African Iron and Steel Conference

Transcription

1 African Iron and Steel Conference Mozambique, 24th June 2015 Volker Wiederhold Office Director KfW IPEX-Bank Representative Office Johannesburg Bank aus Verantwortung

2 Agenda A brief introduction to KfW KfW IPEX-Bank The Global Steel Industry Focus on Mining, Energy, Infrastructure & Steel Development in Africa Our financing approach Our references 2

3 Where we come from KfW Financing with a public mission for more than 60 years Name Mission KfW Kreditanstalt für Wiederaufbau Promotional bank of the Federal Republic of Germany Founded 1948 Shareholders Locations Best rating Financing volume Total assets Employees 80% Federal Republic, 20% Fed. States Frankfurt am Main (head office) Berlin, Bonn, Cologne (branch offices) AAA (S&P) / Aaa (Moody's) / AAA (Fitch) EUR 72.5 billion EUR billion 5,539 as of

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5 KfW IPEX-Bank - part of a group with a wide range of functions Supporting the export industry is a central pillar of KfW's work Domestic promotion International business We promote Germany We support internationalisation We promote development Mittelstandsbank Kommunal- und Privatkundenbank/Kreditinstitute KfW IPEX-Bank KfW Development Bank, DEG Promotion SMEs, business founders, start-ups Promotion of housing construction and refurbishment, improved accessibility and education Financing of municipal infrastructure and global loans International project and export finance Promotion of developing and transition countries Promotion of environmental and climate protection 5

6 Our worldwide presence helps you stay competitive 80 offices and locations with many years of regional expertise We are present in the key regions and markets for German and European exporters. We understand a relationship bank as one that works closely with and close to its customers to provide optimal advice and support. Within the KfW Group we use our worldwide network and share knowledge and experience across national borders for your benefit. New York London Frankfurt Istanbul Moskau Headquarters of KfW and KfW IPEX-Bank Branch of KfW IPEX-Bank Abu Dhabi Mumbai Bangkok Singapur Representative office of KfW IPEX-Bank Other foreign locations of the KfW Group São Paulo Johannesburg 6

7 Our Africa loan portfolio of almost EUR 2 billion Other 5% Angola 2% Ethiopia 8% Egypt 9% Mauretania 4% South Africa 47% Morocco 4% Nigeria 13% Mozambique 2% Namibia 3% Zambia 3% As of: 31 December 2014 Differences in totals due to rounding As of: 31 December 2013 Differences in totals due 7 to rounding

8 Agenda A Brief introduction to KfW KfW IPEX-Bank The Global Steel Industry Focus on Mining, Energy, Infrastructure & Steel Development in Africa Our financing approach Our references 8

9 Million tonnes crude steel production (2013) Rank Country Mt Rank Country Mt 1 China France Japan Iran United States Spain India Canada Russia United Kingdom South Korea Austria Germany Poland Turkey South Africa Brazil Belgium Ukraine Egypt Italy Taiwan/China Mexico 18.2 World 1,606.0 World Steel Association

10 Steel Production and Usage (2013) World Steel Association

11 Major Exporters and Importers of Steel (2013) Rank Total Exports Mt Rank Total Imports Mt 1 China EU Japan United States EU Germany South Korea South Korea Ukraine Thailand Germany Italy Russia China Turkey Turkey Italy France Belgium-Luxembourg Indonesia France Belgium-Luxembourg Belgium Belgium United States Vietnam Taiwan, China Canada India Poland Spain Taiwan, China Netherlands Mexico United Kingdom India Brazil Spain Austria Saudi Arabia 6.7 World Steel Association

12 Global South Africa Japan South Korea Germany Italy Spain Ukrain France India Turkey Russia US Brazil China Steel Production ,00% 5,00% 0,00% -5,00% -10,00% -15,00% -20,00% -25,00% -30,00% Source: engineeringnews.co.za 12

13 Agenda A Brief introduction to KfW KfW IPEX-Bank The Global Steel Industry Focus on Mining, Energy, Infrastructure & Steel Development in Africa Our financing approach Our references 13

14 Governmental policies supporting the development of mining, energy infrastructure and steel in African countries Even though mining activities are moving gradually from developed economies to emerging economies, smelter and refinery production remains located mainly in developed countries. Africa and the Arctic regions are the two less explored regions in the world, thus presenting ample growth opportunities for mine and infrastructure investments in Africa. Africa currently accounts for about 15% of total global mine investments. 14

15 Governmental policies supporting the development of mining, energy infrastructure and steel in African countries Some of the countries and national policies / institutions with the mandate to attract and regulate FDIs, export promotion and infrastructure developments. Countries South Africa Bodies/Policies Department of Trade and Industry (DTI ), IDC, Income Tax Act and various tax holiday schemes, Mining Act, BEE Charter, Beneficiation policy, Industrial funding policy, Manufacturing investment program, General Export Incentive Scheme,. Ghana Nigeria Angola Botswana Mozambique Zambia Ghana Investment Promotion Center (GIPC), Mining Act, Income Tax Act, Local content policy. Nigerian Investment Promotion Council (NIPC), Mining Act, Income Tax Act, Local content policy. National Private Investment Agency (ANIP), Industrial Development Institute of Angola (IDIA),Income Tax Act, Local content Act. Botswana Investment & Trade Center (BITC), Mining Act, Income Tax Act Mozambique Investment Promotion Centre (CPI), Mining Act, and Income Tax Act Zambia Development Agency (ZDA), Mining Act, Income Tax Act. 15

16 Governmental policies supporting the development of mining, energy infrastructure and steel in African countries Regional African economic cooperation (AEC) and other various Regional Economic Communities (RECs) Region Southern Africa East Africa West Africa Central Africa North Africa Others REC The Southern African Development Community(SADC). East African Community (EAC) Economic Community of West African States (ECOWAS), West African Economic Monetary Union (WAEMU) Economic Community of Central African States (CEEAC), Economic and Monetary Community of Central Africa (CEMAC) Arab Maghred Union (UMA) Countries of Sahel-Saharan States (CEN-SAD), Common Market for Eastern and Southern Africa (COMESA), Intergovernmental Authority on Development (IGAD), Liptako Gourme Authority (LGA), Greater Arab Free Trade Area (GAFTA), Economic Community of the Great Lakes Countries (CEPGL), Indian Ocean Commission (COI). 16

17 Governmental policies supporting the development of mining, energy infrastructure and steel in African countries Multilateral policies Extractive Industry Transparency Initiative (EITI) 2003 United Nations International Certification Scheme/Kimberly Process Certification Scheme (KPCS) 2010 USA Dodd- Frank Act 2010 UK Bribery Act 2011 International Council on Mining and Metals 2012 IFC Performance standards 2013 Equator Principles

18 Governmental policies supporting the development of mining, energy infrastructure and steel in African countries Mining code reforms across SSA. Country Year Country Year Senegal 2003 Mali 2013 Nigeria 2006 Burkina Faso 2013 Niger 2006 Gabon 2013 Zambia 2008 Ivory coast 2014 South Africa 2008 Liberia 2014 Tanzania 2010 Uganda 2014 Kenya 2012 Mozambique 2014 Guinea 2013 DRC

19 Governmental policies supporting the development of mining, energy infrastructure and steel in African countries Common reform themes across the region : Royalty tax Corporate Income tax. Windfall Tax Withholding Tax Duration and renewal of mining rights Local content State participation Beneficiation policy 19

20 Governmental policies supporting the development of mining, energy infrastructure and steel in African countries Top 10 SSA countries with best mining regulatory environment (Fraser Institute ) Botswana Namibia Ghana Burkina Faso Eritrea South Africa Nigeria Ivory Coast Zimbabwe Angola Top 10 SSA countries with best operating environment ( World Bank/Transparency Index 2014) Rwanda The Gambia Botswana Liberia Zambia South Africa Namibia Ghana Uganda Burkina Faso 20

21 Would industrial policies support loss making steel mills while they get off the ground? African countries are Increasingly aware of the direct link between iron and steel industry and economic development. Some of the mechanisms adopted : Tariff adjustments Tax holidays Energy subsidization, and access to cheaper energy supply (Energy cost represents 40% of total cost of a steel mill) Beneficiation policies Skill development and funding support Fostering inter regional partnerships and trade agreements. Tax incentives to promote local R&D. 21

22 What are the political and economic issues that lenders should be aware of? Conclusion Political issues Economic issues Africa wide mining and tax reforms Some of the fastest growing economies in the world are in SSA Nigeria, Uganda, Tanzania, Zambia, Rwanda, DRC, Ethiopia, Angola, Ghana, Mozambique and Kenya. According to the World Bank, Sub Saharan economy is set to expand by about 5% in 2015, and 5.1% by Corruption prevention Burgeoning middle class over 122.7million people spend between USD 4 and USD 20 per day. A 30% growth from year 2000 (AFDB 2014) Competing demand for land use, increasing Corporate Social Responsibility (CSR), and growing environmental concerns. Increasing state participation and growing tax burdens Mining remains the backbone of many African countries. Labor issues continue to be dominant. Macroeconomic issues - Insufficient local capital; Inflationary and currency conversion risks. 22

23 Infrastructural gap in Africa, and funds available to bridge this gap According to IMF estimates (2014) : Total yearly Africa Infrastructure need is valued at USD 93billion (15% of total Africa GDP) Actual yearly investment spend on infrastructure in Africa is USD 45billion (50% funded by the public sector) Yearly funding gap is estimated to be around USD50billion. Extractive industries account for 26% of all cross border greenfield projects in Africa ( UNCTAD 2014). 23

24 Infrastructural gap in Africa, and funds available to bridge this gap Funds available for infrastructure in Africa. Multilateral and Development Banks Regional Banks Development Finance Institutions (DFIs) Private Equity Funds Capital Markets Industrial Development Funds Sovereign Wealth Funds Institutional Funds Commercial Banks Loans backed by export credit agencies (ECAs) or UFK 24

25 Agenda A Brief introduction to KfW KfW IPEX-Bank The Global Steel Industry Focus on Mining, Energy, Infrastructure & Steel Development in Africa Our financing approach Our references 25

26 Financing Methods Bank Financing: Project Finance vs. Corporate Finance Project Finance Corporate Finance company size cash flow orientation typical financing method for new mining projects cash flow based analysis forward looking analysis off balance sheet financing Tailor-made sometimes complex & time consuming typical financing method for existing companies with a track record analysis of financial statements historical financial performance analysis financing balance sheet more standardized usually simpler & quicker 26

27 Requirements for Project Financing Feasibility Study with a positive outcome ( Bankable FS ) incl. calculation of mineral reserves in accordance with international standards (e.g. JORC Code, NI / CIM Standard); verification by lenders (IE) favorable position on the global cost curve (price risk) financial model with a robust cash flow equity contribution of % (depending on project risk) use of proven technology compliance with international E&S standards (Equator Principles) marketing concept (e.g. long-term off-take contracts) sponsors with adequate know-how and staffing construction contract (EPCM /EPC) 27

28 PwC and EulerHermes the German mandate holders The German Export Credit & Investment Guarantee program: Investment Guarantees Lead Partner: Untied Loan Guarantees / UFK Lead Partner: Export Credit Guarantees Lead Partner: Guarantee programmes of several Federal States Lead Partner: ECAs are promoters of foreign trade ECA insurance may be provided for both political and commercial risks ECA support is governed by specific international guidelines, the so called OECD-Consensus 28

29 ECA covered Export Finance Contractual structure and payment flows Supply contract Optional: - Manufacturing risk cover - Suppliers credit cover Exporter Supplies and services Importer = Borrower HERMES (ECA) Verpflichtungserklärung (letter of undertaking) Exporteurerklärung (exporter s declaration) Down- and interimpayments (15%) Repayment of the loan Disbursements Loan agreement (85%) collateral Buyer credit cover (85%) KfW IPEX-Bank Payment guarantee potentially: foreign guarantor 29

30 Overview about the Export Credit Agency Market Country ECAs and Ratings Austria (AA+) OeKB Belgium (AA) OND Czech Rep. (AA-) EGAP Denmark (AA+) EKF Finland (AA+) Finnvera France (AA) COFACE Germany (AAA) HERMES Italy (BBB-) SACE S&P Rating Levels AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ Netherlands (AA+) Atradius Poland (A-) KUKE Portugal (BB) COSEC Slovak Rep. (A) EXIMBANKA Spain (BBB) CESCE Sweden (AAA) EKN South Africa (BBB-) ECIC Switzerland (AAA) SERV ECA Workshop with KfW IPEX-Bank 2015 (Ratings as per April 2015) 30

31 Costs of an ECA-covered buyer credit ECA premium OECD-Consensus - Country Risk Classification Brazil 3 Nigeria 5 South Africa 3 Mozambique 6 Burundi 7 Senegal 6 Egypt 6 Croatia 5 India 3 Turkey 4 Vietnam 5 China 2 PTA-Bank 5 Afreximbank 4 31

32 Costs of an ECA-covered buyer credit ECA premium of Case Study Assumptions / Project details of case study: Loan Amount: Borrower: Bank classification: USD 42.5mn Local Bank CC0 Country classification: 3,4,5,6 Starting Point of the credit: Repayment: Percentage of ECA-cover: 95% 12 months after first disbursement 20 semi annual instalments ECA Hermes CC Approx. Premium % flat *) Premium % p.a. **) 3 6, ,4 1,5 5 10,0 1,9 6 13,1 2,3 *) A detailed evaluation of a specific transaction may lead to premiums that sligthly differ **) based on first rough estimate to be recalculated factoring in NPV factors 32

33 PwC and EulerHermes the German mandate holders The German Export Credit & Investment Guarantee program: Investment Guarantees Lead Partner: Untied Loan Guarantees / UFK Lead Partner: Export Credit Guarantees Lead Partner: Guarantee programmes of several Federal States Lead Partner: UFK Key Points: To secure the supply of raw materials the German government provides guarantees for loans under the Untied Loan Guarantees program ( UFK ), which are: not tied to German exports, of special interest to the Federal Republic of Germany. UFKs are primarily granted for the purpose of securing the supply of critical raw materials and energy to the German industry on the basis of long term offtake agreements 33

34 Untied Loan Guarantees / Ungebundene Finanzkredite (UFK) Typical structure of an Untied Loan Guarantee Project German Federal Government represented by PwC Foreign Government Untied Loan Guarantee The maximum covered amount is based upon the value of the raw material shipments Approvals Concessions Permits. Lender Project Finance / Loan Foreign Project Company German Importer / Offtaker Offtake Agreement 34

35 Untied Loan Guarantees / Ungebundene Finanzkredite (UFK) Untied Loan Guarantees cover political and commercial risks Political Risks: Expropriation, nationalisation or other acts by a higher authority which in their effects are equivalent to an expropriation War or other armed conflicts, revolution or insurrection Impossibility of converting or transferring funds to Germany Payment embargos or moratorium Commercial Risks: Insolvency, unsuccessful execution and suspension of payment Protracted default UFK is available as comprehensive cover or politicial risk cover only 35

36 Untied Loan Guarantees / Ungebundene Finanzkredite (UFK) Maximum covered loan amount Rule of thumb for maximum covered loan amount: 20-25% of total value of raw materials delivered to Germany over the lifetime of the offtake agreement Example calculations: UFK Cover 10y offtake contract of t/a Total Offtake Volume =10,000,000 t Raw material price 100 USD/t Total Contract Value =USD 1 bn Covered loan amount up to =USD mn UFK premium calculation: E.g. Project Category 2, Country Category 2, Horizon of Risk of 5y =1,9965% of the 0,3454*5+0,2695 loan amount Cost of UFK cover USD 4-5 mn Premium can be included into the loan amount and thus financed Possibility of full drawdown of the whole loan amount at project construction start Cover scheme not governed by OECD consensus rules More flexibility with respect to repayment schemes 36

37 Untied Loan Guarantees (UFK) Untied Loan Guarantees are approved on a case by case basis General Requirements: Eligibility for cover Long-term offtake contract Contribution to local economic development Financing must be assured Environmental & social compatibility, Raw materials must be eligible (e.g. Cu, Fe, Mo) Risk has to remain justifiable A long term offtake contract with a German importer must be in place The project has to contribute to the economic development of the project s host country Before UFKs are granted the financing structure of the project has to be in place Particular importance is attached to the possible negative impacts on environment and local society Qualified for Approval 37

38 Agenda A Brief introduction to KfW KfW IPEX-Bank The Global Steel Industry Focus on Mining, Energy, Infrastructure & Steel Development in Africa Our financing approach Our references 38

39 Case Study Steel Mini Mill Project Big River Steel LLC, USA The The Challenge Hard Large deadline investment for provision with long of term all financing commitments to meet needs legal in requirements challenging market in Arkansas environment Realization Ex post financing of a large of already scale industry delivered project plant in and a volatile market equipment environment for existing facility Heterogeneous Specific regulations group of of Reserve equity and Bank other of India investors adding to for complexity foreign currency of the financing loans structure The Solution Long term ECA loan of USD 635 mn Proven and long standing cooperation between IPEX, financial advisor to the project, exporter and Euler Hermes Strong and committed sponsors Greenfield project finance for construction of flatrolled steel mini mill in Arkansas Capex investment of USD 1.1 bn with German supplies of USD 580 mn for the core components of the plant Single largest industrial project in the history of the State of Arkansas Our Contribution Commitment for USD 800 mn of the senior loans by IPEX with subsequent syndication IPEX extensive sector expertise provides for an efficient and timely coordination of the entire due diligence process IPEX as Facility & Hermes-Agent 39

40 Case Study Mining Iron ore project SNIM, Mauretania The Challenge Debt financing of USD 700 mn required Complex financing structure with commercial banks and DFIs Demanding country risk The Solution Structured finance with export and import elements Offshore account structure Security package with project finance elements Largest company in Mauretania Capacity increase to 16 MTPA iron ore through various projects Project size USD 1 bn Supporting German exports (conveyor and port technology, excavators) and German imports (iron ore for German steel industry) Our Contribution Important contribution to structuring Largest single lender to the transaction (EUR 57 mn) UFK-Agent (first UFK transaction after its reform) German CIRR-Provider for export tranche Environmental and social coordinator 40

41 Have a look at some of our references Metals & Mining Canada Switzerland Peru Chile Iron Ore Company of Canada Glencore International AG Sociedad Minera Cerro Verde S.A.A. Minera Esperanza Corporate Financing Revolving Credit Facility Corporate Financing Corporate Financing KfW Investment USD 100,00,000 Mandated Lead Arranger 2014 Total Investment USD 8,700,000,000 KfW Investment USD 100,000,000 Arranger 2014 Total Investment USD 1,800,000,000 KfW IPEX-Bank USD 60,000,000 Arranger 2014 Total Investment USD 900,000,000 KfW Investment USD 100,000,000 Mandated Lead Arranger, Documentation Agent 2013 Chile Switzerland United Arab Emirates USA Minera Antucoya Glencore International AG EMAL Phase II Mississippi Silicon Project Finance Revolving Credit Facility ECA-backed Facility Project Finance Total Investment USD 2,100,000,000 KfW Investment USD 70,000,000 Total Investment USD 12,990,000,000 KfW Investment USD 100,000,000 Total Investment USD 4,000,000,000 KfW Investment USD 128,600,000 Total Investment USD 200,000,000 KfW Investment USD 108,600,000 Senior Lender, Joint Bookrunner Mandated Lead Arranger Arranger Hermes Agent, Coface Agent Mandated Lead Arranger

42 Have a look at some of our references Steel (1) USA Germany Turkey Turkey Big River Steel LLC Project Finance ECA-backed HKM Hüttenwerke Krupp Mannesmann Term GmbH Loan Kardemir Karabük Demir Çelik Sanayii ve Ticaret A.Ş. ECA-backed Facility Kardemir Karabük Demir Çelik Sanayii ve Ticaret A.Ş. ECA-backed Facility Total Investment USD 1,300,000,000 KfW Investment USD 794,000,000 Total Investment EUR 70,000,000 KfW Investment EUR 35,000,000 KfW Investment EUR 93,225,000 KfW Investment EUR 45,553,607 Initial Mandated Lead Arranger, Sole Bookrunner, Euler Hermes Agent Lead Arranger Arranger, Sole Lender Arranger, Sole Lender Indien Indien Turkey Turkey JSW Steel Ltd. ECA-backed Facility JSW Steel Ltd. ECA-backed Facility Kardemir Karabük Demir Çelik Sanayii ve Ticaret A.Ş. ECA-backed Facility Habaş Sınai ve Tıbbi Gazlar İstihsal Endüstrisi ECA-backed A.Ş.(Habas) Facility KfW IPEX-Bank USD 20,000,000 KfW IPEX-Bank USD 9,700,000 KfW Investment EUR 21,237,500 KfW Investment EUR 17,700,000 Hermes Agent, Sole Lender Hermes Agent, Sole Lender Arranger, Sole Lender Sole Lender

43 Export- and Project Finance selected KfW transactions in Sub-Saharan Africa South Africa 2015 Ethiopia 2015 Ethiopia 2014 South Africa 2014 Gibson Bay, South Africa Export Credit Facility ZAR 2,100,000, MW (Wind) Project Financing Ethiopian Airlines Cargo Airport Terminal Ethiopia EUR 32,000,000 Export Credit Facility EUR 83,000,000 Ethiopian Railways Corporation Export Credit Facility $ 153,000,000 Mandated Lead Arranger Transnet SOC Limited Term Facility EUR 49,500,000 Mandate Lead Arranger Co-LA 2015 Namibia 2013 Nigeria 2013 South Africa 2012 South Africa 2010 Senior Secured Loan for 1 A Operating Lease to Senior Lender MTN Nigeria USD 300,000,000 (incl. SEK CIRR Tranche of USD 100mn) Sole Arranger Eskom Holdings, South Africa EUR 300,000,000 Ingula Pumped Storage Scheme EUR 75,000,000 Mandated Lead Arranger Sasol Finance International Hermes covered Export Finance Facility EUR 13,600,000 Sole Lender, Hermes Agent 43

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