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

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

3. Products – What We Do Comprehensive guarantee Direct Loan
Political risk only guarantee
Role is as Senior Lender
Participation limited by U.S. content

4. History: Where We’ve Been
Late 80s, Early 90s
Oil/gas finance on limited recourse basis, formal project finance considered
1993
1st formal project finance, Pagbilao
1994
Project Finance Division started
1998
Comprehensive pre-completion coverage
1999
Division renamed Structured Finance Division (SFD); scope expanded to long-term corporate/structured deals
Today
Current deal flow of about $2 billion/year, most of which is structured finance

5. Activity: What We’ve Done
Structured finance has been dominating our portfolio.

6. Authorizations By Sector, Project and Structured Finance, 1995-2004 ($MM)
Together, power & oil/gas deals comprise 80% of our authorizations.

7. Authorizations By Sector, Project and Structured Finance, 1995-2004 ($MM)
Latin America and Asia comprise over ¾ of deals, Africa only 6%

8. Structured & Project Finance: What is the Difference?
Structured (Typical)
Full recourse to sponsor
Expansion of operation in existence for 3+years
Analysis of historic & projected cash flows
Limited “perfection of security”
Project Finance
Limited recourse
Greenfield or project expansion
Analyze project’s future cash flows
Complex documentation to perfect security

9. Terms: Project v. 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

10. Deal Appropriateness-Structured v. Project Finance
The Trade-off
What Not to Do
Issues
Structure and Core Principles
Co-finance
Example

11. 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

12. Other Considerations For Project Finance: For Structured Finance:
Expertise
For Structured Finance:
Existing credit source
For either:
Existence of more than an idea and a site

13. What Not to Do
Don’t:
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.

14. Construction Contracts Operation & Maintenance Contracts
Project Finance: Structure
Essential structure can appear simple, but shows that a contract must support every relationship.
Host Government
Supply Contracts
SPV “Sponsors”
Sales Contracts
Construction Contracts
Operation & Maintenance Contracts

15. 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

16. 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

17. 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 $

18. 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.

19. 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.

20. Examples: Project Finance in Africa
Success Stories
Chad Cameroon Pipeline
Jorf Lasfar Power Project
Strong sponsors
Good equity support
Favorable economics
Not Guaranteed
Olkaria Geothermal
Questionable off-taker
Inadequate government support
Under Review
EBIC Ammonia
Intaba Marriot
Equity & other issues under review

21. Examples: Project Finance in Africa
Success Stories
Nigerian LNG
Strong sponsors
Good equity support
Favorable economics
Not Guaranteed
Multilinks
Econet
Unclear economics
Under Review
Sirius Wireless
Dangote
Issues under review

22. 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