While other project finance experts might complain about the decline in the volume of project finance deals in the market at the moment, Phil Roberts, head of energy and natural resources at the Bank of Tokyo-Mitsubishi UFJ, Japan’s largest bank, is refreshingly different. By Adrian Murdoch.
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It is a telling insight into the demands on his diary that the first time Phil Roberts talks to PFI he apologises and has to reschedule because of meetings, and the interview eventually takes place by telephone from Moscow. At the end of January, the US$500m, five-year loan backing the US$5.4bn expansion of the Caspian Pipeline Consortium (CPC) scheme was signed. Eight banks, including BTMU, were on the deal, which was priced at around 250bp over, to fund the pipeline that runs overland for 1,500km from Tengiz in Kazakhstan to Novorossiysk on Russia’s Black Sea Coast.
Much like his diary, Roberts’ career has been unstoppable. It started with a five-year stint at International Power as a chartered chemical engineer. He moved to RBS, where he spent seven years in the project finance division, then three years in the debt capital markets division, where he was responsible for transactions in the energy structured debt markets sector. He stayed at RBS through thick and thin (“I liked the people and enjoyed the work,” he said), and moved across to Bank of Tokyo-Mitsubishi in March 2011.
“The opportunities at BTMU became very clear at a time when it was apparent that RBS was going to become more UK-centric,” he said. “While it is true that year-on-year project finance was down last year, we are still getting plenty of calls. Not just the well-publicised club deals, but the smaller ones that come in under the radar too,” he said. “What we do see,” he said, “is not so much that the pipeline is smaller, rather that it is taking longer to get certain deals done: three, six, nine months, and sometimes even longer.”
Nor has the particular mix of deal types changed that much either. “We are not seeing any one sector dominate at the moment,” he said, mentioning petrochem and refineries, regulated pipelines, storage and upstream in the oil and gas sector.
It does raise the question of what is needed to get a deal done. Roberts ticks off three factors that have to be right. First, country location is important. With responsibility for project and structured finance debt for energy and natural resources across the entire EMEA region, Roberts has a wide remit, but inevitably there are certain areas where he is not doing too much business.
The second factor is the sponsors that are in on the deal and BTMU’s relationship with them. Is, for example, an oil or gas major or state entity involved for mega energy deals to get sufficient bank liquidity? And third, there is the question of deal size. Here BTMU works at both ends of the spectrum.
He cites the US$252m debt deal to back construction of the US$300m Sinopec/Concord Energy oil tank project for Fujairah Oil Terminals, an oil tank hub outside the Strait of Hormuz, which was signed at the end of January. The amortising loan runs for 10 years and is priced at 300bp with step-ups to 350bp and 400bp in the later years to encourage a refinancing and along with BTMU, five other banks are involved.
But what has changed, said Roberts, was the debate on whether “longer-term debt is dead”. It has become a trope of industry to write long-term debt’s obituary, and there is no doubt that some banks are exiting the long-term debt market citing regulation and the global regulatory standard known as Basel III.
“Some are using it as an excuse,” said Roberts dryly. To explain, he pointed out that the regulations of Basel III do not penalise banks for lending to project finance projects nor indeed mean that banks must match fund liabilities. What they mean is that banks must meet funding and liquidity ratios. “Basel III is important, but it is not anti-project finance debt,” he said.
But their loss is his gain. “Some banks are exiting the market because they want to deleverage and recapitalise their balance sheets, and that is good for us,” he said. “We can lend long-term if we want, but we don’t have to.”
He mentioned the need to drill down to specifics. “It comes down to the right sponsor and the right location. There are definitely pockets of long-term funding for the right deals and in current relatively stable conditions we are seeing this quite often,” he said.
Roberts also talked about acquisition-side funding. Here it becomes clear why BTMU has pole position in the league tables for project finance. He rattled through a number of names. The acquisition of German utility E.ON’s gas network OpenGrid Europe closed in August. It was financed by four facilities, all subsequently rated Single A– with a stable outlook by S&P: a €1.1bn three-year term loan, €1.1bn five-year term loan, a €450m five-year capex facility and a €100m revolver. BTMU joined as one of the MLAs in an early-bird syndication.
Roberts also mentioned a number of Scandinavian deals, such as the sale by Statoil of its stake in Gassled and Vattenfall’s sale of its electricity distribution network in Finland; and the five-year, £400m loan backing the acquisition of Edinburgh Airport by private equity firm Global Infrastructure Partners in April last year. That deal was put together by BTMU, Credit Suisse, CBA, ING, NAB and adviser RBS.
A newer area for BTMU is its advisory business. “A lot of banks are targeting it and want to do it, but don’t necessarily have the balance sheet or the appetite to support it. Advisory is good business,” he said. He pointed out that BTMU had the advantage both of scale, in terms of personnel, and the ability to support it through debt. As an aside, he pointed out that it was hard for a bank to claim that it knew the market if it was not lending.
Most recently, BTMU worked in an advisory capacity on the 270MW Lincs Offshore Wind Farm, developed by Centrica, DONG Energy and Siemens Project Ventures. Built 8km off the Lincolnshire coastline in the UK’s Greater Wash, project financing was signed by 10 banks in February 2012 and reached financial close in June last year. The construction plus 15-year project loan totals £425m but on top of that there are £580m in shareholder loans. It is a significant project as although Lincs is the fifth UK offshore wind farm to be project-financed, it is the first both to be project-financed during the construction phase and to deal with the complexities of the future offshore transmission asset sale.
Roberts sees solid business growth in coming years. He mentally ticks off the areas as he talks. In renewables he remained cautious. There has been a distinct slowdown but that has more to do with problems outside the energy sector itself. There have been some regulatory changes, but with Spain and Italy as the main markets, he said any slowdown reflected sovereign difficulties. While there might be a reduction in deal volume overall, “UK, Germany and Benelux remain solid”, he said.
Although thermal energy might be slow in Europe, except for Turkey – BTMU was on the €600m K Sure-covered piece of the €750m deal for the thermal power plant at Tufanbeyli in Adana, southern Turkey for Enerjisa, the Turkish energy company co-owned by Sabanci Holding and Austria’s Verbund – he believes that most natural resource sectors plus offshore and onshore wind will continue to deliver.
Geographically, Roberts sees a breadth of business too. The Middle East will remain active in terms of ongoing flow of projects – he mentions the monster US$20bn Sadara deal in Saudi Arabia – as well as newer areas such as Africa, which will continue to be driven by offshore O&G and LNG deals.
Roberts has shown commitment to project finance throughout his career, but perhaps the best sign of how important both he and BTMU see the sector is that the project finance team in the bank has grown from 35 people to 80 people over the last two years.