GTR is pleased to announce the Best Deals of 2012.
Simply closing a deal in last year’s ever-tightening market conditions deserves recognition, but GTR’s winning transactions showed a particularly high level of achievement. Some displayed innovative financing structures – such as the hybrid project/corporate finance raised for Bahrain’s Sulb project. For others, the sheer size of the transaction was worth rewarding – the US$20bn Ichthys project in Australia is one of them.
There was a surge of supply chain finance deals signed in 2012, reflecting a general trend in demand from corporates eager to find integrated, end-to-end solutions for their payments. Among them, the BP Aromatics deal between Singapore and Oman was the first end-to-end transaction using the bank payment obligation (BPO), pioneering a new technology half-way between letters of credit and open account.
We saw a particular concentration of deals in Eastern Europe and Central Asia, showing the region’s natural resources appeal, while in Africa the focus was on commodities. In particular, last year’s annual facility signed by Ghana’s Cocobod was oversubscribed, despite receiving fewer offers from syndicates.
Finally, the International Finance Corporation’s (IFC’s) Critical Commodities Finance Programme, aiming to raise financing for commodity trade through public-private partnerships with banks, also deserves praise.
Tapping Sierra Leone’s mineral assets
Borrower: African Minerals Limited (AML)
Amount: US$417mn
Mandated lead arranger: Standard Bank
Law firms: Allen & Overy; Conyers Dill & Perman; Mouran Ozannes; Renner Thomas & Co
Tenor: Nine months
Date signed: February 9, 2012
Standard Bank took the lead in the largest-ever US dollar debt facility for a private company in Sierra Leone with a US$417mn facility for mineral exploration and development company African Minerals (AML).
The senior secured term loan, signed in February 2012, will be used to support further development of the Tonkolili iron ore project in Sierra Leone. According to Standard Bank, which acted as the underwriter and sole lender for the transaction, the facility supports a “transformational investment in the iron ore sector, projected to boost GDP growth in Sierra Leone to over 30% in 2012”.
“The important thing here is that it’s allowing Sierra Leone to unlock its mineral wealth. Last year there was a 32% pick-up in GDP, and it’s only as a result of mining projects such as these starting to come online,” explains Peter von Klemperer, director, mining and metals Africa at Standard Bank.
African Minerals is currently focused on the development of the iron ore deposit at Tonkolili and its related rail and port infrastructure. The project is the largest employer in Sierra Leone and is set to become the largest contributor to the country’s GDP.
Complex agri-financing inked in SA
Borrower: Meadow Feeds (part of Astral Group)
Amount: R1.05bn
Mandated lead arranger and bookrunner: Nedbank
Tenor: 24 months
Date signed: April 26, 2012
Every two years since 1998, the Cargill/Meadow Feeds deal has been one of the most sought-after on the South African agricultural finance markets. The transaction involves the purchase of 70,000 tonnes of maize per month over 24 months – that’s a huge logistical challenge for the financier, the logistical partner and the manufacturer alike.
The maize is procured via the South African Futures Exchange from farming groups (sometimes it’s imported). The financing covers the prepayment of the maize and once it’s delivered to the feed mills, it becomes inventory financing.
Nedbank beat off stiff competition to win the tender for 2012’s transaction and according to Zhann Meyer, head of the bank’s African business, the team had to demonstrate diligence, attention to detail and professionalism to conduct the arrangement successfully.
He tells GTR: “What differentiates it from other financial structures is that it’s immensely administratively intensive. It requires our transaction management team to accept and process correspondence in terms of daily deliveries from the seven field mills individually, collate that info and ensure that the exposure is monitored. It’s crucial for us to keep our eye on the ball at all times because if you lose track of even as much as one truck of maize, you’re going to have a problem at the end of the procurement cycle.”
Another distinguishing element to the deal is its tripartite structure. Meyer explains: “Our exposure is split between Cargill and Meadow Feeds at all times. Putting a deal like this together depends on the logistical capability of your procurement agent for the physical delivery and the repayment capability of your client.”
Atlas Copco pilots supply chain finance
Borrower: Atlas Copco
Amount: US$75mn
Lender: JP Morgan
Tenor: Ongoing
Date signed: November 2012
Through this US$75mn deal with JP Morgan, Swedish-based equipment provider Atlas Copco moved from open account trading to a supply chain finance solution, helping its suppliers’ liquidity and increasing its own efficiency.
The supplier finance programme signed by Atlas Copco’s subsidiaries in China, India and Japan aims to help the firm’s suppliers manage concentration risk, reduce days sales outstanding and secure fast payment at competitive rates.
This solution, which has to comply with three different legal jurisdictions, boasts a complex structure. First, it covers 15 subsidiaries operating on multiple enterprise resource planning (ERP) systems across China, India and Japan, making system integration a major challenge. Moreover, the solution must support existing payment modes to both domestic and overseas suppliers, including open account terms and, in China, bank acceptance draft (BAD).
Added to this is the complex documentation, implementation and supplier on-boarding, considering China’s geographical diversity, where buyers and suppliers spread over a large area must be trained to use the online platform.
The end product is tailored to support multiple entities operating on different ERP systems, and the multi-currency and multi-language platform is scalable to accommodate increases in volume and suppliers.
“This mandate from Atlas Copco is testimony to our robust supply chain finance capabilities and a well-constructed solution built on the foundation of our global network and best-in-class technological platform and services,” says Daniel Cotti, global trade executive, JP Morgan. “The win from GTR is recognition of our expertise and ability to help our clients grow amidst a challenging business environment.”
Pravin Advani, global trade executive, Asia Pacific, adds: “JP Morgan’s supplier finance programme provides the link for Atlas Copco to further cement its relationship with its strategic suppliers. It also benefits both the buyer and sellers, helping them achieve improved working capital management and cashflow for other investment opportunities. It is a win-win for all.”
Ukraine harnesses wind power
Borrower: Wind Power LLC (subsidiary of DTEK Group)
Amount: €107.1mn
Mandated lead arranger: Landesbank Berlin AG
Insurer/ECA: EKF
Re-insurer: Euler Hermes and Zurich
Law firms: Van Doorne (Netherlands); Antis Triantafyllides & Sons (Cyprus); Sayenko Kharenko Law Offices (Ukraine)
Tenor: 10 years
Date signed: April 20, 2012
The Ukrainian renewable energy sector has seen few projects of the size and level of complexity as the Botievo wind farm. The 200MW wind farm, located on the coast of the Azov Sea in Ukraine’s Zaporizhzhia region, is set to be completed by mid 2014 and will, after completion, generate approximately 700GWh per year and reduce annual CO2 emission by roughly 720,000 tonnes.
“The facility fits well into the natural coastal landscape, generating the only possible clean energy in the region. An environmental impact assessment report has confirmed that the project will not negatively affect the surrounding environment,” says German Ainbinder, CEO of Wind Power LLC.
The first phase of the project, for which financing was signed in April last year, comprises 30 3MW Vestas wind turbines. The first two sets of wind turbines were delivered in May 2012, and were in operation by October.
Landesbank Berlin was mandated to structure the financing of the first phase in October 2011. The financing is based on export credit agency (ECA) cover and includes two contracts: a turbine supply agreement (TSI) for the delivery of 30 wind turbines with Vestas Deutschland to the value of €98mn, and a turbine instalment agreement (TIA) for the construction and instalment of the turbines at the site and connection with the grid by Vestas Ukraine, amounting to €11mn.
“The main task was to structure and include the TIA into the ECA-covered financing,” explains Bernd Schmidt, director, export credit department at Landesbank Berlin.
“On the one hand, the wind turbine supplier had to follow internal compliance guidelines to mitigate the risk of the transaction. On the other hand, the structure of the financing of the TIA had to follow the guidelines of the National Bank of Ukraine (NBU) for payments between local entities,” he says.
As such, it was agreed that Ukrsotsbank would open a letter of credit on behalf of Wind Power and in favour of Vestas Ukraine, as a security instrument for Vestas. Each payment under the TIA was done by Wind Power using its own funds, and, after confirmation of receipt of payment by Vestas Ukraine, Landesbank Berlin reimbursed payment to the borrower.
First end-to-end BPO transaction
Borrower: BP Aromatics
Amount: US$35mn
Mandated lead arranger: Standard Chartered
Tenor: 30-day BPO, ongoing transactions
Date signed: May 22, 2012
As the first end-to-end automated trade finance deal using the bank payments obligation (BPO), the BP Aromatics transaction stands out for its innovative structure.
Initiated by BP in Singapore to facilitate payment by one of its buyers, Oman-based petrochemical firm Octal, the US$35mn transaction leveraged Standard Chartered’s Straight2Bank solution and Swift’s trade service utility (TSU) platform. In this case, the BPO was an irrevocable undertaking given by the buyer’s bank (Standard Chartered Oman) to the seller’s bank (Standard Chartered Singapore).
In a first phase, the BPO and letter of credit (LC) were executed in parallel, in a bid to mitigate the default risk and ensure all parties were comfortable with the platform. The transaction was fully secured by the LC and payment to the seller was still made under the LC, not the BPO.
In the second phase, the BPO replaced the LC, triggering the shipment and release of the goods as well as the payment execution.
“This is a landmark deal, as trade finance has been using paper for 700 years. Clients want to move to open account, as letters of credit are very inefficient and the whole process of getting documentation approved between different parties takes six to seven days, even when shipping only takes one day. Here the financial supply chain is very inefficient compared to the physical supply chain,” says Ashutosh Kumar, managing director, transaction banking and global head of corporate cash and trade at Standard Chartered.
It is hoped that the pilot transaction will prompt more BPO deals, especially after rules for its use are adopted by the International Chamber of Commerce (ICC) in April 2013.
Cocobod comes up trumps
Borrower: Cocobod
Amount: US$1.5bn
Mandated lead arrangers: Barclays, BTMU, Citibank, Ghana International Bank (initial mandated lead arranger and collection agent), HSBC, ICBC, Natixis, Nedbank, Rabobank, Rand Merchant Bank, Société Générale, Standard Bank, SMBC, Standard Chartered
Law firms: SNR Denton; Bentsi-Enchill, Letsa & Ankomah
Tenor: 11 months
Margin: 175 basis points over Libor per year
Date signed: September 12, 2012Borrower: Cocobod
The Ghana Cocoa Board’s (Cocobod’s) annual pre-export finance facility can be classed as the most eminent, fully underwritten soft commodity financing in Africa. The 2012 transaction was closed at a time when US dollar funding costs were high and capacity for soft financings were low, and was the largest structured soft commodity syndicated loan signed in the emerging market space that year.
“Sure, this is an annual facility, but for 2012 it warrants a Best Deal award,” says Pamela Green, director, syndications at Standard Chartered. “Despite tightening in liquidity and a general deleveraging by banks, the facility was fully underwritten by the initial mandated lead arrangers and syndicated among the consortium of 36 banks.”
The facility closed oversubscribed, but banks’ commitments were reduced. The amount represents the second-largest amount raised by Cocobod in over 19 years.
Green explains that in previous years, when liquidity and capacity for soft commodity financings would be deep and plentiful, one would often see two competing consortiums, each with underwritten offers. This doubling of capacity would provide the winning consortium with a natural approach list during the syndication process. Price would have always been an issue, but at least there would have been a group of banks with pre-agreed limits on the underlying structure.
“2012 was different,” says Green. “It needed a group of banks that were core to the Ghana Cocobod relationship, understood the strategic importance for the government of Ghana and the robustness of the facility. It had to take faith in the market as a whole and the ability to bring new banks in on the back of an unblemished track record spanning some 18 years.”
For the 2012 facility, 13 international institutions together with Ghana International Bank (which acted as initial mandated lead arranger and collection agent) joined forces and fully subscribed the transaction on a club deal basis. The facility will be used to purchase cocoa beans for the 2012/13 season.
Supply chain finance continues to grow
Borrower: Cummins Inc.
Amount: The expected initial volume of transactions could exceed US$200mn
Mandated lead arranger and bookrunner: Bank of America Merrill Lynch (BofAML)
Tenor: 364-day uncommitted bilateral facility
Date signed: August 2012
Supply chain finance (SCF) continued to make headlines in 2012, as more and more corporates realised the value of having well-managed working capital and awoke to the potential of the packages offered by banks.
Cummins, a power company with some 44,000 employees, needed a system which would allow it to increase its days payable outstanding by no less than 50%; help existing suppliers obtain better financing rates; improve its accounts payable efficiency and enhance supply chain information reporting. What was essential was that the solution provided would need to be integrated with Cummins’ systems swiftly and seamlessly.
The facility provided by BofAML was the largest of any current SCF initiatives the bank had on its books. Maureen Sullivan, North America trade sales head, global trade and supply chain solutions at the bank, describes the solution as “a global programme that will touch upon multiple regions which will really leverage our end-to-end footprint”.
She explains to GTR: “Their goal was to have a dramatic improvement in working capital, accounts payable and reporting. They also had a very aggressive timeline and they needed to be able to rely on a partner that could deliver a solution within a specific time period.
“Some of the key issues Cummins felt we satisfied include our ability to listen to the importance of putting together a solution that would be up and running with minimal amount of technological intervention; that we were able to satisfy the initial rollout in phases; being consultative in our approach throughout the request for proposal process – we were listening to their concerns.”
Mega petrochemicals financing in Mexico
Borrower: Braskem Idesa
Amount: US$3.2bn
Mandated lead arrangers and bookrunners:
Banco do Brasil, Bank of Tokyo Mitsubishi UFJ (BTMU), HSBC, KfW, Korean Development Bank (KDB), Intesa Sanpaolo, Mizuho, Sumitomo Mitsui Banking Corporation (SMBC)
ECA credit insurer: Sace, Export Development Canada (EDC), Nafin, IFC, IADB, Bancomext
Law firms: Allen & Overy; White & Case
Insurers: Willis, JLT
Tenor: 14 years (plus three years construction time)
Date signed: December 21, 2012
The financing of the massive Etileno XXI petrochemical complex was one of 2012’s biggest transactions and was groundbreaking in more ways than one.
“This is the first time the private sector has been allowed to invest in the petrochemicals industry in Mexico – all the other attempts failed miserably,” Rafael Cervantes, vice-president of export finance at SMBC (which as well as being joint MLA, was financial advisor to both the sponsors and the arrangers) explains to GTR. “It’s also by far the biggest investment by a Brazilian company [Braskem Idesa, a joint venture] in Mexico, as well as being the largest project financing to have taken place in Mexico.”
The deal is notable for its complexity. It involved 10 private banks, three development banks, two export credit agencies and two multilateral agencies. The commercial banks’ contributions were submitted under either Sace guarantees, or B-loans of the IFC and the IADB.
Speaking to GTR at the close of the transaction, Cleantho Leite, commercial, institutional relations and business development director for Braskem Idesa heralded the coming together of “suppliers from all over the world, attracting development banks from their regions”. He said that the proven experience of Braskem Idesa’s parent companies (Braskem SA and Grupa Idesa) in the petrochemicals sector allowed them to attract the breadth of financiers.
Etileno XXI is predicted to have a big impact on Mexico’s trade balance. Upon completion in 2015, it will be the most modern petrochemicals complex in the Americas and will substitute one million tonnes of imports of polyethylene into Mexico. It is, says SMBC’s Cervantes, “a huge deal for everybody involved”.
Sweet deal for Fiji Sugar
Borrower: Fiji Sugar Corporation
Amount: €40mn
Mandated lead arranger: ANZ Fiji
Law firms: Norton Rose (Australia); Young & Associates (Fiji)
Tenor: Three years
Date signed: August 15, 2012
In August 2012, ANZ provided the Fiji Sugar Corporation (FSC) with what is believed to be the largest commercial loan to the Fiji sugar industry to date.
FSC was looking for a financing solution for its recurrent working capital requirements without mobilising the Fiji government’s funds, and ANZ Fiji stepped in to provide a €40mn three-year revolving pre-export facility.
Historically, the company’s working capital requirements used to be financed by government loans, and this facility represents the first time ever that FSC considered a structured transaction with a commercial bank.
FSC has in place a unique mechanism whereby it shares the profit generated from its sugar exports with the farmers growing the sugar cane. This initiative includes several down payments to the farmers during the crop season, which puts a lot of pressure on the company’s liquidity.
With this transaction, the country’s sugar industry is set to become more stable by being less reliant on government funding, improving the livelihood of the 200,000 people that depend on it.
“This transaction is the result of extensive research and dialogue between the Fiji government, FSC and ANZ to look at ways to revitalise the sugar industry. Undoubtedly financing this sector carries significant importance for the Fijian economy and local employment,” says Erwan Cesbert, director of structured trade finance at ANZ.
The facility boasts a bespoke structure: it provides a financing platform to FSC for the next three years, allowing the company to focus on strategic capital expenditure programmes.
At the same time, the facility has been designed to limit the performance risk that ANZ is taking to a maximum of six months, and exclude any crop risk because it is fully clear within each crop season.
First ECA financing for Gazprom Neft
Borrower: Gazprom Neft
Amount: €258mn
Mandated lead arrangers: HSBC (global arranger), Komerční Banka, Česká Spořitelna
ECA: Egap
Law firm: Allen & Overy, Moscow and Prague offices
Tenor: 10 years
Date signed: July 27, 2012
For the first time in its history, Russia’s Gazprom Neft received support from an export credit agency (ECA), on a €258mn, 10-year unsecured syndicated loan arranged by HSBC.
The facility, backed by the Export Guarantee and Insurance Corporation of the Czech Republic (Egap) was one of the largest loans covered by an ECA to a Russian counterpart last year. Egap is now in the process of reinsuring a portion of the risk with the Italian, Russian and Belgian ECAs Sace, Exiar and ONDD.
The proceeds will be used for the purchase of equipment and services to upgrade the Pancevo oil refinery of NIS, Gazprom Neft’s Serbian subsidiary, engaged in the exploration, production, refining and sale of oil and gas products. In particular, the loan will be used to build a facility for light hydrocracking and hydrotreatment.
HSBC acted as global arranger, mandated lead arranger and lender and provided €100mn. The other mandated lead arrangers and lenders are Czech banks Česká Spořitelna and Komerční Banka, extending €79mn each.
HSBC director of project and export finance Sam Lippitt tells GTR: “Egap was strongly motivated to support the transaction, given the importance of the Gazprom group and the Russian market in general to Czech companies. The Czech Republic has a lot of refinery technology, and as such this is a key export sector for them.
“Export credit represents a useful source of long-term funding for Gazprom Neft, particularly given the significant volume of capex they have planned for the coming years.”
Alexei Yankevich, deputy CEO and CFO of Gazprom Neft, adds: “The arrangement allowed us to borrow at a lower rate and for a longer period. The company will continue to work on optimising its debt portfolio by seizing various opportunities to lengthen the debt maturity profile and lower the interest rates.”
Banks fund African social infrastructure
Borrower: Ghanaian government
Amount: US$162.2mn
Mandated lead arrangers and bookrunners: Barclays, Citi, JP Morgan
ECA: UK Export Finance
Law firms: Clifford Chance; Oxford & Beaumont
Tenor: 12.5 years
Date signed: October 2, 2012
Last year, Ghana’s ministry of finance and economic planning signed a 12.5-year, US$162.6mn ECA-backed syndicated loan to finance the construction of seven district hospitals. Barclays acted as co-ordinating mandated lead arranger (MLA), bookrunner and agent, while Citi and JP Morgan acted as MLAs on the syndicated loan.
The loans will fund the design, construction and equipment of seven district hospitals including the provision of a centralised pharmaceutical and medical supply management system. In some instances, the hospital will be the first to be built in its district.
The transaction was struck at a transformative point in Ghana’s economic history. It is in the process of becoming a middle-income nation and as its growth story continues to be written, social infrastructure investment will become increasingly vital.
Barclays’ head of emerging markets capex financing solutions Ed Harkins explains: “Ghana is the fourth fastest-growing economy in the world; in 2011 it grew at 15% – almost double that of China. We’ve seen a big need in terms of financing and it’s all in the social infrastructure area.”
For Gabriel Buck, global head of capex financing solutions, the transaction acts as a myth-breaker. He tells GTR: “It dispels the myth that it takes a long time to get anything done in Africa. From the time we were appointed to support the client to the stage at which the financing was being completed was a period of eight months.”
Biggest-ever financing for LNG
Borrower: Inpex
Amount: US$20bn
MLAs: ANZ, BTMU (ECA agent for Nexi), CBA, Mizuho Corporate Bank, SMBC (documentation agent, global co-ordinator and ECA agent for Kexim, K-sure, Coface and Atradius)
ECAs (guarantors): Nexi, Kexim, K-sure, Coface, Euler Hermes, Atradius
ECAs (lenders): EDC, Efic, JBIC, Kexim
Law firms: Latham & Watkins; Allen & Overy
Tenor: 16 years
Date signed: December 18, 2012
With its 23 banks and nine ECAs, it would have been impossible not to recognise the achievement that is the US$20bn debt financing for the Ichthys LNG project in Australia.
The US$20bn debt financing was raised via a combination of ECA direct loans, ECA-covered loans, uncovered loans and sponsor senior debt.
Of the 23 banks involved, seven have commitments of more than US$500mn, which is significant in the tight market conditions observed in 2012.
Jun Palanca, SMBC’s Asia Pacific region head for export and agency finance, comments: “SMBC is one of five bookrunners and MLAs on this project, on which there are more than 20 banks, and is lending US$1.35bn across six of the sub-facilities, including US$750mn in the commercial uncovered loan. This project is a real achievement and milestone for Australia, for the sponsors and for the lending group, with its huge scale, and wide range of lenders and ECAs across multiple regions.”
Located near Darwin, this vertically integrated LNG development is operated by Japanese oil and gas firm Inpex in joint venture with Total and Tokyo Gas, Osaka Gas, Chubu Electric and Toho Gas. With a total cost of US$42.2bn, it will support 10% of Japan’s LNG demand after it stopped all nuclear activity post-Fukushima.
Specifically, the deal includes US$5.8bn in direct loans from JBIC, Kexim, Australia’s Efic, US$5.4bn in commercial loans guaranteed by Nexi, Kexim, K-sure, Atradius, Euler Hermes and Coface, US$4.8bn in commercial loans, and US$4bn in sponsor loans. Production is expected to start by the end of 2016, with reserves equivalent to 8.4 million tonnes per year for approximately 20 years. Buyers include Tokyo Electric Power Company, Tokyo Gas, The Kansai Electric Power Company, Osaka Gas, Kyushu Electric Power Company, Chubu Electric Power Company, Toho Gas, Total, Inpex and CPC Corporation, Taiwan.
IFC plugs commodity financing gap
Amount: US$2bn
Co-ordinator: IFC
Participating banks: Société Générale, Rabobank, ING
Date signed: February 28, 2012 (first facility with Société Générale)
In 2012 the IFC launched yet another initiative as part of its response to the global financial crisis. The critical commodities finance programme (CCFP) is a US$2bn public-private partnership to support global trade through risk participation facilities on the emerging market commodity trade portfolios of global banks.
The CCFP is based on the successful model of the IFC’s global trade liquidity programme (GTLP), launched in 2009. But unlike the GTLP, which only finances banks, the borrowers in the CCFP have been expanded to include both banks and corporates active in the trade of agricultural goods or refined fuels.
The IFC has committed US$1bn to the CCFP, including US$350mn for Société Générale and US$250mn each for both Rabobank and ING.
According to the IFC, an additional US$100mn is set to be concluded later this year with an unnamed Asian bank.
Given the IFC’s risk participation, each bank contributes at least an equal amount as IFC to the overall facility, bringing the total programme size to US$2bn. As of the end of December 2012, facilities totalling US$1.7bn had been concluded. As the existing facilities have nearly fulfilled the IFC’s commitment, its board approved an expansion of the programme to US$4bn in January this year.
“Through the CCFP, the IFC continues to demonstrate its commitment to support global trade with innovative programmes that engage our bank partners to sustain and extend the availability of financing for critical commodities as they move through the value chains in emerging markets,” comments Georgina Baker, director of global trade and supply chain solutions at the IFC.
A boost for Kazakh rail
Borrower: Lokomotiv – subsidiary of Kazakhstan Temir Zholy (KTZ)
Amount: €173mn
Mandated lead arrangers: HSBC (global arranger, co-ordinating bank, Coface agent and security agent), BTMU, Citi
Law firm: White & Case (Paris and Almaty offices)
Tenor: 10 years
Date signed: May 31, 2012
In the largest single ECA commitment in Kazakhstan to date, an €881mn export finance frame agreement was signed in May 2012 for Lokomotiv, a subsidiary of Kazakhstan Temir Zholy (KTZ). The facility is for the financing of 200 Alstom freight locomotives and 95 passenger locomotives for the national railroad operator.
The first tranche of €173mn, which saw HSBC, BTMU and Citi take on the role of mandated lead arrangers and lenders, was signed at the same time as the frame agreement.
The facility comprises an additional four tranches; tranche two is likely to be signed within Q1 2013, and tranche three towards the end of the year. The final two tranches are a couple of years away at present, in line with the ongoing deliveries of locomotives.
“This is a landmark financing in Kazakhstan and the wider CIS region, representing the largest single ECA commitment in the region to date (excluding Russia),” says Sam Lippitt, HSBC director of project and export finance. “The use of an innovative structure allows multiple bank accession to the different tranches against pre-defined terms, and thus ensures KTZ has access to the widest possible pool of liquidity for all tranches, which is essential in constrained times,” Lippitt continues.
The transaction is guaranteed by Coface, which was able to move away from the requirement for either government support, or equipment collateral, using a 12-month debt service reserve. This was achieved without funding through the use of “evergreen” standby letters of credit from the international banks.
Coface provided underwriting limit on all tranches upfront, in order to ensure the availability of funding for Alstom’s project.
The ECA’s committed support is provided without cost to KTZ, until such time as they actually draw on funds.
The facility is strategically important for both KTZ and Alstom, and is key to the Kazakh government’s rail modernisation programme.
While initially whole locomotives will be exported, the intention is that gradually, assembly and some component manufacturing will be taken on by EKZ, a joint venture between Alstom, KTZ and Transmashholding.
Islamic finance taken to new territories
Borrower: Malawian government
Amount: US$50mn
Mandated lead arranger and bookrunner: ITFC
Law firm: Legal Council of the Islamic Development Bank
Tenor: 12 months
Date signed: May 5, 2012
2012 was a year in which the Islamic Trade Finance Corporation (ITFC) took its business to a series of new frontiers, including Botswana and Zambia. But perhaps none are as interesting as Malawi – a landlocked country, sandwiched between Mozambique, Zambia and Tanzania, with a Muslim population of only 12.8%.
When Malawi approached the ITFC for support, it was in danger of becoming something of a pariah state, due to its former president Bingu wa Mutharika’s rejection of the terms the IMF and World Bank proposed in exchange for financial support. Without such capital Malawi struggled to import petroleum and as a result, acute fuel shortages crippled its local industry.
For Lamin Sanneh, assistant general manager, corporate and structured finance, head of Sub-Saharan Africa at the ITFC, this US$50mn transaction was groundbreaking for more reasons than one.
He tells GTR: “This was the first structured Islamic finance deal ever conducted in Malawi and the first structured transaction the government has ever done with a non-conventional bank. The transaction was fully secured on the collateral management side and it will make sure the people of Malawi get up to US$20mn of petroleum imports every other month.”
In 2011, Malawi’s economic growth slowed to 5.8% from 6.7% in 2010 – partly due to the lack of access to fuel commodities needed for manufacturing. The ITFC was able to give the government a much more affordable pricing structure for its loan than it would have gained on the international debt markets. The ability to purchase regular, secure fuel for a price within its range should have the double boon of nurturing the economy of one of the world’s poorest nations and helping to maintain social stability.
Mongolian rush for ECAs
Borrower: Mongolyn Alt (MAK) LLC, Mongolia
Amount: US$100 million
MLAs: BHF-BANK Aktiengesellschaft, BNP Paribas Fortis
ECAs: EKF, ELO
Law firms: GTs Advocates, Mongolia; Gorrissen Federspiel, Denmark; Ashurst, Germany
Exporter: FLSmidth, Denmark
Tenor: 10 years
Date signed: June 21, 2012
This US$100mn loan extended by BNP Paribas and BHF Bank to Mongolyn Alt is remarkable for its size and structure. The country’s first transaction backed by Denmark’s EKF, it is also the largest European ECA deal in Mongolia.
The loan funds the purchase of equipment from Denmark’s FLSmidth for the Mongolian coal mining company. The firm will use the equipment on its Khuskh Tsav cement plant, designed to produce 3,000 tonnes of clinker a day using a dry process.
The Danish ECA provided 95% comprehensive cover for a 10-year buyer credit facility, for which Eksportlaaneordningen (ELO), EKF’s funding arm, provided funding. The export contract was denominated in euros whereas the buyer asked for a US dollar-denominated loan, which meant that the Danish krone funding provided by ELO had to be converted at financial close. The loan agreement stated that disbursements would be made to the exporter in euros and repayments by the borrower in US dollars.
The deal demonstrates the importance of ECA-backed financings in developing markets such as Mongolia, whose banking sector is limited. According to BHF, it could be used as a template for other borrowers in Mongolia. Agnes Möglich, BHF director of structured export finance, says: “Due to the small and weak banking sector in Mongolia the ECA financing was the only possibility to secure the Danish exporter’s payment claims under the export contract.
“The Danish funding scheme secured US dollar funding at an attractive pricing.”
Michel Froidebise, BNP Paribas head of export finance Nordic origination, adds: “The deal proves again the attractiveness of long-term ECA-backed finance, especially in the context of turbulent financial markets.”
Completion at last for Irkut MC-21
Borrower: Sberbank
Amount: €70.4mn
Mandated lead arranger and bookrunner: Commerzbank
Participating bank:
KfW Ipex
ECA: Euler Hermes
Tenor: 3 years disbursement -/8.75 years repayment
Date signed: December 21, 2013
In the years to come, the Irkut MC-21 may well be regarded as the project that hauled Russian aviation into the 21st century. Plans to develop the aircraft were first put in place in 2007 and the transaction closed by Commerzbank in 2012 will see the long gestation period finally come to fruition in 2015, when the first flight is expected to take place.
€70mn of export finance was delivered to Irkut Corporation, the operating company of Irkut MC-21, via Sberbank. Tatiana Satyukova, head of projects, export agency finance, tells GTR that the deal is an example of the focus which Sberbank has now placed on export credit agency (ECA)-covered deals. Last year, the bank was involved in ECA-backed deals topping US$1bn after a number of years without completing any. She says: “We have returned to the market at great pace. We have very ambitious goals.”
Commerzbank’s head of CEE/CIS export financing Jochen Anton-Boicuk tells GTR that one of the main challenges the team faced was deciding on the best currency in which to seal the deal. “There was a great variety of financing structures that were discussed,” he says. “But in the end settling in euro was most beneficial for everyone.”
Commerzbank chose to partner with the commercial arm of the German development KfW, KfW Ipex, with which it has a longstanding co-operation agreement. “The partnership was very important in bringing this transaction together,” says Anton-Boicuk. “We were able to leverage each other’s experience of working in Russia and of working in the aviation sector.”
He also praises the involvement of German ECA Euler Hermes. “All these investments have been made possible thanks to the readiness of Euler Hermes and the close co-operation ofthe financing banks.”
International support for Bahrain steel
Borrower: United Steel Company (Sulb) BSC
Amount: US$373mn
Mandated lead arrangers: BNP Paribas, Société Générale CIB
ECAs: Serv, Euler Hermes, K-sure
Law firms: Clifford Chance; Baker & McKenzie
Tenor: 12 years for ECA-covered facilities; 7 years for commercial loan
Date signed: March 30, 2012
With its complex structure incorporating project finance and corporate financing elements, this US$373mn loan proves the bankability of large steel structured finance transactions in Bahrain, and their appeal to export credit agencies.
The facility, extended by BNP Paribas and Société Générale (SG) to United Steel Company (Sulb), received guarantees from Switzerland’s Serv (US$70mn), Germany’s Euler Hermes (US$104mn) and South Korea’s K-sure (US$159mn), each of which provided 95% political and commercial risk cover on their own tranche.
Funds will be used to develop one of the lowest-cost heavy beam and structural steel section production plants in the world, operated by a newly established joint venture between Gulf United Steel Company (Foulath; 51%), and Japan’s Yamato Kogyo (49%).
Charles-Emmanuel de Beauregard, Société Générale’s director, structured export finance Gulf and Middle East, says: “Sulb was an interesting project because we had to meet the expectations of two sponsors with very different profiles, in a challenging geopolitical environment. Getting this award is a very nice achievement as it recognises SG’s expertise in structuring large projects involving export credit agencies.”
The hybrid nature of the financing with conservative debt-to-equity ratio (project finance type structure with corporate financing elements) was tailored to address the specificities of the industry and the volatility of cashflow.
The three ECA-covered facilities, as well as the US$40mn commercial loan, are secured by the borrower’s assets, shares, future revenues and offshore and onshore accounts, and supported by the sponsors with a first-demand guarantee.
Sulb’s facilities are being established within Foulath’s existing steel production complex located in Bahrain’s Hidd Industrial Area.
Once fully operational, the US$1bn Sulb project is expected to replace approximately 14% of the Middle East’s current imports of medium and heavy beams and structural sections, making this a landmark deal in the region.
Surgil project sees focus return to the Silk Road
Borrower: UZ-Kor Gas Chemical LLC
Amount: US$2.54bn
Mandated lead arrangers and bookrunners: ING, Korea Finance Corporation, Korea Development Bank, Siemens Bank, Credit Suisse, BayernLB, KfW Ipex, Nordea, SEK
ECAs: Korea Exim, KDB, K-Sure, KfW, Euler Hermes, EKN, National Bank of Uzbekistan, Asian Development Bank, China Development Bank, SEK
Law firms: Vinson & Elkins; Norton Rose
Tenor: 16 years
Date signed: May 19, 2012
As far back as 200BC, the Silk Road connecting the trading hubs of Europe with Eastern Asia passed through Termez and the Fergana Valley in modern day Uzbekistan. The Surgil gas project signed last year represents a repaving of the Silk Road – a connection and collaboration of contemporary trading powers in Central Asia.
Involving banks, development banks, export credit agencies (ECAs) and corporates from Western Europe, Scandinavia, South Korea, China and, of course, Uzbekistan, Surgil was the largest project financing in Central Asian history, the largest petrochemical project financing ever to have taken place in the former Soviet Union, the first international oil and gas project financing in Uzbekistan and the largest Korean ECA financing raised for an international project.
Rodolphe Olard, managing director of natural resources at ING Bank explains to GTR how the bank managed to get financiers on board. “We have 16 different lenders, including four ECAs from all over the world,” he says. “It was important to get a core group of institutions (the Korean ECAs and the ADB) to agree to the deal and then we could expand the lending group. CDB and NBU were next to join the core group. In order to introduce Uzbekistan to the international bank market, we hosted a road show in Tashkent – the first ever in the country. We invited 19 institutions, all active international banks in the financing of projects, and unsurprisingly, generated lots of interest.”
Uzbekistan, often overshadowed by neighbouring Kazakhstan when it comes to economic matters, stands to benefit from the creation of 5,000 local jobs and the exposure that comes with paying host to a US$2.54bn transaction. It will certainly be on the map of energy investors now.
Debut syndication for Tangsteel
Borrower: Tangsteel
Amount: US$200mn
Mandated lead arrangers: Deutsche Bank (co-ordinating MLA, facility agent, account bank and security agent), ABN Amro (MLA and documentary LC bank), DBS Bank, HSBC, Natixis, United Overseas Bank
Law firm: Norton Rose
Tenor: One year
Date signed: May 17, 2012
This US$200mn syndicated loan is Tangsteel’s debut in the structured commodity trade finance market, and China’s biggest cross-border commodity syndication in 2012.
The facility helps the pre-payment of US$270mn-worth of the Chinese firm’s steel exports to trading house Duferco, via Tangsteel’s Hong Kong trading platform, Sinobiz.
Deutsche Bank acted as co-ordinating mandated lead arranger (MLA), facility agent, security agent and account bank, and was joined by five other MLAs.
Amanda Jiao, head of structured commodity trade finance, Greater China global transaction banking at Deutsche Bank, says: “This deal represents Tangsteel’s debut in the international structured commodity trade finance market, and will help the organisation diversify its funding sources, as well as expand its commercial, technical and financial relationship with Duferco. Designing and implementing a payment and default risk-mitigated structure that was innovative, compliant with Chinese regulation and acceptable for all relevant parties presented the greatest challenge to bringing the deal to completion.
“The deal was 2012’s first successfully closed – and oversubscribed – structured commodity trade finance syndication in China, and also the year’s largest cross-border structured commodity trade in the country.”
ABN Amro, one of the MLAs, explains that as the biggest steel firm in China, Tangsteel’s parent company, Hebei Iron and Steel Group (HBIS) is well sought-after by various Chinese banks, but that the deal still took a lot of work.
“In order to extend its footprint to the international debt market, Tangsteel was willing to take on a structured finance, which nonetheless receives excellent response amongst leading foreign banks, and many of them had never banked the mill before. However, given their first-ever pre-export finance attempt, a great deal of communication and explanation from structuring to documentation was required to iron the deal out,” says Ben Cheung, ABN Amro’s executive director, commodities, metals and steel, adding that the bank expects this deal to inspire more similar cases in the future.
