no crowd out
But preposition is key
ECA’s remit is to support exporters win contracts
It is therefore important to start negotiations with ECAs before the commercial contract is signed
It is complex and it is never too early to start the process
14 ECA: Ghana’s New Benchmark ECA Financing
12.5 years USD funding with an all-in
cost of 3.72%
Government of Ghana USD 175m Financing of District Hospitals From mandate to close in 8 months
Coordinating MLA Issuing / LC bank Bookrunner 7 Hospitals Agent Lender of GHS 55m uncovered portion
Integrated financing solution MLA and lender of ECA portion
MLA and lender of ECA portion Tender Panel providing an open and
ECA transparent funding mechanism
International law firm Providing an all in cost that achieves Local law firm affordability criteria without aid / donor
October 2012 support
15 In Summary: Tap all 3 in a balanced way
Loan Market Bond Market ECA Market Depth of liquidity Maximum tenor All in pricing Low cost of negative carry Flexibility to cover project risk FX / Interest Rate flexibility Ratings requirements Not Required Required Not Required
In summary: Flexibility & local Can attract liquidity Cheapest & attracts cost funding liquidity Tenor & depth of Susceptible to Prepositioning and appetite periods of market limited to Goods & weakness Services imported
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