funding assets, finding energy: fpso/flng...
TRANSCRIPT
Nazery KhalidNazery Khalid
FPSO China 2009FPSO China 2009Beijing, 19-20 March 2009Beijing, 19-20 March 2009
FUNDING ASSETS, FINDING ENERGY: FUNDING ASSETS, FINDING ENERGY: FPSO/FLNG FINANCING AMID FPSO/FLNG FINANCING AMID
THE CREDIT CRUNCHTHE CREDIT CRUNCH
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PRESENTATION OUTLINEPRESENTATION OUTLINE
• Raising financing amid the credit crunchRaising financing amid the credit crunch
• Criteria for obtaining credit Criteria for obtaining credit
• Various debt structures and tax leasesVarious debt structures and tax leases
• Some special risk factors and case studiesSome special risk factors and case studies
• Potential security issuesPotential security issues
• Crystal ball gazing : Financing prospectsCrystal ball gazing : Financing prospects
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FPSO / FLNG FINANCINGFPSO / FLNG FINANCING• Capex intensive, often highly leveraged.Capex intensive, often highly leveraged.
• Mismatch between borrowers’ long Mismatch between borrowers’ long term term needs and lenders’ short term needs and lenders’ short term financing.financing.
• Dominated by debt financing with short Dominated by debt financing with short payback periods. payback periods.
• Pricing and structuring of deals shaped Pricing and structuring of deals shaped by ‘big ticket’ nature and life of assets.by ‘big ticket’ nature and life of assets.
• Traditional lenders have long- Traditional lenders have long- standing relationship with clients.standing relationship with clients.
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IMPACT OF CRISIS ON FINANCINGIMPACT OF CRISIS ON FINANCING
• Banks / investors more cautious & selective.Banks / investors more cautious & selective.
• More stringent funding terms. More stringent funding terms.
• More expensive borrowing costMore expensive borrowing cost
• More ‘plain vanilla’ bilateral deals andMore ‘plain vanilla’ bilateral deals and less syndicated loans / club deals.less syndicated loans / club deals.
• More structured finance / securitization.More structured finance / securitization.
• More emphasis in risk management to More emphasis in risk management to minimize rising claims and escalating loss.minimize rising claims and escalating loss.
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FUNDING FPSO / FNLG AMID CRISISFUNDING FPSO / FNLG AMID CRISIS• Lower oil and gas prices may reduceLower oil and gas prices may reduceincentive to invest in FPSO/FLNG.incentive to invest in FPSO/FLNG.• Owners will need more external funding.Owners will need more external funding.• Credit crunch and stricter regulations Credit crunch and stricter regulations i.e. Basel II, post-crisis banking rulesi.e. Basel II, post-crisis banking rules may may
make lenders more cautious. make lenders more cautious.
• Greater focus on alternative financing Greater focus on alternative financing (sale & leaseback, private equity, shipping (sale & leaseback, private equity, shipping trust, Islamic financing etc).trust, Islamic financing etc).
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CRITERIA FOR OBTAINING CREDITCRITERIA FOR OBTAINING CREDIT• Borrowers must show good cashflow / Borrowers must show good cashflow / earnings potential.earnings potential.• Borrowers must put up strong collateral Borrowers must put up strong collateral to raise credit as lenders seek sto raise credit as lenders seek stricter tricter covenants to mitigate risks.covenants to mitigate risks.• Lenders to focus more on Lenders to focus more on quality names quality names and on project’s prospects.and on project’s prospects.• Lenders looking more at amortized Lenders looking more at amortized structures, tighter covenants, market flex structures, tighter covenants, market flex clauses.clauses.
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CASE STUDY I :CASE STUDY I :DEBT FINANCINGDEBT FINANCING
• Financing of FPSO Financing of FPSO Sevan 300 Sevan 300 for for Norway’s Sevan Marine ASA (Feb 2008).Norway’s Sevan Marine ASA (Feb 2008).• Built in Hantong Shipyard, China. Built in Hantong Shipyard, China. • USD280 mil. bilateral loan / pre-delivery USD280 mil. bilateral loan / pre-delivery construction facility.construction facility.• Converts into amortizing term loan upon Converts into amortizing term loan upon
delivery of the FPSO.delivery of the FPSO.• Structured as limited recourse facilityStructured as limited recourse facility
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CASE STUDY II :CASE STUDY II :DEBT FINANCINGDEBT FINANCING
• Financing of conversion and operation of Financing of conversion and operation of FPSO FPSO Espirito Santo Espirito Santo for Holland’s SBM for Holland’s SBM Offshore NV & Malaysia’s MISC Bhd. Offshore NV & Malaysia’s MISC Bhd. (Oct (Oct 2008).2008).• Built at Keppel Shipyard, Singapore.Built at Keppel Shipyard, Singapore.• US$585 mil. project loan on syndicated US$585 mil. project loan on syndicated basis involving 11 banks. basis involving 11 banks. • Largest FPSO financing ever!Largest FPSO financing ever!
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CASE STUDY III : CASE STUDY III : TYPICAL TAX LEASE STRUCTURE TYPICAL TAX LEASE STRUCTURE
FinancingFinancing
Discounted lease with Discounted lease with purchase optionpurchase option
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LESSOR LENDER / INVESTOR
LESSEE
1. Leasing co. acquires FPSO / FLNG and leases it to the end-user.
2. As owner, leasing co. can claim depreciation benefits.
3. Financing is raised separately.
4. Typical lease term : 15-20 years.
CASE STUDY IV : CASE STUDY IV : TYPICALTYPICAL IJARA IJARA STRUCTURE STRUCTURE
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LESSOR
FINANCIER
LESSEE
SHIPYARD
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CASE STUDY IV :CASE STUDY IV :TYPICAL TYPICAL IJARA IJARA FINANCINGFINANCING
Owner commissions yard to build.Owner commissions yard to build.Yard sells to lessor in exchange of Yard sells to lessor in exchange of
payment.payment.Lessor leases asset to lessee.Lessor leases asset to lessee.Lessee pays installment payments to Lessee pays installment payments to
lessor.lessor.Financier is paid rent as agreed by Financier is paid rent as agreed by
lessor / lessee. Financing can be securitized via lessor / lessee. Financing can be securitized via conversion of loan into marketable securities.conversion of loan into marketable securities.11
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MARITIME FINANCING RISKS MARITIME FINANCING RISKS
• UUnpredictable earnings / asset valuesnpredictable earnings / asset values• Cyclical nature of oil & gas marketsCyclical nature of oil & gas markets• Cross-border / forex risksCross-border / forex risks• Huge exposure due to high asset costsHuge exposure due to high asset costs• Human capital risksHuman capital risks• Environmental, safety & security risksEnvironmental, safety & security risks• Geo-political developmentsGeo-political developments• Regulatory factorsRegulatory factors
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SPECIAL RISK FACTORS IN SPECIAL RISK FACTORS IN FPSO / FLNG FINANCINGFPSO / FLNG FINANCING
• Construction risksConstruction risks• Project risks / cProject risks / commercial considerationsommercial considerations• Cost overrunCost overrun• Contractual risksContractual risks• Newbuilding vs conversionNewbuilding vs conversion• Redeployment potentialRedeployment potential• Regulatory considerationsRegulatory considerations• Technical issuesTechnical issues
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POTENTIAL SECURITY ISSUESPOTENTIAL SECURITY ISSUES• Natural disastersNatural disasters• CollisionCollision• GroundingGrounding• Mechanical failureMechanical failure• PollutionPollution• Piracy Piracy • TerrorismTerrorism• On-site hazards i.e. blow-out, spills, leaks, On-site hazards i.e. blow-out, spills, leaks,
fire, accidents to personnelfire, accidents to personnel
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FINANCING PROSPECTSFINANCING PROSPECTS• Lending constraints to continue until Lending constraints to continue until economy and confidence recover. economy and confidence recover.
• Players will be cautious and adopt ‘wait Players will be cautious and adopt ‘wait and see’ attitude until prospects improve.and see’ attitude until prospects improve.
• Higher-priced deals with tighter covenantsHigher-priced deals with tighter covenants
• Less syndicated / club deals.Less syndicated / club deals.
• Financiers will be under pressure by Financiers will be under pressure by
stricter banking, shipping rules. stricter banking, shipping rules. 15
FINANCING PROSPECTSFINANCING PROSPECTS• Preference for quality names with access to Preference for quality names with access to
oil majors and proven track record.oil majors and proven track record.
• Focus on assets with cost-saving features.Focus on assets with cost-saving features.
• Less speculative lending.Less speculative lending.
• Owners will explore more alternative Owners will explore more alternative structures to offset debt crunch.structures to offset debt crunch.
• M&As among players leading to better M&As among players leading to better pricing of financing.pricing of financing.
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IN FPSO / FLNG FINANCING,TIMING IN FPSO / FLNG FINANCING,TIMING AND BALANCE ARE OF THE ESSENCE!AND BALANCE ARE OF THE ESSENCE!
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