PermissibleAdmissible country analysis for portfolio investors

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Permissible/Admissible country analysis (for
portfolio investors)
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Political risk

• This segment analyzes the risk to foreign
  investors resulting from political changes in a
  country that can negatively impact market
  openness, liquidity, or performance.
• Markets with stable, democratic political system
  and those committed to supporting foreign
  investment are ranked high while markets with
  unstable political system are ranked lower.
• Aside from the type of government, each countrys
  sovereign credit rating was also analyzed. The
  sovereign credit rating reflects a countrys
  stability, its willingness and ability to repay
  its debt.
• Countries were assigned either a score of 1 (low)
  to 3 (stable government, strong credit rating).
  
• --- Wilshire Associate, 1999.

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Project FinanceAn Introduction
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Project finance

• the raising of funds to finance an economically
  separable capital investment project in which the
  providers of the funds look primarily to the cash
  flow from the project as the source of funds to
  service their loans and provide the return of and
  a return on their equity invested in the
  project. -- Finnerty (1996, p.2)
• involves the use of limited- or fully
  non-recourse debt by a corporate parent (the
  sponsor or sponsors) to finance investment in and
  ownership of a legally independent, single
  purpose industrial asset.

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History of project finance

• Devon silver mines.
• In 1299, the English Crown enlisted a Florentine
  merchant bank to aid in the mines development.
  The bank received a one-year lease for the total
  output of the mines in exchange for paying all
  operating costs without recourse to the Crown if
  the value or the amount of the extracted ore was
  less than expected. (This type of loan is known
  today as a production payment loan.)
• Trading expeditions in the 17th and 18th
  centuries.
  
• Investors provided funds to the Dutch East India
  Company and the British East India Company for
  voyages to Asia after which they were paid
  according to their share of the liquidated
  cargoes.
• In the 1930s, wildcat explorers in Texas and
  Oklahoma used production payment loans to finance
  oilfield exploration.
  
• Modern project finance developed in the 1970s
  partly in response to several large natural
  resource discoveries and partly in response to
  soaring energy prices and the resulting demand
  for alternative energy sources.
• BP raised 945 million on a project basis in the
  early 1970s to develop the Forties Field in the
  North Sea.
  
• Power finance in the U.S. from the late 1970s to
  the early 1990s.
  
• The Public Utility Regulatory Policy Act of 1978
  required local utilities to purchase all of the
  output from qualified power producers under
  long-term contracts.
• Public sectors use of tax-exempt municipal bonds
  to finance roads, water treatment plants, and
  other infrastructure projects.

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Volume of project finance deals signed from 1994
to 1999
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Volume of project finance deals signed in 1999 by
sector
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Volume of project finance deals signed in 1999 by
region
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The Chad-Cameroon Pipeline
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What happened

• 10/18/00. Esso Chad begins construction (break
  ground)
  
• 2/22/01. World Bank appoints Intl Advisory
  Group
  
• Will monitor oil cash flow for 10 years
• 5/27/01. Deby wins 2nd Presidential election
• Six opposition candidates briefly jailed.
• 6/20/01. Close on 600m of financings (18
  banks)
  
• 100m IFC A Loan
• 100m IFC B Loan
• 200m ECA (US Exim)
• 200m ECA (Coface)
• Deal is over-subscribed by 50
• Cancel the bond offering
• D/V for the project 16 (low for PF)
• Chads first syndicated credit
• 6/28/01. External Compliance Monitoring Group
• 2nd report finds no critical non-compliance
  issues
  
• 2004. First oil expected (full production by
  2005)
  

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What happened--Comments

• This is a proud day for Chad and Cameroon. It
  is also a proud day for the World BankAs an
  Africa, too, I am heartened by the sheer size of
  this private investment at the heart of our
  continentwhich needs to attract much more
  international capital if we are to realize our
  development dreamsThe world is watching this
  experiment closely and we should take advantage
  of that attention. In fact, I would like to see
  us transform what was a controversy into a model
  of intelligent and open project implementation.
• Mr. Calliso Madavo, VP African Region, the
  World Bank, 10/18/00, Groundbreaking Ceremony.
  
• We agreed to the strictest conditions to receive
  international funding (for the pipeline) of any
  nation ever, as far as I know.
  
• Moustapha Ali Alife, Chad Communications and
  Human Rights Counselor, The Washington Times,
  7/22/01.