EDHEC 2023 Project Finance Course Intro. Lecture 1
EDHEC 2023 Project Finance Course Intro. Lecture 1
EDHEC 2023 Project Finance Course Intro. Lecture 1
EDHEC MSc Corporate Finance & Banking & MSc Accounting & Finance
Nice, January - February 2023
Sylvaine CHUBERT
EDHEC Faculty member
Managing Director, SC Training & Consulting Sarl
Tip:
Optimise your concentration in class by
disconnecting from all your electronic devices
Lecture overview
Distinguish:
« Economic » assets => the project’s operator receives a revenue which
is directly correlated to the level of use of the asset
Ex: Toll roads & Utilities projects (water, electricity, gas)
Versus « Social » assets =>a public body remains service provider
against a pre-agreed remuneration of the private contractor (constructor
and possibly operator).
Ex: schools, hospitals, prisons, government buildings.
Public
Concessions Private
Partnerships Emphyteotic
leases
(PPP)
P.22
Schematic diagram of a typical Project Finance
Arrangement on a B.O.T. concession basis
State/
Project Lenders Offtaker Conces
sion
Non recourse
Debt
Grantor
Assignment of key contracts* Revenue
Security interest in project assets
(except with a concession
agreement) and shares in SPV
Concession
* Includes direct agreements with key contract parties, equity + contingent equity
subscription agreements
Your checklist when structuring a project
Completed by:
• Shareholders’ Agreement
• Operation and Maintenance (« O & M ») Contract
• Supply and sub – contracting Agreements (materials, equipments &
services), possibly covered by Export Credit Agencies (ECA’s) if
exported for international projects
Missions of the concession grantor (/host
country)
Arranging - Structuring
Underwriting and Syndication of the debt
Swap providers (IR + FX)
Guarantors, L/C providers
Trust services
Cash management/Payments
Leasing
Once the Project Finance structure has been worked out, it is common to mandate an
Arranger or Lead Underwriter group to pull the documentation and funding together.
Usually one or two leaders carry the negotiations
Through syndication, other participants become involved such as Managers, Co-
Managers, and Participant Banks whose rank is solely related to the amount of
financing provided
For Underwriters (Lead Arrangers), syndicating a loan is a way to get higher
fees, share credit risk and hence comply more easily with the Basel 3 capital
and solvency requirements
Project Finance Mandated Lead Arrangers.
League tables source: IJGlobal
Global Project Finance MLAs
Rank Q3 2022
. Rank Q3 2021 Name Value ($m) Q3 2022 Value ($m) Q3 2021
1 1 SMBC 11 425 11 187
2 2 MUFG 9 550 9 121
3 5 Santander 8 336 6 465
4 8 ING 7 677 5 631
5 4 Societe Generale 7 428 7 972
6 6 Mizuho 6 832 6 140
7 7 Credit Agricole 6 100 5 883
8 3 Natixis 5 265 7 986
9 18 Bank of China 4 182 2 511
10 9 BNP Paribas 3 994 5 575
11 12 HSBC 3 850 2 870
12 29 BBVA 3 743 1 635
13 45 Bank of America 3 629 1 023
14 10 CIBC 3 605 3 337
15 44 Scotiabank 3 350 1 067
16 24 NordLB 3 283 1 827
17 15 Intesa Sanpaolo 3 152 2 709
18 99 Goldman Sachs 3 093 293
19 25 KeyBanc Capital Markets 2 913 1 814
20 32 Citigroup 2 666 1 565
P.33
Project Finance Mandated Lead Arrangers. League tables for
Europe source: IJGlobal
Europe Project Finance MLAs
Rank Q3 2022 Rank Q3 2021 Name Value ($m) Q3 2022 Value ($m) Q3 2021
1 1 Santander 3 679 3 397
2 5 Credit Agricole 3 390 2 431
3 6 Societe Generale 3 169 2 131
4 12 ING 3 148 1 599
5 15 NordLB 2 544 1 226
6 16 Intesa Sanpaolo 2 263 1 084
7 17 BBVA 2 077 962
8 7 BNP Paribas 1 972 2 071
9 14 Natixis 1 826 1 527
10 13 UniCredit 1 712 1 554
11 30 NatWest 1 696 479
12 19 SEB 1 361 891
13 10 KfW-IPEX 1 338 1 682
14 34 ABN AMRO 1 325 330
15 43 Banco BPM 1 081 271
16 49 MUFG 1 029 226
17 11 SMBC 1 000 1 613
18 #N/A Starwood Capital 986 #N/A
19 152 Aviva 929 5
20 59 LBBW 860 187
Implications of Basel 2 & 3 and Q.E. on
Project finance
Bank 1 MLA + agent All debt Bank 1 MLA + agent Final take
Participant Final take
Bank 2
Participant Final take
Syndication Bank 3
Participant Final take
Bank 4
liquidity
Strong syndication risk to be assessed
Maximise fees
4 5 EY 3 649 2 738
Public
Concessions Private
Partnerships Emphyteotic
leases
(PPP)
P.39
Concession versus emphyteotic lease
• Concessions are signed when a public party is involved as the grantor,
which may be a ministry, state authority, the region or the city.
• Emphyteotic leases are lighter contractual arrangements than concessions.
They are very long-term agreements (up to 90 years)
• Can be signed with public parties or (often) private landowners: companies
or individuals.
• Very common in renewable energy projects, these leases are usually signed
for a long period, often in line with the economic life of the project (30
years).
• They guarantee project developers that the land on which the project is to be
built will be available until the project is dismantled or reorganised.
• Important! For lenders, these long leases enable them to fix a legal mortgage
on the land plot on which the project is constructed
• For project developers: along such lease agreement, they are not committed
to build, if their permitting is not consolidated
40
Contractual structuring with emphyteotic lease
Each contract can have
Offtaker
(want strong offtaker with
many nuances with
ability to honour contract) penalties, bonuses,
default clauses,
termination.
EPC Contractor
(want strong Price Risk or
record and Volume Risk or Public authority
finances) Both or None (often
(Availability) municipality)
or private land
EPC: Fixed Price
owner as Lessor
Contract with LD Emphyteotic of land plot
lease
Special
Supplier O&M
Purpose O&M
(needs to Supply Contractor
Vehicle Agreement
understand Agreement (want strong
(Bond Rating
economics and record)
of BBB-)
supply curve)
Loan
Shareholder Agreement –
Sponsors
Agreement Draws; Debt
(want Compound
Service Lenders
Annual Growth
Rate, Equity IRR (want DSCR, 41
through Invest with paid in cap; Invest with drawdowns; LLCR, PLCR)
dividends etc) payback dividends payback debt service
Financial structuring schemes: from BOT concessions to
Public Private Partnerships (PPP) and Emphyteotic leases
Public
Concessions Private
Partnerships Emphyteotic
leases
(PPP)
P.42
Another project contractual structure: Public
Private Partnerships