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Private and confidential
Funding of Africa’s Growth
Chinese Lenders and the approach to African projects
Nigerian Bar Association ConferenceSoji Omisore
9th June 2015
Private and confidential
Standard Bank Group
3
Global reach with presence in 30 countries Distribution capabilities in world’s leading
financial centres including New York, London and Hong Kong
CIB provides corporate and investment banking services to corporate clients, financial institutions and international counterparties focused on emerging markets around the world
Key regional offices Cover regional
financial centres: London, Beijing, Moscow, New York, Hong Kong, Nairobi, Lagos, Sao Paolo and Dubai
Africa 20 countries
726 branches in South Africa
552 branches in the Rest of Africa
10 countries outside
Africa
Key statistics 1
Market capitalisation2 USD20,429m
Total assets (FY 2013) USD163,814m
Normalised earnings (FY 2013) USD1,372m
ROE (FY 2014) 12.9%
Tier 1 capital adequacy ratio 12.9%
Employees ~49,000
Source: Standard Bank and S&P Capital IQ
Note: 1. All amounts converted at 31/12/2014 historic USD/ZAR rate of 11.616
2. Market capitalisation as at 9 March 2015 converted at USD/ZAR rate of 12.092
Relationship with ICBC (20% strategic equity interest in Standard Bank) provides further international reach and strengthens Standard Bank’s access to what may soon be the world’s largest economy
Premier South African based financial services group with on-the-ground expertise across Africa and other emerging markets
Focused emerging markets player with established footprint
Standard Bank of South Africa is minority owned by ICBC, giving the Group unrivalled access to ECIC in South Africa and Sinosure of China
The Bank has significant expertise in the arranging of ECA-supported financing
Premier South African-based financial services group operating in emerging markets
Full service bank offering:
– Corporate & Investment Banking (“CIB”)
– Personal & Business Banking
– Investment Management and Life Assurance
Rest of the World
Standard Bank Group is one of the largest emerging markets focused banks
…has expertise and specialist knowledge to effectively partner clients in achieving their ambitions
Largest commercial bank in China
Assets over USD3.1 trillion
Over 17,000 branches
Nearly 100 international branches with representation in, Frankfurt, Hong Kong, London, Luxembourg, Macau, Moscow, New York, Seoul, Singapore
Listed on the Hong Kong and the Shanghai Stock Exchange
Combined footprint of ICBC and Standard Bank
4
Our strategic partnership in China with ICBC is cemented by its 20% shareholding in Standard Bank
Standard Bank team in China includes individuals who served in a senior positions at some of the preeminent Chinese finance institutions and SOEs
We provide invaluable insight of these institutions and access to key decision-makers
Standard Bank Group’s Chinese banking network
Standard Bank has a broad network in China, based on strong relationships with key finance providers
Private and confidential
DFIs
Insert photographic images from Standard Bank owned stock only
6
Summary
Export-Import Bank of China (“China EXIM”)
China EXIM is a state bank solely owned by the Chinese government and under the direct leadership of the State Council.
The sole provider of Chinese government concessional loans.
Commercial activity includes export credits mainly in the infrastructure fields (roads, power plants, oil and gas pipelines, telecom, and water projects).
Investment loans for Chinese businesses to establish overseas in the energy, mining and industrial sectors.
Strength
Policy advantage – China EXIM is not aiming for profit maximisation, but rather looking for China’s diplomatic need. As far as the foreign country meets China’s political strategy, China EXIM will support, regardless of the difficulties.
Low funding cost – benefits from Chinese government’s subsidy.
Combination of concessional loans and commercial lending.
Has “umbrella project agreement” with many African countries.
If the project is not in the agreement, the following criteria have to be met:
► China needs local country’s resource
► The resource is controlled by the government
► The resource is in the production of the project
Disadvantage
It takes time to finalise an agreement between two governments.
Key points
Concessional loans usually support the foreign country’s urgent need for infrastructure development
Preferential export buyers’ credit is popular in overseas project finance
All in Pricing is normally +/- 200 bps
Terms: 20 year max
Sponsors will benefit more if the project is paid for in Reminbi
No Sinosure insurance is needed for concessional loans
7
Summary
China Development Bank (“CDB”)
One of the three policy banks of China along with EXIM and Sinosure.
Primarily responsible for raising funding for large infrastructure projects, including most of the funding for the Three Gorges Dam and Shanghai Pudong International Airport.
Strength
CDB’s counterparty is not the project itself, but the local government. (eg. Venezuela needed to develop power station, residential housing and oil exploration project in 2006. Venezuela used its oil as guarantee and received nearly USD40bln funding from CDB. All projects are done by Chinese contractors. 15 years pay back period.)
Has “umbrella project agreement” with many African countries.
Large funding headroom – no need to bank club if the project debt amount is below USD1bln.
Feature
Willing to share risk with local financial institution.
Willing to fund directly to foreign corporates to support Chinese contractors.
Allowing Chinese corporates to use its pre-credit line for their overseas investment.
Through its fund – “China Africa Development Fund”, CDB is willing to invest equity.
Has a Specialised Loan programme for the Development of African SMEs.
8China Export and Credit Insurance Corporation (“Sinosure”)
Buyer's credit insurance programme with buyer's credit financing, obliging the insurer to underwrite the default of payment by the borrower or guarantor for the loan bank.
Under the programme, the loan bank is insured and the insurance policy holders can be an exporter, or a lending bank.
Covers Political and Commercial events.
Chinese content must be above 70% (equipment).
Repayment period cannot exceed 12 years.
Supplier's credit insurance programme with supplier's credit financing, obligating the insurer to underwrite all of the exporter's business on contracts.
Covers Political and Commercial events.
Chinese content must be above 70% (equipment).
Commercial contract amount at least USD1mln.
Funding period door-to-door within 15 years.
Sinosure has previously reached agreement with an international commercial bank to provide a wide array of financial services to exporters, with SINOSURE covering the bank’s exposure
Investment insurance is a policy business intended to provide the insured with risk guarantees when they suffer economic losses because of war, currency exchange bans, requisition, or breach of contract by the government in countries where the insured have made investments.
Overseas Investment Insurance:
– obliges the insurer to underwrite an investor's economic losses in overseas investment and profits, caused by political risks of a host country. It consists of equity insurance and liability insurance.
Supplier’s Credit InsuranceBuyer’s Credit Insurance
Export financingInvestment insurance
Key points
Depending on the country’s political stability, Sinosure’s premium varies
Sinosure normally covers 90-95% of political risk
For Commercial risk, subject to Chinese FI’s involvement, covers from 50-75%. Minimum Chinese bank’s involvement is 50%
Private and confidential
Commercial Banks
Insert photographic images from Standard Bank owned stock only
10Industrial and Commercial Bank of China (“ICBC”)
ICBC as the single biggest shareholder of Standard Bank well understands the African Market.
Large funding headroom – has ability to fund a project or a corporate at any amount by itself without syndication or bank club.
Fast internal approval process on funding.
Product Highlight
International Funding
– Supports Chinese contractor or equipment supplier
– Long-term lending to foreign corporate or government (counterparty) without Sinosure cover.
– Structure is similar to export buyer’s credit.
– Funding amount can be up to 100% of the commercial contract.
– Can be used for emerging market with a low country risk and stable political environment or the corporate/guarantor has a low credit risk.
EPC Specialised Lending
– Supports Chinese EPC on overseas projects.
– EPC contractor takes the risk during construction. The sponsor will repay the cost once COD starts.
– The sponsor must have a strong balance sheet or track record to demonstrate creditability.
Overseas Project Financing
– Provides credit support on limited / non-recourse project.
– Needs an ECA as protection.
– A third-party guarantee is ideal.
Resource Exchange Financing
– The counterparty must have a long term Sales contract with a Chinese corporate (e.g. sell oil for 10 years).
– The above future income will be used as the source of payment on the counterparty’s infrastructure project development.
Product Highlight continued…GeneralKey points
ICBC’s specialised finance team can approve USD200mln funding without further credit approval
ICBC usually consider Sinosure’s country coverage. As long as Sinosure can cover, ICBC will not participate. If no sovereign guarantee, ICBC is also flexible on taking other party’s risk
ICBC has experience on MIGA. The Morupule project in 2009 has a 20 year lending period. Sinosure covers 15 years with MIGA covering the remaining 5 years
11Other Chinese Banks
Most experience Chinese Bank in international business.
First Chinese Bank that supported Chinese EPC for an internation project in 1988.
Strong in Guarantee, LC business. Distinguishing advantage amongst Chinese Banks.
Product Highlight
Provides Guarantee for Bond listing
– BOC uses its AAA rating to back a Chinese Corporate raising funds in foreign market through Debt Capital Marketa (“DCM”)
– Prefers high liquidity currency (USD/EUR etc.)
Global Credit Line
– Chinese Corporate can use its pre-credit line for international project developments.
– Balance sheet financing, saves time and funding costs for corporates.
– The corporates must be BOC headquarter clients. (e.g. some internationally-recognised Chinese EPCs are only BOC provincial branch level clients or city branch clients. They do not qualify for this product.
CCB is recognised as the best infrastructure Chinese Bank.
Aggressive in funding non-recourse projects.
Creative in overseas funding to support Chinese corporates “going-out”.
Product Highlight
Overseas Project Financing
– Use an international commercial bank’s “GOVOC” – project finance structures. Good control on funding costs.
– Export Credit
► Commercial contract exceeding USD4mln
► Sinosure Cover
► Advance payment exceeds 15% of the contract amount.
China Construction Bank (“CCB”)Bank of China (“BOC”)Key points
12Other Chinese Banks
CDB: large volume, tenor up to 15 years, Chinese content required.
BOC: Johannesburg Branch and BOC Zambia very aggressive, local appetite (not necessarily with Chinese content), USD50mln authorisation, tenor 5 years; BOC HO appetite similar to ICBC.
CCB: Johannesburg Branch covers Africa and similar appetite to BOC. However, in general more conservative in Africa than ICBC/BOC.
Key points
Private and confidential
Key Investment Considerations
14Key investment considerations of Chinese investors
Private and confidential
Standard Bank Group Experience
Insert photographic images from Standard Bank owned stock only
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Bridge between China and other emerging markets
Instrumental in bringing cross-border China transactions to fruition
17
Kenya: Triumph Power Generating Company Limited
Key terms of debt financingOverview of the project
BorrowerTriumph Power Generating Company Limited (100%)
Standard Bank role/Stanbic role
CfC Stanbic Bank (“CSB”) the Kenyan affiliate of the Standard Bank Group, was appointed as Joint Lead Arranger together with the Industrial and Commercial Bank of China (“ICBC”)
Transaction value1 USD 26 million
Industry Power
PurposeFund the development of a USD 137 million, 83 MW HFO power plant in Kenya
Currency USD
Facility Senior debt
Tenor 12 years
Cover MIGA Breach of Contract Cover; IDA liquidity facility for KPLC
Standard Bank Group’s/Stanbic’s role in the transaction included:
– Arranging USD102mln of debt
– Advising Triumph on the appropriate structure of the project
– Coordinating the negotiation of the PPA, EPC and O&M contracts
– Coordinating the selection of a suitable equity partner
– Coordinating the documentation process for the project up to financial close
Triumph Power Generating Company Limited (“Triumph’’) is a local company set up to produce power in Kenya, and the first locally owned IPP in Kenya
Triumph’s first project is the development of an 83MW Heavy Fuel Oil (HFO) power plant in Kenya
Power produced by Triumph will be sold to Kenya Power and Lighting Company (“KPLC”) under a 20-year Power Purchase Agreement (“PPA”)
Highlights/ Key features
Key features of the transaction include:
– First non-extractive limited recourse financing by a Chinese bank in Sub Saharan Africa with no government guarantee
– First time MIGA has provided cover to a Chinese bank for a limited recourse project financing
Insert Tombstone here
Triumph Power Generating Company Limited
USD 102 Million
Joint Lead Arranger
2012
Notes: 1 – Standard Bank transaction valueHeavy fuel oil power plant picture or illustrative purposes only
18Morupule Power Station Project ─ US$1.6bn Term Facility
Major Botswana government initiative, driven by the Botswana Power Corporation (BPC), aimed at boosting the country’s power generation capacity
BPC is a state-owned company for electrical power generation, transmission and distribution in Botswana
USD1.6bln coal-fired Morupule B Power Station Expansion Project was necessitated in the wake of Eskom switching off its power to Botswana to supply growing domestic demand in South Africa
Project involves the installation of 4 x 150MW coal fired air-cooled units
Associated projects include water supply works and the construction of transmission lines and substations for the distribution of power to the rest of the BPC grid
Standard Bank Group and ICBC co-arranged a USD825mln loan for 20 years, backed by a Botswana Ministry of Finance guarantee and a Sinosure guarantee covering the project’s political & commercial risks
World Bank Group (through the International Bank for Reconstruction and Development) providing a guarantee for the repayment of the debt for years 16 – 20. A USD140mln bridge finance facility will also be provided by the consortium
Transaction Overview
Key Selling Points
Transaction: Secured Term Facility
Financial close: March 2009
Standard Bank Group role:
Joint Mandated Lead Arranger, Structuring Bank
Transaction size: US$1.6 billion
Purpose: Power Station Expansion
Instrument: Term loan
Tenor: 20 years
Africa Power Deal of the Year
(PF, 2009)
ICBC provided a 20 year loan of USD825mln which will be guaranteed by Sinosure
The extent of funding is possible because the of the Chinese participation and the Sovereign Government Guarantee, through the Botswana Ministry of Finance
Standard Bank Group provided a cross-currency swap that is designed to convert USD funding into fixed rate synthetic Botswana Pula funding, thus minimising BPC’s exposure to adverse movements in foreign exchange rates and interest rates
Company Overview Transaction Overview
19Disclaimer
If you received this document in error, please immediately return the document and other related documents to Stanbic IBTC Bank. On receipt of this document, you agree to be bound and are deemed to understand that:
This presentation is provided to you for information purposes only on the understanding that such information is strictly confidential. This presentation must not be delivered or its contents disclosed to anyone other than the entity (including its employees) to which it is provided and must not be used or reproduced, in whole or part, for any purpose other than in the consideration of the transaction or financing of such transaction described in this presentation. This presentation is intended to be a commercial communication and is not to be construed as a recommendation or the constitution or solicitation of an offer for the sale and purchase of any financial product, service, investment or security. The information, investments and/or strategies discussed in this presentation may not be suitable for all investors and where you have any concerns you should approach an investment advisor.
We do not accept liability for any loss (direct or consequential) arising from use of this presentation. You must not rely on any communication (written or oral) from us as investment advice, a recommendation to enter into a transaction (which includes the information and explanations related to the terms and conditions of a transaction) or deem it to be an assurance or guarantee as to the expected results of a transaction. Investments discussed in this presentation may fluctuate in price or value over time and past performance is not indicative of future results. While we have taken care in preparing this presentation, we give no representation, warranty or undertaking and accept no responsibility or liability as to the accuracy or completeness of the information set out in this presentation. This presentation does not represent an offer of funding and any facility to be granted in terms of this presentation is subject to us obtaining the requisite internal and external approvals.
Our duties and responsibilities do not include tax advisory, legal, regulatory accounting or other specialist or technical advice or services. You must procure and rely on independent assessments and investigations into all matters contemplated in this presentation.
© 2014 Standard Bank Group. All rights reserved.
NigeriaStanbic IBTC Bank PLC, Nigeria is incorporated in Nigeria (Company Number RC 125097) and is licensed by the Central Bank of Nigeria (Bank License Number MB 000052) to provide commercial banking services in Nigeria. Stanbic IBTC Bank PLC’s parent company in Nigeria, Stanbic IBTC Holdings PLC is listed on The Nigerian Stock Exchange.
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