PROJECT FINANCE STRUCTURING A DEAL Private and Confidential: For Limited Circulation Only DISCLAIMER • This presentation (“Presentation”) has been prepared by Synergy Consulting Infrastructure and Financial Advisory Services Inc. (“Synergy”) to provide helpful information on the subjects discussed for educational purpose only. • Synergy will not regard any person (whether a recipient of this Presentation or not) as a Client and will not be responsible for providing any advice or protections to any such person. • No representation or warranty, express or implied, is or will be given by Synergy or their respective directors, affiliates, partners, employees or advisors or any other person as to the accuracy, completeness or fairness of this Presentation and no responsibility or liability whatsoever is accepted for the accuracy or sufficiency thereof or for any errors, omissions or misstatements, negligent or otherwise, relating thereto. • Synergy does not undertake, and is under no obligation, to provide any additional information, to update this file, to correct any inaccuracies or to remedy any errors or omissions in this Presentation. • The Presentation should not be regarded as constituting an opinion on the situations discussed in the Presentation, nor relied upon as a basis to proceed, or not to proceed, with any specific action or remedy. 2 CONTENTS 1 DEAL STRUCTURE OVERVIEW 4 DEBT FINANCING FINANCING OF PROJECT: 2 OVERVIEW 3 EQUITY FINANCING Private and Confidential: For Limited Circulation Only 1.1 DEAL STRUCTURE OVERVIEW DEAL 1 STRUCTURING 1.2 FINANCING STRUCTURE OVERVIEW OVERVIEW 1.1 DEAL STRUCTURING OVERVIEW KEY ASPECTS • Contractual structure •Minimum functional requirements •Risk Allocation •Design limits •Risk mitigation (Back to back risk transfer and insurance) •Plant efficiency guarantees / KPI regime Legal Technical Structure Structure Commercial Financing Structure Structure •Commercial framework (BOO/BOOT, Concession term etc.) •Senior debt financing •Tariff structure including •Equity, EBL, SHL deductions / deemed payments •Payment guarantees, LCs •Government guarantees 5 5 1.2 FINANCING STRUCTURE OVERVIEW TYPICAL REQUIREMENTS Deal Type Bid Bid Negotiated Deal (with Lender Commitment) (without Lender Commitment) • Senior Debt Financing • Senior Debt Financing • Senior Debt Financing • Several bids require lender • Some bids in the region do not • No senior debt commitments are commitments ranging from a require lender commitment at bid typically sought at proposal stage minority up to 100% of debt stage. However, sponsors may be requirement required to submit bank LoIs to • Sponsors typically finalize the demonstrate lender interest and commitment from senior lenders • LoI from ECAs/DFIs may also be also to correctly incorporate likely before the commercial close submitted (though this is typically financing terms in their bid not considered as part of • Depending upon overall deal committed funding) • While some initial lender structure and negotiations, lender comments may be provided at requirements may need to be • Lender sign-off on project pre-bid stage (especially by DFIs) anticipated and included within documents is required pre-bid (i.e Detailed DD is commenced only project documents at significant lender legal DD is after the appointment of negotiations stage performed pre-bid) preferred bidder • Equity Financing • Equity Financing • Equity Financing • Procurer may seek an equity • EBL – typically LoIs are • Sponsor may submit EBL LoIs / commitment letter as a part of considered to be sufficient equity commitment letters to aforementioned short form demonstrate their level of proposal • Equity commitment letters commitment to the procurer 6 2.1 SOURCES OF FINANCING FINANCING OF 2 PROJECT: 2.2 KEY FINANCING CONSIDERATIONS OVERVIEW 2.1 SOURCES OF FINANCING INTRODUCTION In order to meet the project’s funds requirement, cash is infused either in form of Equity or Debt EQUITY PROJECT COST DEBT 1. OPTIONS FOR EQUITY FINANCING 2. OPTIONS FOR DEBT FINANCING • Equity Bridge Loan • Loans from lenders including : • Cash Equity Infusion • Commercial Banks/Fis • Shareholders Loan • Multilateral Agencies/ DFIs • ECAs • Bonds 3. LOAN CLASSIFICATION: ON THE BASIS OF 4. LOAN CLASSIFICATION: ON THE BASIS OF DOCUMENTATION STRUCTURE • Conventional Lending • Long Term Facility (Covered / Uncovered) • Islamic Financing • Mini Perm Facility Private and Confidential: For Limited Circulation Only 8 2.2 KEY FINANCING CONSIDERATIONS • The risk allocation structure under project documents needs to be acceptable to the developer, lenders Acceptable Risk Allocation and other stakeholders, for the project to be successfully financed by local / international lender community • Lenders would also take into account the requirement of the project to the Offtaker on a long-term basis • Strategic nature of the project to the Offtaker would instill confidence and generate ample interest in Strategic Nature of Project the lender community & Project Need • Analyze the economic feasibility and viability of the project, vis-à-vis the region / country • Lenders are expected to review the need for the project based on the increase in demand of the produce in the market • Environmental concerns and technology utilized will be key considerations for most development Environmental Concerns financial institutions and some international commercial lenders for providing funding to certain projects like coal fired power project Credit Strength Of The • Credit strength of the Offtaker and sufficient credit support mechanism would be key to generate Offtaker sufficient interest from the lender community • Mature technology in utility space which has proven its bankability through several successful Established Utility transactions in the region is generally preferred by the lenders Technology • Lenders are expected to be comfortable with such well established technologies in the utility space Private and Confidential: For Limited Circulation Only 9 3.1 EQUITY CONTRIBUTION 3.2 BASE EQUITY SOURCES OF 3.3 EQUITY BRIDGE LOAN 3 EQUITY 3.4 SHAREHOLDER’S LOAN FINANCING 3.5 PREFERRED EQUITY 3.6 LETTER OF CREDIT 3.1 EQUITY CONTRIBUTION OVERVIEW Equity Bridge Loan Shareholder’s Loan Base Equity Equity Commitment Letter of Credit Private and Confidential: For Limited Circulation Only 11 3.2 EQUITY BRIDGE LOAN KEY FEATURES • Short term facility raised to bridge Sponsors’ equity investment in a project • Stop-gap measure until medium or long-term funding can be arranged. Also called swing loan or Definition gap loan (also delays the infusion of more expensive cash equity, into the Project) • Sponsors typically fund a portion / entire equity investment in a Project by way of an Equity Bridge Loan (increasingly being accepted as a bid optimization measure to boost IRRs) • Provided for a short period of time (though the tenors have been increasing with the increased acceptance among the lenders, in the region with EBL tenors now ranging to up to 9 years) Features • Typically attracts higher interest rate as compared to other forms of debt • Bridge loans can be approved and disbursed quickly • Funds can be arranged through bridge loans within a short span of time with comparatively less Advantages documentation (as opposed to, say, raising bonds) Disadvantages • Expensive source of funding since the interest rates are higher as compared to other type of loans Private and Confidential: For Limited Circulation Only 12 3.2 EQUITY BRIDGE LOAN CONTRACTUAL FRAMEWORK EBL STRUCTURE Senior Lenders Sponsors Senior Debt Equity Investment Security Documents EBL Agreements / Security Documents Project Company EBL Lenders Equity Bridge Loan Subordination Agreement CONTRACTUAL FRAMEWORK Contracts Participants Purpose Facility Agreement • Project Company and EBL Lenders • Terms and conditions of EBL Subordination • Subordinating rights of EBL Lenders to those of Senior Lenders in • Senior Lenders and EBL Lenders Agreement respect of Project asset and cash flows • Project Company, Sponsors and EBL • Security provided to EBL Lenders along with terms and conditions Security Agreements Lenders for exercise of the same Legend Cash Contract Private and Confidential: For Limited Circulation Only 13 3.3 BASE EQUITY KEY FEATURES Definition • Contribution by shareholders to fund the cost of development and construction phase of the project Drawdown • Can be upfront, pro-rata, partial pro-rata or back-ended as agreed in the financing documents • No fixed repayments Repayment • Cash available after operating and financing activities are distributed to the shareholders, subject to restrictions on distribution in financing agreements • Equity can be raised through a market equity sale process, a private placement to shortlisted Features & Advantages parties or through corporate debt • No covenants or obligations for Project Company associated with this funding Disadvantages • Most expensive source of funding Private and Confidential: For Limited Circulation Only 14 3.4 SHAREHOLDER’S LOAN KEY FEATURES • Shareholder’s Loan is a subordinated and unsecured loan Definition • Generally provided for a fixed duration but some flexibility in terms of tenor if SHL is provided by providers of base equity Drawdown • Post base equity drawdown or pro- rata with base equity, as agreed in financing documents • Fixed repayments decided by shareholders but with an option of deferral in case if needed Repayment • Senior to base equity and junior to commercial bank debt and government tax authorities • Interest