Private and confidential

Resource improvement financing: The petrochemicals case

Prepared for the Nigerian Society of Chemical Engineers Workshop

September 2012

1Contents

Section

1. Introduction to petrochemicals

2. Global petrochemicals industry overview

3. Market overview

3.1 Middle east and Europe

3.2 Africa

3.3 Nigeria

4. Developing Nigeria’s petrochemicals industry

5. Financing Petrochemicals

5.1 Sources of capital

5.2 Case studies

6. Stanbic IBTC Bank and the Standard Bank group

2Introduction

Any of a large group of chemicals derived from a component of petroleum or natural gas

Originally considered waste products, the gases today are manufactured into petrochemical substances widely employed in industry.

Important petrochemical compounds:

– Ethylene & Propylene,

– Alcohols and Aldehydes,

– Styrene

– Ammonia etc.

Materials made from the gases include

– carbon black

– synthetic rubber

– Polystyrene

– Polypropylene and

– polyethylene

What are petrochemicals

3IntroductionWide range of ndustry applications

Feedstock Cracking

Aromatics(Benzene / Toluene / Xylene)

Plastics Industry

Olefins(Ethylene / Propylene / Butylene / Mixed C4

Synthetic Rubber

PropyleneBenzeneEP Rubber(Ethylene + Propylene)

SB Rubber(Styrene + Butadiene) Ethylene

Construction

Piping

House Sliding

Food Wrap

Latex Paints

Autoparts

Computer hosing

Telephones

Food packaging

Medical products

Coffee pots

Toys

Rope

Film / tape

Flexible foam

Bedding

Coatings

Electronic components

Tires

Hoses

Belts

Footwear

Latex foams

Autoparts

Hoses

4Global Overview

0

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200

2011E 2012E 2013E 2014E 2015E

mm

t

Global Ethylene Demand: 2010 - 2015

Price Trend

– Price trend for petrochemical products largely mirrors that of larger commodity market

Competitive Feed Stock advantage

– Pricing structure of associated gas produced at well head is based entirely on extraction cost of NGL

– Persistently high oil prices are translating to high input costs and encouraging global players to shift production to low cost regions

Strong political support

– UAE: Guaranteed tax holidays initially for renewable 10 to 15 year periods

– Singapore : 100% investment allowance for up to 5years, M&A allowance for up to 5 years on 5% of qualifying amounts

GDP growth

– Improving Living standards in EMEA has contributed to significant internal consumption

0

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150

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2011E 2012E 2013E 2014E 2015E

mm

t

Global Ethylene supply - demand gap

Capacity Demand

Excess capacity projected to decline in the long run as global economy picks ups and more downstream and petrochemical applications come on stream supported by Asian and Indian Demand

Global economy grew at 2.8% from 1980 to 2005 and has since remained on a flat trend

Manufacturing Industry hardest hit by recession resulting in transitional growth to developing countries (feed stock & population driven - Nigerian Story)

International sanctions such as; trade embargo could delay funding obligations of foreign partners,

Protectionist tariffs (anti – dumping) in key markets such as India and China

Key industry catalystsDemand and supply Industry said to be at turning point with most leading global

petrochemical firms located in the Gulf evaluating options of entering or expanding their through subsidiaries, Joint Ventures or other innovative models

Geopolitical concerns and long term demand from EMEA

5Market Overview – Middle East (“ME”) & Europe

The Middle east enjoys a relative cost advantage over Asia and Europe

– Lower feed stock cost owing to its rich oil and gas reserves

– Proximity to major demand clusters (India and China)

Strong government support largely exemplified by tax incentives, acts as catalyst for capacity expansions and product diversification

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60

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KSA Qatar Oman Kuwait UAE Bahrain

2010 2011

13.5% Growth in Production Capacity

European Petrochemical Industry is in a transition phase

Heavily reliant on the economic trend in the Eurozone (Germany)

Financial re-structuring, consolidation, realignment can clearly be noticed among players

– Poland’s Major: PKN orlen currently undergoing major restructuring

The growing markets of Central Europe are important to the remaining operators

1.3 mmt plant – Exxon Mobil and QP JV (Qatar)3.0 mmt Saudi Aramco & Sumitomo Chemcial (KSA)1.2 mmt plant , JV Midroc, Sara Development , Chinese

0.29mmt Petromont plant (Canada)0.53mmt Total plant (France)1.2mmt LyondelBasell plant (US)

Massive capacity and clustering expansion by majors such as SABIC, SIPCHEM and Saudi Aramco

Output largely destined for China and India. Competitive advantage geared towards ME producers with low cost advantage

Middle East EuropeEurope is being subjected to increasing competition from Middle East,

European economic rebound largely driven by domestic consumption however tempered by the weakening of the European Automotive market

ME production capacity (mmt)

6

Significant scope for growth in African petrochemicals market

– Africa has the world’s lowest per capita polyolefin consumption

– light manufacturing industries (particularly packaging and textiles) expected to fuel demand for plastics

Africa’s substantial hydrocarbon reserves and low labor costs appeal to potential investors in downstream petrochemicals

– Attractive destination for expansion plans of global players

– Infrastructure gaps and political instability remain constraints across the continent

S. America3%

E. Europe6%

China12%

W. Europe13%

MEA20%

NAFTA23%

Asia23%

Global ethylene capacity

African Petrochemicals marketStrong fundamentals ... Capacity build up ongoing

Source: BP Statistical Review 2011, BMI: Nigerian Petrochemicals Industry report 2012

Africa is home to 14% of the world’s population

Economic development expected to spur polyolefin consumption

Based on planned capacity increases, Nigerian share of African ethylene capacity is expected to drop from 2nd place in Africa with 22% share, to 4th place with 15% share

650

300 300

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650550

1200 1230

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800

1000

1200

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S. Africa Nigeria Eqypt Algeria

2011 2016f

African ethylene production (‘000 Tonnes)

Africa’s ethylene capacity expected to grow by more than160% over the next 5 years

– 2 Large projects in Egypt and Algeria

– Several projects announced in Nigeria

South Africa’s export potential limited by distance from high consumption markets

– S.A. expected to increase supply into the African continent while other producing nations export to developed markets

7Developing Nigeria’s Petrochemicals

Nigeria is well endowed to build a strong petrochemicals industry

– Abundant natural gas reserves

– Evidence of significant unsatisfied local demand

– Good geographical proximity for supply to major European markets

Strong fundamentals

1,580

1,045 894

283 283 273 213 193 187 159

0

500

1,000

1,500

2,000

TCF

Significant gas reserves

Source: BP Statistical Review 2011, BMI: Nigerian Petrochemicals Industry report 2012

Nigeria has the largest natural gas reserves in Africa

BMI rated Nigeria’s business environment as the least attractive among Middle East and African Petrochemical Markets

Future focus on Fertilizer production may benefit first movers like Notore Chemicals

International investors recognize Nigeria’s potential

– In 2011, Natpet, a subsidiary of Saudi Arabia’s Alujain Corporation, pledged to invest US$3.5bn to establish a petrochemical complex in Nigeria

– India’s Nagarjuna Fertilizers and Chemicals also committed to build two fertilizer plants in Nigeria

There are however limiting factors on the type and quantum of available capital

– Specialized technology requires extensive and often expensive due diligence

– Large gaps in required gas infrastructure constrain viability of projects

– High capital intensity

– Environmentally intrusive nature of industry limits participation of some potential pools of capital

Investor appetiteKey players

Eleme Petrochemicals:

Acquired by the Indorama Group in 2006, Eleme’s facilities comprise of an NGL cracker, a C5+ distillation unit, Polyethylene (PE) plant and Polypropylene (PP) plant. Its has a capacity to produce 240,000 metric tons per year of PE, and 95,000 metric tons per year of PP

Notore Chemicals:

Located in Onne, the Notore chemicals complex has production capacity of 500,000 tpa

NNPC:

NNPC is a state owned oil company. Its two refineries in Warri and Kaduna together have 18,000tpa carbon black, 35,000 tpaof PP and 30,000tpa Linear Alkyl Benzene capacity

Despite obvious potential, Nigeria must overcome structural problems to attract investments

Multiplier effect : 14mmt = $11b Investment = $15b Turnover = $45b GDP Impact = 52m employment

8Case Study : Trinidad & Tobago Vs Nigeria (Rivers State)

Trinidad & Tobago Rivers State

Area of 5128 sq kms, population of 1.3 million Area of 21,850 sq kms, population of 6.5 million

Key sectors are Oil and Gas, Agriculture, Metals and Cement Key sectors are Oil and Gas, Agriculture??

Proven Gas Reserves of 436 Trillion Cubic Meter (No. 33 in ranking)

Proven Gas Reserves of 2,600 Trillion Cubic Meter (No. 16 in ranking)

Ammonia Production Capacity of 8 million Tons Ammonia Production Capacity of ?? Million Tons

Methanol Production Capacity of 7 million tons Methanol Production Capacity of ?? million tons

Urea Production Capcity of 2 million tons Urea Production Capacity of ?? million tons

Other Petrochemicals 2 million tons Other Petrochemicals ?? million tons

LNG 22 million tons (Supplies 70% of US LNG imports and 33% of Europe’s imports)

LNG 22 million tons

Source: Indorama Presentation, August 2012

9Sources of capital for Petrochemical projectsFinding the right source of capital to match risk profile

Oil & Gas projects in Africa are funded by a wide variety of equity and debt providers

Time

Risk profile Equity

Convertible bond

Junior debt Mezzanine Subordinated bond

Senior debt Project Finance Bond Securitisation

Venture Capitalist & Private Equity Firms

High Net worth Individuals

Nigerian Content Support Fund.

Structured Leases

Private Placement & Public Subscription

Finance Syndication (Local & International banks

Federal Government Grants

Bonds

Asset Backed Obligations

1 Multilateral and Bilateral financial institutions

2 Commercial Banks

3 Private Equity Institutions

4 Others

Debt Financing – Short to Medium Term Equity financing under the SMEEIS scheme

Export Import Bank of the United States (Ex-Im) International Finance Corporation (IFC) African Export Import Bank (Afrexim) African Development Bank (ADB)

Seed & Venture Capital Development Capital Buyout

Microfinance banks Personal Savings Supplier Credit, Leases, Franchising Capital Markets

10Financing Petrochemicals

Project finance by definition involves significant risk

– Huge sums involved

– Zero (or limited) recourse to the project sponsor

– Full reliance on project cashflows to repay financing

– Above implies relatively higher structuring cost

Project finance

Project sponsor must cover all bases before approaching potential sources of capital

… sharing risk and reward

A key tenet of PF is for risk to be apportioned to the party most capable of managing that risk

– Construction risk

– Operation and Maintenance risk

– Supply risks

– Product marketing risks

– Financing risk

Project SPVInsurance

EPC Contractor Buyers

O&M Contractor

SponsorSuppliers

Project finance is widely considered an attractive financing structure for petrochemical projects

11Saudi Kayan ─ US$10billion Project and Acquisition Finance Facility

Sabic was established in 1976 and is currently one of themarket leaders in the petrochemical industry

Ownership : 70% Government , 30% Institutional

Recently formed a joint venture , known as Saudi Kayan withprivately held AL – Kayan Petrochemical Company (“Al-Kayan”)

The project will consist of an Ethylene cracker and unitsproducing ethylene glycol, HDPE, LDPE and PP

The Project is valued at approximately $10billion and is beingfinanced by a mix of debt and equity (62:38)

Financial closure was achieved by means of equity includingIPO ($3.9b,), Term loan ($0.7b), Islamic Loan ($1.7b), Exportcredit debt ($2b), and government loan ($1.6b)

The Kayan project is part of Sabic’s plan to raise itsproportion of specialty chemical s to 30% of total sales by20202

Company Overview Transaction Summary

Expansion Capacity from the Middle East Transaction Overview

Key points

Transaction: Project Finance

Financial close: August 2009

Transaction size: US$10 Billion

Purpose: Project finance of Ethylene cracker

Instrument: Term Loan, Islamic Loan and Government loan

Tenor: NA

0 10 20 30

Saudi ArabiaIran

QatarUAE

OmanKuwait

Bahrain

Gulf Petrochemcial Capacity Expansion (mmt): 2010 - 2015

12Eleme Petrochemicals ─ US$160m Project and Acquisition Finance Facility

Acquired by Indorama Petro Limited from the NigerianGovernment in May 2006

Polyolefin polyolefin producer based in Port Harcourt, RiversState, Nigeria

Only stand-alone petrochemicals complex in Nigeria -350,000 tpa of polyolefin production capacity

Project involved the acquisition of the privatized plant,implementation of an extensive turnaround and upgrade

Stanbic IBTC arranged the project finance funding for thetransaction comprising of a senior term loan and workingcapital facility with a tenor of 6 years

Three layers of funding – equity, mezzanine debt and seniordebt

Secured funding from the international markets in spite ofEleme being situated in the volatile Niger Delta

Non-recourse funding

Parent company completion support

Company Overview Transaction Summary

Successful production turnaroundTransaction Overview

Key points

Transaction: Senior Term Facility

Financial close: March 2007

Stanbic IBTC role: Mandated Lead Arranger

Transaction size: US$160 million

Purpose: Turnaround maintenance and CAPEX program

Instrument: Senior Term Loan and Working Capital Facility

Tenor: 6 years

2007US$ 160m & US$25m

Bridge & Project Finance, Nigeria

Lead Arranger

INDORAMA

66 69 54

5 15 12

136

189

239

282 296

345

0

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100

150

200

250

300

350

400 TAM investment results in significant increase in output

13Stanbic IBTC Bank PLC

Stanbic IBTC is a full service bank in Nigeria offering its clients the full suite of banking services

– Corporate and investment banking

– Personal and business banking

– Investment management and brokerage

Stanbic IBTC is the leading investment banking franchise in Nigeria with excellent capabilities in advisory and capital markets and is the only local bank with a Fitch AAA rating

Stanbic IBTC’s subsidiaries include the leading equities brokerage firm and the leading pension fund administrator in Nigeria

Combines strong domestic coverage with regional and international reach

Stanbic IBTC is 50.7% owned by Standard Bank Group and can draw on the deep resources within the group

Concerted effort has been made to ensure seamless working relationships across the various investment banking teams within Standard Bank

Stanbic IBTC emerged from the merger of Stanbic Bank Nigeria Limited with IBTC Chartered Bank Plc in 2007

BackgroundIntroduction and overviewKey points

Stanbic IBTC is a full service universal bank offering a complete suite of Corporate and Investment banking products

Stanbic IBTC’s branch network spans all of Nigeria with at least one branch in each State

Incorporated as Investment Banking & Trust Company Limited and commenced operations as a Merchant bank

ObtainedUniversalBankingLicence

Listed on the NSE on 25April 2005

Merged with CharteredBank & Regent Bank andchanged name to IBTCChartered Bank Plc

Merged with Stanbic Nigeriaand Standard Bank gainedcontrol of the combined entityin a US$1bn transaction

1989 2001 2005 2007

Vast Branch Network Across Nigeria

Stanbic IBTC’s presence

174 branches with a branch in every state

Key statistics

Market capitalisation (2 July 2012) N120bn

Total assets (31 December 2011) N554.5bn

PAT (31 December 2011) N6.6bn

ROE – PAT (FY 2011) 11.6%

Average no. of employees 2,248

14

Stanbic IBTC business pillars

Stanbic IBTC Bank

Stanbic IBTC Bank Group

Personal and Business Banking Corporate and Investment Banking Wealth

Home Loans

Group Scheme

Global Markets Corporate Banking Coverage

Transactional Products and Services

Money Markets

Forex

Commodities

Interest Rate Sales and Structuring

Global Markets Research

Equities

Management of client relationships within CIB

- Oil & Gas

- Large Local Corporate

- Multinational Corporate

- Telecoms

- Power and Infrastructure

- Others

Custodial Services

Transactional Banking

Trade Services

Investment Banking

Personal & Business Banking Loans

Transactional Accounts

Stanbic IBTC Pension Managers Limited

Stanbic IBTC Asset Management Limited

Stanbic IBTC Trustees Limited

Advisory (M&A, ECM)

Debt Capital Markets

Securitisation

Debt Solutions

- Acquisition & Leverage Finance

- Project finance

- Property Finance

- Structured Trade

15

More than a glass and a half

Ranked 94 out of 1,000 top world banks by Tier 1 capital

2011Best Bank in Africa 2010,

2011

Standard Bank Overview

Established in 1862, an African emerging markets bank, headquartered in South Africa

Wide representation spanning 17 countries in Africa and a global reach in 13 countries outside Africa including New York, Londonand Hong Kong

Largest banking group in Africa by assets, Total assets over R1,379 billion (approx USD203 billion) as at June 2011

ICBC, the Industrial and Commercial Bank of China, the biggest bank in the world, is a 20% shareholder

Long-term credit rating for Standard Bank South Africa: Moody’s A3, S&P BBB and Fitch Ratings BBB+

Employs over 46,000 people in 30 countries around the world, has over 1200 branches and over 7,800 ATMS (cash points)

Financial strengths

Our achievements through to 2012

Ranked South Africa's ‘greenest’ company – 13th globally in

Financial Sector category and 45th overall (2011)

Best cash management services in Africa; Best

foreign exchange services in Africa; Best treasury services

in Africa (2011)

Best Bank in Africa 2011Best Debt House in Africa 2011

Best Overall Bank for Cash Management in Africa 2009,

2010.

Best Investment Bank in Africa 2009

Best Bank in south Africa 2009

Financial overview of the Standard Bank Group – interim results for period ending December 2011

FY11 FY10 Change%

Headline earnings (Rm) 13,599 11,283 11

Net asset value per share (cents) 6453 5726 10

Return on equity (%) 14.3 12.5

Tier I capital adequacy ratio (%) 12.0 12.9

Global Markets

Market leader in Africa

o Market coverage

o Product diversity

o Size and the scale of the custody business

Assets under custody

o ZAR2.5 trillion (USD350 billion) plus

Assets under trusteeship and/or administration

o ZAR650 billion (USD 90 billion) plus

16Standard Bank Group

United States of America

Argentina

Brazil

Isle of ManUKJersey

Russian Federation

Turkey

United Arab Emirates

China Japan

TaiwanHong Kong

Singapore

Mauritius

NigeriaGhana

DR CongoAngola

Namibia

UgandaKenyaTanzania

MalawiZambia

Zimbabwe

South AfricaLesotho

SwazilandMozambique

Botswana

Shanghai

Beijing

13 countries outside Africa

Key international financial hubs and strategic emerging markets presence

Chinese operations

Rest of world

Offices in key regional financial centres including:

– Johannesburg, London, New York, Hong Kong, Sao Paulo, Buenos Aires, Dubai, Istanbul, Lagos, Nairobi and Beijing

Key regional offices

17 African countries

1,228 Offices & Branches

7,968 ATMs across these geographic regions

Africa

Standard Bank has extensive expertise in the complicated dynamics of emerging markets, enabling us to effectively partner clients and our stakeholders in achieving their strategic objectives

Global Footprint

17Contact

Dele Kuti Head, Oil & Gas and Renewables Corporate & Investment Banking Stanbic IBTC Bank IBTC Place, Walter Carrington Crescent Victoria Island, Lagos +234 1 488 8900 ext 8129+234 803 555 5777Oladele.kuti@stanbic.com

Olawale SulaimonAssociate , Oil & Gas and Renewables CoverageCorporate & Investment Banking Stanbic IBTC Bank IBTC Place, Walter Carrington Crescent Victoria Island, Lagos +234 1 422 8641+234 813 661 1571Olawale.Sulaimon@stanbic.com

Oluwole Oluwole- RotimiAnalyst , Oil & Gas and Renewables CoverageCorporate & Investment Banking Stanbic IBTC Bank IBTC Place, Walter Carrington Crescent Victoria Island, Lagos +234 1 422 8641 +234 706 406 4460oluwole.oluwole-rotimi@stanbicibtc.com

18

Thank you …