Simon Par Keeling, Société Générale Paris PROJECT FINANCE Simon Par Keeling, Société Générale Paris

What do we mean by a Project? Investment made by a "sponsor ", either: a company or often a joint-venture in a long term project / concession, which is either: "greenfield" development or a sizeable increase in capacity or significant refurbishment/extension of an existing plant which will generate a well defined stable cash-flow

Project Finance : General Definition Financing of a specific investment, the reimbursement of which is linked to and based upon the future cash-flows of the project, with limited recourse to the Sponsors of the project company Project needs to be well defined conceptually and contractually For Banks, Project Risk is between Capital Risk and Asset or Corporate Financing Définition for the bank. Operators/Manufacturesr might have a different definition

How do companies finance their Projects?

Types of Project where Project Finance can be used Private companies (well defined projects with appropriate counter party risks) Government / local authority privatisation (PFI/PPP type projects) roads waste collection water treatment

Drivers for a Project Government / local authorities Sponsors Budget considerations - Project passed to private sector via a long term concession Design, construction, financing & operation passed to private sector (DBFO) An appropriate level of project risk passed to private sector Sponsors Equity investment and returns Construction and operating contracts Balance-sheet considerations

Project Finance Structure

Project Finance Features Debt service relies on future cash flows of a particular project instead of corporate operations ("limited recourse") Insulation of the "Project" Project Risks identification Project Risks allocation between sponsors, outside investors, banks, insurers, etc... For the banks, this leads to an "investor like" approach Project rationale analysis What are the most appropriate financing structure and instruments to reconcile various objectives ? Schedule / Cost optimization Banking due diligence

Project Approach (1) Sponsors objectives and project's rational Risk analysis : General risks : country, economic, political Corporate risks : financial and contractual obligations

Project Approach (2) Specific risks : regulatory technical construction completion (delays, cost overruns, performances) supply, reserves operations (performances, availability, operating costs) market (volume, price, traffic) financial risk (exchange, interest, liquidity, transferability risks) Force Majeure

Project Approach (3) Overall contractual structure (required entities, fiscal optimization) Cash flow analysis and sensitivities Allocation of risks between parties contracts guarantees specific supports insurances Independent advisers Technical, Legal, Insurances

Project Approach (‘4) Documentation Syndication Contracts, Agreements Security Agreements (pledge of shares, of revenues, assignment of contracts, mortgages, offshore project accounts, etc.) Cash flows allocation order Syndication

Case by case approach, within a typical frame Sub-contracts Construction Companies Contractor Construction Contract Shareholders Operator O&M Contract Shareholders Agreement Governmental Authority Concession Agreement Insurance Companies Concession / Project Company Consumers / Offtaker Revenues Supplier Securities Credit Facilities Performance Bond Banks Lenders Support Agreements Pledge of shares