4th Annual Middle East Energy
and Infrastructure Forum
4th Annual Middle East Energy
and Infrastructure Forum
22nd September 2010, Jumeirah Emirates Towers Hotel, Dubai
INITIAL AGENDA – Additional panellists and speakers to be confirmed before the event
8.15 – Registration and coffee
9.00 – Chairman’s opening
remarks
Chris Heathcote – Global Head of
Infrastructure Finance, WestLB
9.15 – The anatomy of a recovery
Umer Sultan and Christian Ayres –
Loan & Syndications, WestLB
•The return of bank competition
•Summary of current benchmarks,
disappearance of mini-perms and cash
sweeps
•Sponsor competition is rife (record
number bid for Omani IPPs) but
returns have fallen as leverage has
fallen to preserve DSCRs
•Where are the frontiers and where are
we headed? Margins, debt service,
structuring etc.
•Pullback following European woes?
9.45 – Infrastructure Investment
– key credit themes
Dan Robertson – Managing Director,
EMEA Head, Fitch
•What value sovereign sponsors?
•Security packages and creditors’
rights
10.15 – PPP transport deals in
the region
Moderator: Joss Dare – Partner,
Ashurst
Muneer Ferozie – Senior Team
Leader, IFC
Dolan Hinch – Director, Deutsche
Bank
Brad Kim – Managing Director –
Infrastructure and Utilities,
Macquarie Capital
•Which transport sectors have the most
potential for PPP in the MENA region?
•Which jurisdictions within the region
are most active in delivering transport
in association with
infrastructure via PPP?
•What are the key challenges in
delivering transport PPP in the
MENA region?
10.45 – Morning Coffee Break
11.15 – Meeting the demands for
the GCC’s growing social
infrastructure needs
Moderator: David Wadham –
Partner, Ashurst
Matthew Houseley – Managing
Director, Head of Social
Infrastructure, RBC Capital Markets
Patrick Townsend – Director,
Instrata Capital
Kyeong Choi - Managing Director,
Water and Infrastructure, Samsung
Engineering
•Developments in infrastructure PPP’s
in the Gulf
•Overview of Bahrain’s STP model and
future plans
•Technical challenges, and how these
were overcome
11.45 Mubadala Presentation –
The need for Capital Markets
Derek Rozycki – Executive Director
– Project Finance & Corp Affairs
Group, Mubadala
12.15 – Future funding mix, panel
Moriyuki Aida – Head of Dubai Rep
office, JBIC
Mike Redican – Managing Director,
Debt Capital Markets, Deutsche
Bank
Sangjin Kim – Representative of
Dubai Branch, KSURE
•Discussion of the key drivers
impacting pools of liquidity:
•Impact of Basel 3 on international
bank capacity
•Direct ECA funding and guaranteed
Location:
Jumeirah Emirates Towers Hotel, Dubai
Date:
22nd September 2010
funding – are banks near agency
limits?
•The success of Jubail refinery – how
exceptional is Saudi? Cross-border
Saudi bank activity
•Mega projects ahead
12.45 – Lunch
13.45 – Islamic financing
Irfan Said – Corporate Finance
Head, Samba
Ahsan Ali – Head Islamic
Origination, Standard Chartered
Shibeer Ahmed – Partner, Baker Botts
•Can Islamic financing for projects be
regarded as a stable long-term and
reliable pool of liquidity?
•Latest developments and setbacks – a
race to the most conservative?
•Developing the project sukuk market
•Which projects are particularly suited
to Islamic financing?
•Participation and importance of
international banks with Islamic
finance capability
14.15 – Power financing trends,
the view from a sponsor
Moderator: David Wadham –
Partner, Ashurst
Stefano Terranova – Head of Project
Finance Middle East and Africa,
International Power Plc
Pascal Martese – Director,
Acquisitions & Project Finance,
ACWA Power
Karel Breda – Senior Executive,
GDF Suez
•Tracking the evolution in project
financings
•Assessing the competition among EPC
contractors and weighing technical
solutions against the ease of financing
•Examining input costs and outlook
for debt pricing
•Opportunities ahead
14.45 – Afternoon Coffee Break
15.15 – The need for good advice
Mason Wallick – Global Energy
Group, WestLB
•The strength of Asian sponsors as
your partner for energy projects in
MENA
•Lessons learned coordinating energy
transactions with global stakeholders
•Tapping global liquidity in MENA
through diverse sponsors and
equipment origin
•Do fully underwritten bids make
sense? How much can be expected in
today’s market?
15.45 – The need for good advice
– The sponsors view
Rohit Gokhale – Director,
Acquisitions & Project Finance,
ACWA Power
16.00 – Outlook for the future
Moderator: Paul Smith – News
Editor, Project Finance Magazine
Nicolas Painvin – Senior Director,
Fitch Ratings
Chris Heathcote – Global Head of
Infrastructure Finance, West LB
David Wadham – Partner, Ashurst
Vahid Fotuhi – Director for the
Middle East and North Africa,
BP Solar
•Deal structures, Islamic tranches,
tenors and pricing – what will change
and how in 2011
•Are multiple word-scale thermal solar
projects viable?
•Masdar’s plan
•Financing considerations
16.30 – Chairman’s closing
remarks
Dubai, 22 September 2010

GCC Infrastructure – Credit Themes

Dan Robertson
Managing Director, Fitch Ratings
Agenda
What do the Ratings Mean?

GCC Infrastructure Trends

Credit Theme 1: Comparing Infrastructure Fundamentals

Credit Theme 2: Evaluating Sovereign Support

Agenda
What do the Ratings Mean?

GCC Infrastructure Trends

Credit Theme 1: Comparing Infrastructure Fundamentals

Credit Theme 2: Evaluating Sovereign Support

What do the Ratings Mean?
Fitch Corporate Cumulative Default Rates (1990–2009)
A BBB BB B
(% defaulting)
16
14
12
10
8
6
4
2
0
1yr 2yr 3yr 4yr 5yr 10yr

Source: Fitch

www.fitchratings.com 3
What do the Ratings Mean? (cont.)
Key
> Not just ‘BBB+’, ‘A-’ etc

Outlook Watch
> Consider outlook/watch
Positive
Negative
> Read the reports
– www.fitchratings.com

> Call the analysts

Source: Fitch

www.fitchratings.com 4
Agenda
What do the Ratings Mean?

GCC Infrastructure Trends

Credit Theme 1: Comparing Infrastructure Fundamentals

Credit Theme 2: Evaluating Sovereign Support

>USD200bn of GCC Infrastructure Investment
Dominated by Energy … Saudi Arabia and Qatar
Industrial Bahrain Kuwait
4% 3%
Transportation
Social infrastructure Oman
Power 10%
Petrochem Qatar
(USDbn) Oil & gas 35%
60
UAE
45 14%

30

15

0 Saudi
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

Arabia
34%
GCC projects reaching financial close
Source: Dealogic

www.fitchratings.com 6
Energy Projects Continue to Dominate
Projects in Tender
> Mega projects (>USD1bn capex)
Social infrastructure
– Power/water desalination 4%
Transportation
– Oil & gas/refineries 16%
– Petro-chemical
– Industrial eg aluminium Power
> Funding sources 45%

– Significant export credit

agency involvement
– Islamic funding
Oil &
gas
35%

Number of projects: Bahrain; Qatar; UAE;

Saudi Arabia
Source: Dealogic

www.fitchratings.com 7
Agenda
What do the Ratings Mean?

GCC Infrastructure Trends

Credit Theme 1: Comparing Infrastructure Fundamentals

Credit Theme 2: Evaluating Sovereign Support

Infrastructure Tiers
Oil and Gas Metals
Primary
(Export Oriented)

Power Water Transport

Secondary
(Utility/Supporting
Infrastructure)

Education Healthcare
Tertiary
(Service
Infrastructure)

www.fitchratings.com 9
Energy & Industrials – High Fixed Costs
Aluminium Oil Refining
Project full cost Debt service cost
Project cash cost Base case cash margin
(USD / ton) Peer cash costs (USD/bbl) Cyclical low margin
2,000 15

1,750
10
1,500

1,250 5

1,000
0
750

500 -5 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%

Source: Fitch (indicative)

www.fitchratings.com 10
Power & Water
Demand Growth Reliant on
Industry
Cumm. investment (LHS)

(USDbn) GCC Population (Index)

60 160
50 150

40 140

30 130
20 120
10 110

0 100
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: Dealogic; Fitch

www.fitchratings.com 11
Transportation is Emerging but Demand is Unclear
Capital Costs are Comparable
With Other Regions

Europe GCC
(Index)
140
120
100
80
60
40
20
0
Toll roads Metro Airports

Source: Fitch (indicative)

www.fitchratings.com 12
Social Infrastructure – Good Value for Money?
Healthcare - High End Education – Different League

Healthcare Europe Healthcare GCC Education RoW Education GCC

(‘000s USD capex per bed) (‘000s USD capex per student)
1600 200
1400 180
160
1200
140
1000 120
800 100
600 80
60
400
40
200 20
0 0
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Source: Fitch; public Source: Fitch; public

www.fitchratings.com 13
Relatively Weak Post Default Rights
Typical Senior Debt Security Packages

Power plant Typical GCC

(Europe) PFI/PPP (Europe) project
Physical assets 9 8 (Concession) Some countries
Core contracts 9 9 9
Bank accounts 9 9 Some countries
offshore only
Insurance 9 9 9
Share pledge 9 9 Some countries
Enforcement precedent Strong Strong Weak

Source: Fitch

www.fitchratings.com 14
Agenda
What do the Ratings Mean?

GCC Infrastructure Trends

Credit Theme 1: Comparing Infrastructure Fundamentals

Credit Theme 2: Evaluating Sovereign Support

Significant Sovereign Involvement

Sovereign International
Sponsor C
Sponsor Sponsor
Interest Rate/
Equity Inflation/FX Hedging
Senior Counterparty
Debt
Off Take
Host Contract Project Vehicle –
Government Senior Lenders
Borrower
Entity
Sub
Debt
Risk Transfer Subordinated Debt

Subcontractor 1 Subcontractor 2 Technical Legal &

Construction Operations Market Advisors

www.fitchratings.com 16
Can They Support? Will They Support?

> Ability > Willingness

9 Strong sovereign ratings
relative to project’s
underlying debt rating
9 Strategic asset/core
business
? Timeliness of support
9 Reputational considerations
9 Majority sovereign sponsor
? Temporary or permanent
stress
? Poor transparency of
political factors
? Non-GCC shareholders
? Non-recourse debt
? Asset will continue to operate
regardless of bond default

www.fitchratings.com 17
Fitch Generally Assumes Only Rationale
Sponsor Behaviour

(DSCR) Project A: temporary stress Project B: impaired project

2.5

2.0

1.5

1.0

0.5

0.0
0 1 2 3 4 5 6 7 8 9 10
(Years)

Source: Fitch

www.fitchratings.com 18
Fitch Ratings New York London
www.fitchratings.com One State Street Plaza 101 Finsbury Pavement
New York, NY 10004 London
+1 212 908 0500 EC2A 1RS
+1 800 75 FITCH 44 20 7417 4222

Fitch Group Fitch Ratings Fitch Solutions Algorithmics

The need for good advice:
A Developers’ perspective
September 22, 2010
Dubai

Highly Confidential & Privileged 1

Contents
1. Role of advisors to utilities/ Governments
and expectations from them
2. Different tendering models – pros & cons
3. Closing

Highly Confidential & Privileged 2

Role of Advisors and what to expect from them
• Clients are mostly Governments/ State Owned Utilities entrusted with the mandate
for privatisation or attracting private investments in their countries
• Advisors - a bridge between Developers and the SOUs to achieve the end result
• Expectation from Advisors:
– need to be clear about the mandate they are taking on
– guide an SOU embarking on a maiden privatisation with for an efficient process
– rather than do everything, be a “Coordinator” of different kinds of advice –
legal, technical, financial. Do not take on roles, not equipped to handle.
– need to be prepared to give some hard advice to their clients
– need to lay out clear and simple process to ensure transparency and certainty
– not try and deviate from a successful model, but adapt to changing market
– delivery of success in the first attempts of paramount importance to instil
confidence
– Developers hate uncertainty, re schedulings and extensions – Development
capital, time and resources are limited and need to be best utilised. Advisors
should ensure that these are avoided.

Highly Confidential & Privileged 3

Different Tender/Bidding models
Model 1
• Tariff opened publicly within hours of bid
submission
• Pros:
– Most transparent,
– keeps competition alive between the two (or
three) lowest bidders,
– ensures that SOUs get the best available tariff,
– ensures a win win situation for both,
– bidder selection process is faster.
– Ideal for a asset sale - “as is where is basis”
• Cons:
– errors in other terms or deviations on terms of
bidding are not known upfront and never
know to the public, so the order can change
eventually after Due diligence by advisors,
– Some Developers can try to come to the table
using tricks therefore artificially lowering the
tariff
• Examples: ADWEA, SEC, UMPPs in India,
Philippines
Model 2
• Technical evaluation prior to publicly
opening tariff proposal
• Pros:
– relatively transparent,
– keeps competition alive between all,
– underlying technical & commercial
assumptions are scrubbed & clarified before
tariff opening
– ensures that SOUs get the best available tariff
in the market
– bidder selection process is relatively faster
• Cons:
– Financial Model locked out till the tariff bid is
opened,
– SOUs risk disqualifying a bidder for taking a
technical deviation not knowing the benefit
given in tariff, thus knocking out the lowest
tariff bidder
– May not always result in a win win situation
• Examples: Bahrain, Kuwait
Highly Confidential & Privileged 4
Different Tender/Bidding models
Model 3 Model 4
• No public tariff opening, but clarifications/ • Commercial terms finalized for all bidders
negotiations on bid prior to short list before bidding and tariff opening
• Pros: • Pros:
– all bidders compete till final declaration, – Assures level playing field,
– SOUs can squeeze out the lowest tariff – bidder selection process is very fast post bid,
– Enables scrubbing of bid conditions and
adjustment of tariff before ranking
• Cons: • Cons:
– Least transparent
– a “win-lose” could be the result
– bidder selection process is very slow

• Examples: • Examples
– Old Oman bids – New Oman bids (Sur), Indonesia

Highly Confidential & Privileged 5

Different Tender/Bidding models
Model 5
• Tariff bid on set of assumptions; EPC and/or
financing & developed together with SOUs
• Pros:
– all bidders compete on limited parameters,
– SOUs and Developers can get the best deal
– Best financing and best EPC can be procured
– Enables scrubbing of bid conditions and
adjustment of tariff before ranking
– Ideal for countries where permitting is a
problem leading to uncertain schedule or
markets are adverse on either the EPC or
financing
– “Win-win” situation can result
• Cons:
– Could be a complicated process
– Closure could be long winded
– Creativity could lose out; no incentive to
improve
• Examples: Qatar, certain Saudi bids

Highly Confidential & Privileged 6

Closing
• Advisor to ensure that they blaze a trail and balance the interests of the
developers and SOUs
• Bid model selected should suit the country, type of privatization and
objective of the SOU. But once selected good communication, certainty,
timeliness of the process and transparency should be tried to be
maintained.
• Advisors need to move with the times and recognize the market
constraints/ advantages.

Highly Confidential & Privileged 7

 USD (bn) 6
200 Loans Bonds
12
150 12
21
18 5

100 19 205
14 14 165
20 145
3 21 132 129
17 118
11 18
50 6 88
77 80
62 59 67
50 53 44
40
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
(ytd)




Source: Dealogic, search includes eligible trades only, PF Bonds include monolines
 
 
 









MENA Project Values European Project Values
80 Volume (USD bn) 60 Volume (USD bn)
120 350
70 50 No.
No. 100 300
60
Current 40 Current 250
50 80
estimated estimated 200
40 project 30 60 project
30 pipeline: pipeline:
150
20 40
20 $443bn $623bn 100
10 10 20 50
0 0 0 0
'95 '97 '99 '01 '03 '05 '07 '09 '15 '95 '97 '99 '01 '03 '05 '07 '09 '15

Asian Project Values Pipeline

50
Volume (USD bn)
200 
40 No. 
150
30
Current 
estimated
project 100 
20 pipeline:
$284bn

10
50

0 0 
'95 '97 '99 '01 '03 '05 '07 '09 '15 
$ Bn
TED Spread
10 500

- 89%
400
Yr 2007
9 Renewed Yr 2008
concerns? Yr 2009
300 Yr 2010ytd
8 - 88% % = % ∆ 2007 – 2010 ytd
200

7
- 82% 100

6 - 52%
0
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

5 - 81% - 90%
- 42%
- 100%
4 - 90%
- 100% - 81% - 67%

3 - 86%
- 100%
- 60%
2

0
RBS BNP Citi Calyon HSBC Barclays Stan. Em irates Arab GIB Mitsubishi DB DBS Mashreq Sum itom o
Paribas Char. NBD Bank Bank Mitsui
Group

Source: Dealogic Loan Analytics, Bloomberg

Transportation & Related Facilities  Typically PPP transactions, incorporating availability
(Roads, Rail, Light Rail) based, shadow toll & real toll payment mechanisms
(Airports, Ports)  Mix of regulated and commercial revenues

Power  Regulated revenues, typically set for a fixed period

(Power Plants, Transmission)  Long term power contracts focused on credit strength of
off-taker

PPP / PFI Social Accommodation  Typically availability based payment based structures
(Hospitals, Prisons, Schools)  Long tenor concession
 Construction and maintenance risks vary

Renewables  Nature of tariff regime / subsidies

(Wind Farms, Solar, Waste to Energy)  Need a favorable regulatory environment to entice
development of renewable sector

Gas & Commodities  Strong preference for limited market risk exposure
(LNG, Exploration, Production, Pipelines,  Focus on credit worthy off-takers and the strategic
Petrochemicals) importance of the project for the country / region







 Format
 Maximised via 144a / RegS
 Listing increases European
participation
 Public vs. private
Recent Precedents
 RasGas, multi-tranche bond,
$2.23bn but $10bn total
 Dolphin Energy, $1.25bn, 10Y
 Mountain Praire Wind,
$305mn, 20Y final
Credit Positioning
 I-Grade credit rating largely
required for size
 Relative to similar deals
 Strong & thorough investor
presentation
Market Conditions
 A key driver
 Currently very constructive
Market Depth
Pricing
 Market perception of pricing
strategy
 Anticipated secondary market
performance and liquidity
Investor Appetite
 Strong for high rated, stable,
cash generative businesses
 Highly strategic and
government linked names are
in vogue
Distribution Strategy
 Full roadshow increases
investor focus and capacity
 Europe is now a key driver
 Traditional US project buyers
Tranching & Structure
 Bullet vs. amortising?
 Tranching / Synthetic
amortiser can increase
capacity
 
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

 


 Investors from across the credit spectrum
are active Other
Pension
& Ins 4%
 Banks and asset managers, 11% AM
32%
 Pension and insurance funds (USPP)
Banks
 Even retail via private banks & Retail
25%
 Geographical split has historically been Funds
28%
driven by US investors

 But now European and GCC investors

are playing in a big way in UD tranches Asia
Middle 4%
East
 London based asset managers and EM
21% US
funds in particular ($50-100mn+
38%
orders)

 RasGas and Dolphin combined order books

of $33bn…
Europe
 … Who doesn’t buy project bonds? 37%


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