Raising capital for operational readiness Local Content Seminar 15 PwC
Contents 1. Understanding local content 2. Background 3. Benefits of local content 4. Opportunities from economic growth 5. Opportunities for raising capital 6. PwC Value Proposition 7. PwC citations 8. Key considerations 9. Conclusions
Understanding the Local Content principle The Nigerian Content Development bill defined; The quantum of composite value added to or created in the Nigerian economy by a systematic development of capacity and capabilities through the deliberate utilisation of Nigerian human and material resources and services in the Nigerian Petroleum industry
Background Post 2000, there has been a more aggressive and focussed approach to local content based on recommendations from the National Committee Report INTSOK Report Synchronised Report Local content is aimed at ensuring that substantial proportion of activities, materials, activities, engineering, parts and human capital used in the Oil and Gas industry is domiciled in Nigeria, promoting Technology Transfer and Create linkages into the wider economy
Benefit of local content approach The Nigerian Local Act is crucial to fostering policies to encourage international and local players to fully optimise Nigerian and material resources. Under the act and the local content framework, companies need to establish themselves as key capacity builders to position and effectively use Nigerian content and to create value, ensure technology transfer and develop the local supply chain. Key Milestones; 45% local content spend by 2006 70% local content spend in provision of services and equipment to the Oil and Gas industry by 2010.
Benefits of local content approach Venture must have clear succession planning for Nigerians 5% of positions to be held by expatriates 60% of board composition must be Nigerian Companies must utilise Nigerian Legal firms Companies must use local insurance companies in an effort to deepen local financial markets. The Nigeria Content Monitoring Board is established under the Act to ensure full compliance monitoring, issue directives, review all projects and activities and conduct audits to ensure compliance with the Act
Opportunities from Rapid Growth Growth Prospects The world leading economic bodies have forecast that Nigeria will experience rapid economic growth over the next ten years driven mainly by the oil and gas sector. GDP growth is projected to average above 7% to 2030, when Nigeria will overtake South Africa as the continents largest economy.
IMF, world real GDP growth forecast: 2015
Potential Opportunities for Raising Capital 1 Bond Market Financing 2 Equity Market Financing 3 Development Finance Institutions 4 Venture Capital firms 5 Joint Ventures with Global players
Potential Opportunities Raising Capital Bond Market Financing Bonds are loan contracts which governments and private corporations issue to investors in order to raise long-term finance. The bond markets have been gaining prominence in Nigeria over the last decade. They have been primarily driven by issuing fixed interest bonds which are crucial in financing development because they have long maturity dates from when they are issued. The Nigerian bond market can now be considered a potential of funding for large industrial projects where long term funding is required to match the long term maturity and benefits of the projects.
Potential Opportunities Raising Capital Equity Market Financing The Stock Exchange has 283 securities including, 11 Government Stocks 49 Industrial Loan Stocks, which may either be Debentures or Preference Stocks, Equity or Ordinary Shares of Companies. Nigeria Stock Exchange market capitalization is very close to N6 trillion ($40 billion). The market value of emerging-market stocks may surge more than fivefold to $80 trillion in the next two decades, as Nigeria becomes possibly largest stock market, Goldman Sachs Group Inc. Institutional investors in developed nations will probably buy a net $4 trillion of emerging-market equities, lifting holdings to 18 percent of their total portfolios from 6 percent now. The MSCI Emerging Markets Index has more than doubled since the beginning of 2000 even as the MSCI World Index of advanced-nation shares dropped about 21 percent. Equity financing will remain a big opportunity for mobilising capital in Nigeria
Potential Opportunities Raising Capital Development Finance Institutions The role of DFI funding in project preparation is important to ensure industrial projects are made bankable. Several project preparation funds now exist with a view to assisting local capacity to meet the challenges of designing complex business plans to industrialisation in emerging markets. DFI such as EIB, Infraco, FMO, IFC are instrumental that development projects at the early planning stages are sufficiently funded Development Finance Institutions (DFIs) DFI participation assists in overall project bankability Project preparation Funds / Technical Assistance PIAFF; NePAD Business Foundation; DevCo; IFC Advisory Services; GarantCo, etc.] Export Credit Agencies ECA funding will also become more prominent as East Asian tigers target resources in sub Saharan Africa.
Potential Opportunities Raising Capital Venture Capital firms $15-20 billion is now under management in sub Saharan Africa Investment 0.005% of global VC/PE investments Fund raising 0.0001% of global fund raising. African VC/PE contributes 0.175% to African GDP in 2005 compared to the global VC/PE industry which contributed 0.7% to global GDP. $2 billion raised in 2009 80% of funds raised from Foreign Investors AVCA Technical Assistance Fund has a $50 million revolving grant to Fund Managers and Portfolio companies Pre and post investment capacity building, Including training, governance, expert technical support, IT systems improvements
Potential Opportunities Raising Capital Joint Ventures with Global players Large Conglomerates looking for Joint Ventures with credible African entrepreneurs in industrial capacity, oil and gas, resources, construction. E.g. POSCO, DAEWOO, SAMSUNG, HYUNDAI, ADIYA BIRLA, JINDAL South Asian conglomerates have a big appetite for Joint Ventures. They understand and respect the principle of retaining local shareholding and significant interest in the investment. In most cases, they provide funding and financial capacity to local partners. They are primarily interested in securing market share for the components and technology. Funding is sometimes in the form of ECA funding for the local partners. This type of relationship is increasing on the continent.
PwC Value proposition 1. Identifying and selecting potential partners 2. Conducting the necessary due diligences with respect to the above 3. Developing the financial model for the project and using the information to assist with capital raising 4. Marketing the project to potential investors locally and internationally 5. Mobilising the financial support for the project 6. Identifying the various service providers to achieve this vision 7. Ensuring international best practice for the development, construction, commissioning of oil and gas infrastructure.
PwC Oil & Gas citations 1. ENH Mozambique Advised on development of Pande/Temane Gas field, economic evaluations, contract developments and regulatory framework. 2. PetroSA Advisor on LNG importation project 3. PetroSA/IRAN GTL project Negotiated GTL venture 4. Formulation of the 10 year business plan for NAMCOR, the state owned oil company in Namibia 5. Transaction Advisor Capital Raising - OilMoz Refinery Mozambique
Key Considerations 1. Partner identification 2. Legal, Regulatory and Company formation requirements 3. Financial modelling 4. A financing plan 5. Risk management 6. Identifying other key advisors 7. Marketing project to key stakeholders 8. Coordination of financial close 9. Structuring the funding package 10. Post deal Administration
Conclusions Role of political and regulatory authorities critical Assist in developing a suitable investor climate Political Framework, Regulatory Framework, Macro-Economic Policies Project sponsors must have a commercial outlook Adopt appropriate commercial structure to attract financing Identify Global Benchmarks Replicate models in line with local conditions Managing risk throughout process Consider all possible alternatives including global lessons Involve local and regional Development finance Institutions Appreciate the implications of what can go wrong and what the alternatives are Run regular risk workshops and assess value at risk. Emphasis on bankability Run detailed and appropriate financial models Run models on the monetary impact of risk probability and impact on a regular basis. Project success lies in proper planning with a focussed toolkit for assessing risk. Fortune favours the prepared!
Thank you. Reginald Max +27 11 797 4980 T +27 11 209 4789 F +27 11 209 4789 F reg.max@za.pwc.com 2010. All rights reserved. refers to the network of member firms of International Limited, each of which is a separate and independent legal entity. PwC