Lessons for African Projects Name of Conference September

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Structured and Project Finance
Lessons for African Projects
Name of Conference September 30, 2004
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Overview Structured Project Finance

• Introduction Overview of Ex-Im Bank Structured
  Finance
• Products
• History and Activity
• Project v. Structured Finance
• Distinctions
• Deal Appropriateness

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Products What We Do

• Comprehensive guarantee
• Direct Loan
• Political risk only guarantee
• Role is as Senior Lender
• Participation limited by U.S. content

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History Where Weve Been
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Activity What Weve Done
Structured finance has been dominating our
portfolio.
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Authorizations By Sector, Project and Structured
Finance, 1995-2004 (MM)
Together, power oil/gas deals comprise 80 of
our authorizations.
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Authorizations By Sector, Project and Structured
Finance, 1995-2004 (MM)
Latin America and Asia comprise over ¾ of deals,
Africa only 6
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Structured Project Finance What is the
Difference?

• Structured (Typical)
• Full recourse to sponsor
• Expansion of operation in existence for 3years
• Analysis of historic projected cash flows
• Limited perfection of security

• Project Finance
• Limited recourse
• Greenfield or project expansion
• Analyze projects future cash flows
• Complex documentation to perfect security

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Terms Project v. Structured Finance

• Structured Finance
• Pay interest during construction (IDC)
• Maximum Repayment Term 10 years/12 years power
• Equal semi-annual principal
• 1st principal 6 months post-completion
• Finance for local costs connected to export
  contract, ancillary fees

• Project Finance
• Capitalize IDC
• Repayment up to 14 years
• Flexible amortization
• Grace periods available
• Local costs 15 of contract value, special
  ancillary services

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Deal Appropriateness-Structured v. Project Finance

• The Trade-off
• What Not to Do
• Issues
• Structure and Core Principles
• Co-finance
• Example

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Project Finance Trade-off

• Whether to use project finance is often a
  trade-off between

Advisory Legal Expenses Time to close fund
Balance Sheet Considerations
and
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Other Considerations

• For Project Finance
• Expertise
• For Structured Finance
• Existing credit source
• For either
• Existence of more than an idea and a site

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What Not to Do

• Dont
• Use project finance due to lack of supporting
  balance sheet strength.
• Assume micro project finance takes as long as
  big deals it takes more!
• Use structured finance to get lower credit
  standards.

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Project Finance Structure
Essential structure can appear simple, but shows
that a contract must support every relationship.
Host Government
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Core Concepts of Project Finance

• Reasonable Assurance of Repayment
• Equity at Risk
• Long-term investors
• Real cash equity investments
• Proper incentives
• Sound Regulatory Legal Framework
• Non-interference lenders rights
• Government support
• Clear regulation and transparent, enforceable
  contracts

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Structured Finance Structure

• Degree of structuring can vary
• Elements tend to include
• Reserve other accounts
• Payment priorities cash control
• Funding tied to milestones
• Dividend release conditions

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Example Structure Finance Off-shore Trust

• Externalize risk by
• Placing secure revenues off-shore
• In a trust for the lenders

Project Company
Off-Shore Buyer
Product
1. Operations Maintenance Expenses


2. Lender Debt Payments
Off-shore Trust

3. Dividends

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Structure Finance Core Principles

• Same as for project finance
• Reasonable Assurance of Repayment
• Equity at risk
• Sound Regulatory Legal Framework
• Structured finance can save money time, but not
  at the expense of credit principles.

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Co-Finance

• Reinsurance of lead ECA by follower
• Used mostly for straight-forward credits
• Not suited for project finance
• Too complex for passive following
• Little cost savings
• Use in structured finance being considered.

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Examples Project Finance in Africa
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Examples Project Finance in Africa
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Conclusions

• Structured finance increasingly an option,
  especially for small deals
• African activity has been less than hoped
• Project finance requires equity support
  expertise
• Structured finance can save time money but not
  at expense of credit
• Ex-Im Bank committed to being flexible in finding
  deal-specific approaches