International Financing Options: A Bangladesh Perspective

Transcription

1 International Financing Options: A Bangladesh Perspective 27 November

2 Executive Summary Bangladesh as a sovereign has been historically quite reticent in terms of tapping International finance markets Since independence of the country, majority of the external borrowing was made from different concessional windows and Govt to Govt credit lines The first commercial facility i.e. USD syndicated loan was availed by Bangladesh Petroleum Corporation (BPC) back in 2006 to finance fuel imports The country received the first Sovereign rating in 2010 by S&P and Moody s As of today, a good number of power plants of different entities of BPDP, Aircrafts of Biman Bangladesh Airlines have been financed by different International financing Instruments Different Govt owned enterprise/entities are also considering issuance of USD Bond Private sector at the same time very active in tapping International Financing Markets 1

3 Different International Financing Options 2

4 Syndicated FCY Loans B. 3

5 Usual Structure of USD Syndicated Loan from Offshore Commercial Banks Key Features: Investors: Tenor : Pricing : Suitable for customers with USD/FCY indexed revenue streams Effective way to reduce cost of borrowing, while freeing up limits with local banks for working capital loans Offshore Commercial Banks / Fund managers Usually 3-5 year but can be stretched up to 8-9 years based on end use of facility / requirement Much Lower than Local currency Borrowing, USD Libor + Margin Regulatory Approvals: Approval required from BIDA (Erstwhile Board of Investment ) Market Depth: Security Challenges Conditions to Close Large size syndication is feasible depending on underlying credit Charge over fixed assets, pledge of shares and escrow over cash flows Sharing existing security package Corporate Guarantee Letter of Comfort from allied concern Regulatory Approval, Investor Base, Long tenor Subject to customary legal, financial & business due diligence, documentation, receipt of internal and regulatory approvals etc 4

6 ECA Backed Financing 5

7 ECA Backed Financing Un-tied Financing Structure Overview of Structure 3 ECA backed Loan 2 Commercial and/or Political cover 1 Off-take agreement ECA(s) Off-taker(s) 1. Long-term supply contract between borrower and off-taker and/or sponsor provides equity injection in the form of sponsorship agreement 2. SCB receives partial political/commercial cover from the ECA of the risk of non-payment by the borrower 3. SCB provides an ECA-backed loan 4. Variation: SCB may provide a commercial loan to cover the non-eca portion Buyer/ Borrower AND/OR 1 Sponsor(s) Sponsorship agreement Criteria: Client wants to fund investments or expenditures that are sourced from a country other than that of the ECA, and/or; Client requires long term financing to match its respective cash flows Benefits: Competitive pricing versus a commercial term loan not backed by an ECA Longer tenors are available Diversifies funding sources Purpose: Un-tied financing looks at strategic national interests of the ECA country, including natural resource off-taking and/or strategic resource expansion 6

8 ECA Backed Financing Select ECA Program Details Sweden Finland France China ECA EKN Finnvera COFACE Sinosure Cover Political and commercial cover of up to 95% Political and commercial cover of up to 95% Political and commercial cover of up to 95% Political and commercial cover of up to 95% 85% of the contract amount plus 85% of the contract amount plus 85% of the contract amount plus 85% of the contract amount plus Amount Local content plus Local content plus Local content plus Local content plus 3 rd country supplies on a case to case basis 3 rd country supplies on a case to case basis 3 rd country supplies on a case to case basis 3 rd country supplies on a case to case basis Tenors Up to 10 years Up to 10 years Up to 10 years Up to 10 / 12 years Comments Open and interested to consider more transactions No country limits Limited experience Well established corporates with good track record and hard currency revenues Limited experience Open with out any particular country limits Cautious approach Preference for sovereign risks or a bank guarantee Well established corporates considered on a case by case basis 7

9 ECA Backed Financing Key Highlights Key considerations Advantages Eligibility Type & Level of Cover Third Party Supplies Up to 85% of export contract value Local content up to 30% of export contract value ECA eligible contract value = Total contract value local content Political and Commercial cover usually from % Can vary widely for non home-country goods and services (e.g.. Up to 80% in the UK) Availability Competitive Pricing Long Tenors Multi Currency The ECA s objective is to promote strategic interest of the exporter or investor from the home country. ECA financing is available in markets and for borrowers where often other financing options are unavailable or terms are not as attractive (e.g. more expensive) In the current environment, the all-in cost is very competitive. For matching tenor, all-in pricing can be c.1.50%-2.0% lower than available commercial pricing Door-to-door tenor could be up to 5-10 years or greater (transaction specific) which are not otherwise available to many borrowers in emerging markets Facilities are available in most freely convertible currencies (including local currencies) Premium Usually payable upfront, up to 100% of premium financeable under the respective loan Cash Flow Matching Drawdown when required thus reducing negative carry for the borrower. Long availability periods are in-line with project requirements (often between months but can be longer) Capitalized IDC Often up to 100% financing possible subject to separate and/or regulatory approval Flexibility Often available when other financing options are limited, thereby preserving bank/investor appetite for non-eca eligible financing purposes Interest Rates Repayment Un-tied Aid Variable interest rates from commercial banks Availability of fixed-rate CIRR (Commercial Interest Reference Rate), depending on programmes Repayment terms generally up to 5 years, potentially longer based on company, market and structure Selective programs applicable to some ECAs, generally arranged to support national interests Diversification limitations Time Eligibility Enables borrowers to tap a new funding source ECA approval process is generally longer than normal term loan financing. Average deal closing period is 5-8months ECA loan amounts are typically available for up to 85% of the value of the eligible goods / services being exported from the home country, plus certain local and third country costs Prepayment is allowed, however, in most cases there is limited or no refund of premium by ECA Suppliers All major exporters and EPC contractors from respective home countries OECD Consensus OECD ECAs abide by the Consensus framework which places restrictions on repayment tenors, timing of interest and principal payments,etc. Not available for refinancing 8

10 ECA Backed Client and Arranger Action Items Throughout ECA Process Arranger Actions Pre-Close Post-Close 1. Develop financing structure & engage market & technical consultants (if required). Initiate ECA contact 2. Draft IM 3. Lenders & ECA due diligence process 4. ECA Facility documentation & ECA board approval 5. Fulfilling conditions precedent 6. Financial close & Drawdown Administration and monitoring requirements (ongoing) Dialogue with banks & ECAs (ongoing) Client Engagement Level High High Low High Medium Low Low 1. Provide parameters and key aims of the financing to the Advisor / Arranger 2. Supply initial business plan & financial model 3. Respond to information requests & queries from ECAs & Lenders 4. Negotiation & discussions of facility documents in conjunction with your legal counsel 5. Client to provide relevant documents to Agent 6. Financial close & Drawdown Client to provide the compliance certificates as specified in the loan documentation Typical ECA financing process takes 3 5 months 9

11 DFI Financing A. 10

12 DFI Financing Select Development Financial Institutions Institutions China Policy Banks Product Funding for both debt and equity Guarantee Guarantee for local currency Funding for both debt and equity Guarantee Debt Funding investment guarantees / insurance Key Requirement Capital expenditure Development oriented Capital expenditure Development oriented Capital expenditure Development oriented Strategic importance of China, including Chinese suppliers, sponsors or off-takers Political Risk Insurance Tenors Up to 15 years Up to 15 years Up to 12/15 years Up to 15 years Up to 15 years Comments Participation not necessarily linked to the country of supplies Each DFI can do up to a max of USD20Million If it is a club of DFI then typically one DFI takes the lead on due diligence Strong experience and exposure on country and sector Up to a max of USD20Million Compliance with IFC E&S standards Compliance with IFC E&S standards Due diligence process takes a little longer Take and Hold amounts can be higher IFC can typically do 75% debt and 25% sub-debt Comfortable with country risk Appetite determined on a case by case basis and can accommodate much larger amounts Insurance covers expropriation, war, terrorism & civil disturbance, currency inconvertibility, transfer restriction and breach of contract Compliance with IFC E&S standards 11

13 FCY Bond C. 12

14 (prefereed0 FCY Corporate Bond / Foreign Currency (G3) Bonds Usual Structure of USD Bonds Issuer Security Issuance type Size Redemption Pricing Key Features Challenges Conditions to Close Large Project / Corporate/ Sovereign Unsecured offering, Covenant light structures, mostly incurrence based covenants Best Efforts/ underwritten USD million minimum Bullet structure, mostly repaid by reissuance Market driven, demand supply driven through price discovery mechanism. Other costs include Arrangement Fee, Legal Cost, Road show cost and participation fee Huge investor appetite depending on the credit rating Gives access to wider investor base Bullet repayment structure which frees up Issuers cash flows. Can be structured as Sukuk / Islamic mode. Requires approval from Bangladesh Securities Exchange Commission (BSEC) & BIDA Subject to customary legal, financial & business due diligence, documentation, receipt of internal and regulatory approvals etc. 13

15 Client Centric Vendor Financing D. 14

16 Client Centric Vendor Financing Holistic Equipment Financing Solution Structure Benefits Supplier financing program led by Borrower where all CAPEX Suppliers are referred to MLA/Advisor /Lead Bank or their RS requirements Vendor -1 Vendor -2 1 Supply Contract with Vendor Financing (terms/structure proposed by Borrower as advised by Lead Arranger/Advisor) Allows Borrower to negotiate more favorable supply terms as Suppliers have a program to readily off load receivables Borrower requests suppliers to agree to a standardized Master RPA with MLA/Lead Bank Vendor -3 Borrower Quick financing and implementation once the master RPA is executed Consistent parameters for all vendor financing, applicable to any vendors, arranged by MLA and can incorporate other investors for a club facility as needed Complete financing solution to match income generated from the assets in the medium/long term Vendor -3 One collection account with MLA to make payments at maturity RS Facility 2 (Vendor Finance) 3 ECA Backed Term Loans (Buyer s Credit) Flexible to incorporate local currency and Managed Services payables Ability for MLA to provide a mega sized program by combining internal limits with multibank risk participation, credit insurance and ECA related cover Vendor Financing Solution Day 1 Day 365 Day 366 up to 3-5 yrs Repayment Date Benefits to Borrower from Receivable Services (RS) Facility offered to Borrowers Vendors 1. Extended Payment terms: [12] months or [1] fixed repayment date easier to manage administratively 2. Discounting costs borne by vendors 3. Reflects as trade payables on balance sheet not as bank debt 4. Facility documents are signed with vendors not Borrower Benefits of ECA Facility to Borrower 1. Tenor: 5 years or more 2. No negative carry as drawdown under this facility only at maturity of payment terms as per supply contract 3. Diversified source of funding as lender group can be expanded 4. Multiple ECA(s) can be incorporated Transaction Flow Impact on Borrowers Balance Sheet Sale of Post Acceptance Receivables to MLA and utilise the Vendor Financing Recorded as Trade Payable Drawdown on the Buyer s Credit under the ECA term loan Extinguish of the Vendor Finance Recorded as Bank Debt Extinguish the Trade Payable Repayment on the Buyer Credit Facility Recorded as Bank Debt 15

17 Client Centric Vendor Financing Receivables Services Financing A 2. Notice of Assignment Borrower C Deferred Payment Agreement D Order Placed and Goods Delivered G MLA Internal Limit/Multibank risk participation And/or Credit Insurance B Limits setup to cover Borrowers credit risk F Pre - Payment H Balance Payment Seller E Submits and Assigns accepted invoices MLA Operational steps One-time setup steps A 1. Receivable Purchase Agreement Key Steps (A) 1. MLA and Seller enter into a Receivable Purchase Agreement to cover the receivables due from Borrower (A) 2. Notice of assignment (NoA) is sent to Borrower advising them of the assignment of their receivables. The NoA is acknowledged by Borrower. (B) MLA covers the credit risk either through internal limits and / or create a multibank risk participation program and with Credit insurance/ecas (C) Seller and Borrower enter a Deferred Payment Agreement (DPA) to extend the payment terms up to [ 12 to 18 months ]. MLA is able to assist in drafting the DPA (D) Borrower places orders with Seller. Seller ships goods to and invoices Borrower upon completion. Borrower accepts the invoices (E) Seller submits the accepted invoices to MLA (F) MLA Prepays the invoice to Seller based on the agreed upon prepayment percentage (G) Based on the agreed upon payment terms, Borrower will repay the outstanding amounts under the invoices directly to MLA (H) After repayment of total invoice value, the balance of the invoice is reimbursed to Seller 16

18 Client Centric Vendor Financing Benefits of Receivables Services Financing Benefits to Borrower Supplier-led financing that is not reflected as a loan in Borrowers books, just as a trade payable MLA s Solution Structure Short to medium term financing (up to 12 to 18 months) Domestic and cross border receivables Purchase structures across MLA banks footprint, can be structured with all major suppliers who are already familiar fully with this structure Selling down of risk via multibank/ Insurance or ECA coverage Receivables purchase arrangements are modular in design to enable existing facility to be increased or incorporate new participants Tranching of risk to suit participant s/ investor s requirements SCB Value Add Substantially extended payment terms, with deferred payment terms of up to 18 months Alignment with project progress and implementation with, prepayment linked to invoices accepted by Borrower Competitive pricing structure which is passed on to Borrower Benefits to Borrower s Vendors A financing solution that is off balance sheet for the Seller (as opposed to loan arrangements Cash upfront, thereby allowing for better management of working capital needs, risks and balance sheet Competitive pricing 17

19 Client Centric Vendor Financing LC Prepayment Borrower D Shipment of Machinaries Seller A Working Capital Facility E Docs and Payment on Due Date MLA banks Internal Limit/Multibank risk participation And/or Credit Insurance MLA (International Bank in BD ) Key Steps (A) MLA extends a working capital facility to Borrower (B) Borrower requests MLA (International Bank in BD )to open an LC in favour of Seller covering one or several shipments. (C) MLA (International Bank in BD )opens a usance LC (usance terms ex 1 year) in favour of Seller. advised directly to Seller (D) Seller Ships goods to Borrower and implements (E) Seller tenders post shipment documents to MLA (International Bank in BD ), Bangladesh requesting for LC prepayment on a sight basis. Docs may be variable depending on the agreed milestone finalization proofs (F) MLA (International Bank in BD ) negotiates the LC and prepays Seller on a sight basis. (G) On due date of LC Borrower settles MLA (International Bank in BD )outstanding 18

20 Client Centric Vendor Financing LC Prepayment (cont d) Required Documentation Facility documentation Regular standard facility documentation Insurance Policy: MLA (International Bank in BD ) to be the beneficiary of the policy covering credit risk Transactional documentation LC Application: Usance LC to cover the tenor of finance. Terms of the LC will define the required documentation based on which the bank will provide the acceptance. Once acceptance is provided, Seller will easily request for financing extending the terms of payment to the buyer for as long as needed Prepayment request: to be provided by the seller LC Documents: Covers all docs requested under the LC as part of the LC application to trigger acceptance of payment Notes: Facility may be structured to be Sharia a Compliant Benefits Off balance sheet financing for seller contingent facility for buyer: Will be a contingent facility only as it will only be a outstanding Usance LC for the duration required. Subject Seller auditor confirmation and given SCB coverage of credit risk, invoice prepayments by SCB may be viewed as cash payments rather than bank financing. Extend Payment Terms: Through such facilities, Seller will be able to extend payment terms for Borrower Alignment with implementation and project progress: Prepayment will be linked to invoices produced and project implementation and acceptances by Borrower. Minimal documentation: Very little requirements on documentation, UCP rules driven Simple to structure: Acceptable to any supplier, straight forward implementation 19

21 Asset Backed Financing E. 20

22 Asset Backed Securitization Key Features Securitization is the process of conversion of illiquid assets to securities Asset-backed securities (or ABS) are the securities collateralized by the cash flows from a specified pool of assets The term securitization refers to the process in which the cash flows are converted into rated securities (Termed as Pass Through Certificates or PTCs), which are then distributed to institutional investors The ratings of ABS are a function of the credit quality, cash flows and diversification of the underlying assets, rather than the financial condition or rating of the seller/originator (original owner of the assets) A broad range of assets may be securitized, including Bank/FI mortgage portfolio Micro Finance Receivables Different kinds of receivables including toll, future cash flows etc 21

23 Asset Backed Securitization Advantages: Diversification of funding sources Potential lower cost of debt than issuing straight corporate bonds Transfer of risk associated with the asset Balance sheet management reduce the size of balance sheet, thereby improving key financial ratios, such as return on equity and return on assets Reduce capital allocated to low risk/low return assets Regulatory capital relief (for financial institutions) Potential for longer maturities than corporate debt (extend liability profile) 22

24 Asset-Backed Financing Asset-Backed Capital Market Funding Different Alternatives possible four funding structures. Except Project Bond Structure The other three are funding structures backed by existing operating assets and business cash flows i.e. no project risk Structure Issuer Project Bond Spin-out Sale & Lease Back WBS Bonds backed by future project cash flows and a partial guarantee from sponsors A newly created SPV Sale of towers to a new entity (New Co) and a long-term take-or-pay agreement between New Co and sponsor A newly created SPV Sale and lease-back of existing pool of assets to a new entity (New Co) and a long-term lease agreement between New Co and sponsor A newly created SPV Financing backed by ring-fenced revenue stream from a specific business/service of the sponsor A newly created SPV Repayment Type Bullet/Amortizing Bullet Bullet/Amortizing Bullet/Amortizing Collateral All assets of the Project Company along with shareholder pledges Cotractual payments under the long term contract Lease payments under the long term lease contract Cash flow generated by the newly created spv business Rating Subject to extent of Sponsor support Subject to Parent rating, overcollateralization Subject to Lessee rating, overcollateralization Subject to Newco senior secured rating Structure Complexity Time of Execution Funding Cost/Pricing Ease of Execution Most Attractive Least Attractive 23

25 Comparative analysis of Different International Financing Options 24

26 Brief Summary of Financing Options Syndicated Loans Bond Market Asset Backed Financing Use Structure Advantages Considerations Potentially constraining covenants Facility size subject to company s debt capacity leverage, Quick execution Corporate guarantee from the General corporate Tenor is likely to range from 3 to 5 years MIGA s insurance likely to company s sponsors is likely to be purposes Repayment is likely to be amortized on a quarterly basis enhance appetite, although at a required Potential for MIGA political insurance cover cost Likely selective appetite, without MIGA s participation Capex Refinance existing debt General corporate purposes Project Bonds for specific Project Working capital financing backed by cash generating assets Senior unsecured bond that ranks junior to the secured debt in the structure. (Can also consider a senior secured issuance that ranks pari passu with secured debt) 5 / 10 year tenor depending on project Size and tenor to be determined post due diligence, although a min. of USD 200mm is feasible Size and tenor dependent on due diligence Sponsor guarantee would be required for the Project Bond Selling down of risk via DFI coverage for the working capital backed structures Bullet maturity alleviates cash flow pressures Diversifies funding base Incurrence covenants provide greater operational flexibility Frees up banks lines Potentially better pricing MIGA s insurance likely to enhance appetite, although at a cost Frees up bank lines Premium for unsecured issue and Bangladesh risk Ratings required from at least 2 international rating agencies Senior lender consents required if secured issuance Time consuming execution Corporate guarantee from the company s sponsors is likely to be required Likely selective appetite, without MIGA s participation ECA Backed Financing Equipment purchases, tied to contracts Potentially available for service contracts Political (up to 100%) and commercial (up to 95%) cover Facility size subject to contract size Up to 85% of the export contract value Tenors up to 5 years Premium paid on facility amount Increases bank appetite Long dated tenors likely to enhance pricing levels Process intensive and relatively time consuming A corporate guarantee may be required, depending on the credit profile of Borrower Development Finance Institutions ( DFI ) Capital expenditure, General corporate purposes must have development angle Direct financing, including equity and/or guarantees Minimum US$20m Tenor and repayment terms vary depending on type of financing Potentially longer tenors Increases credibility with lenders Local currency financing available Participation limitation to percentage of company s balance sheet Absolute size also limited Time consuming and requires education of DFI Vendor Financing Equipment expenditure, tied to receivables Short to medium term financing (up to 12 to 18 months) Size dependent on receivables size Selling down of risk via multibank/ insurance or MIGA/ECA coverage Quick execution Improves vendor financing terms Reflects as trade payables on balance sheet not as bank debt Will likely require further funding in the long term Restricted to equipment financing and tied to specific vendor s receivables 25

27 Loan Syndications & Debt Capital Markets SCB, Bangladesh : Few Deal Snaps MI Cement FactoriesLtd Abuil Khair Steel Melting Ltd Abuil Khair Strip Processing Ltd Southeast Bank Limited BDT 5,000,000,000 Subordinated Tier-2 Bond Trust Bank Limited BDT 4,000,000,000 Subordinated Tier-2 Bond One Bank Limited BDT 4,000,000,000 Subordinated Tier-2 Bond USD 29,000,000, Bookrunner and Facility Agent USD 100,000,000, Bookrunner and Facility Agent USD 20,000,000, Bookrunner and Facility Agent LSRM Steel PlantLtd BDT 3000,000,000, Bookrunner and Facility Agent BSRM SteelMills Limited BDT 2,500,000,000 Unsecured Zero Coupon Bond Sole Dhaka Bank Limited BDT 3,000,000,000 Subordinated Tier-2 Bond Aci Godrej Agrovet Limited BDT 650,000,000 Zero Coupon Bond, BRB Cable Industries Mills Ltd USD 34,700,000 Sole, Bookrunner and Facility Agent Export Import Bank of Bangladesh Ltd BDT 2500,000,000 Subordinated Tier-2 Bond Samuda Power Ltd KYCR Coil Industries Ltd USD 6,300,000 Sole and Bookrunner USD 15mn and BDT 4mn Sole and Bookrunner Prime Bank Limited BDT 2500,000,000 Subordinated Tier-2 Bond Bank Asia Limited BDT 3000,000,000 Subordinated Tier-2 Bond Eastern Bank Limited BDT 2500,000,000 Subordinated Tier-2 Bond AL Arafah Islami Bank Limited BDT 3,000,000,000 Subordinated Tier-2 Bond

28 Loan Syndications & Debt Capital Markets SCB, Bangladesh : Few Deal Snaps Ismail Spinning Mills Ltd USD 23,000,000 Sole, Bookrunner and Facility Agent C. P. Bangladesh Co. Limited BDT 3,528,000,000 Syndicated Term Loan Refinance Facility, Bookrunner & Facility Agent ACI Healthcare Limited BDT 1950,000,000, Bookrunner & Agent Lankabangla Finance Limited BDT 3000,000,000 Zero Coupon Bond Southeast Bank Limited BDT 3,000,000,000 Subordinated Tier-2 Bond Noman Terry Towel Mills Ltd USD 12,500,000 Sole, Bookrunner and Facility Agent Biman Bangladesh Airlines Ltd Orascom Telecom Bangladesh Limited Grameenphone Bangladesh Petroleum Corporation BSRM SteelMills Limited United Commercial Bank Limited USD 356,000,000 Syndicated Term Loan facility,bookrunner & Agent BDT 6,600,000,000 Syndicated Working Capital Facility, Bookrunner & Facility Agent USD 350,000,000, Bookrunner & Agent USD 400,000,000 Subordinated Short Term Facility USD 115,000,000, Bookrunner & Agent BDT 2000,000,000 Subordinated Tier-2 Bond Orascom Telecom Bangladesh Limited C. P. Bangladesh Co. Limited IDLC Fianance Limited Biman Bangladesh Airlines Ltd Grameenphone Bangladesh Petroleum Corporation BDT 5145,400,000 Syndicated Working Capital Facility BDT 3,780,000,000 BDT 1500,000,000 Zero Coupon Bond USD 61,600,000 Syndicated Term Loan facility BDT 8,460,000,000 USD 200,000,000 Subordinated Short Term Facility, Bookrunner & Facility Agent, Bookrunner & Facility Agent,Bookrunner & Agent, Bookrunner & Agent

29 Loan Syndications & Debt Capital Markets SCB, Bangladesh : Few Deal Snaps ACME Specialized Pharmaceuticals Limited Shah Cement Industries Ltd Orascom Telecom Bangladesh Limited Robi Axiata Bangladesh Limited Dhaka Bank Limited BDT 920,000,000 BDT 1,500,00,000 BDT 4,645,400,000 Syndicated Working Capital Facility BDT10,730,000,000 Syndicated Short Term Loan Facility BDT 2000,000,000 Subordinated Tier-2 Bond, Bookrunner & Facility Agent, Bookrunner & Facility Agent, Bookrunner & Facility Agent, Bookrunner & Facility Agent NationalBank Limited Orascom Telecom Bangladesh Limited C. P. Bangladesh Co. Limited BDT 2500,000,000 Subordinated Tier-2 Bond BDT 3,600,400,000 Syndicated Working Capital Facility BDT 720,000,000, Bookrunner & Facility Agent, Bookrunner & Facility Agent

30 THANK YOU 29