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African Iron and Steel Conference Mozambique, 24th June 2015 Volker Wiederhold Office Director KfW IPEX-Bank Representative Office Johannesburg Bank aus Verantwortung 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 Where we come from – KfW Financing with a public mission for more than 60 years Name KfW – Kreditanstalt für Wiederaufbau Mission Promotional bank of the Federal Republic of Germany Founded 1948 Shareholders Locations Best rating 80% Federal Republic, 20% Fed. States Frankfurt am Main (head office) Berlin, Bonn, Cologne (branch offices) AAA (S&P) / Aaa (Moody's) / AAA (Fitch) Financing volume EUR 72.5 billion Total assets EUR 464.8 billion Employees 5,539 as of 31.12.2014 3 4 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 We promote Germany Mittelstandsbank Promotion SMEs, business founders, start-ups Kommunal- und Privatkundenbank/Kreditinstitute Promotion of housing construction and refurbishment, improved accessibility and education Financing of municipal infrastructure and global loans International business We support internationalisation We promote development KfW IPEX-Bank KfW Development Bank, DEG International project and export finance Promotion of developing and transition countries Promotion of environmental and climate protection 5 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 › Within the KfW Group we use our as one that works closely with and close to its customers to provide optimal advice and support. London New York Frankfurt worldwide network and share knowledge and experience across national borders – for your benefit. Headquarters of KfW and KfW IPEX-Bank Moskau Istanbul Branch of KfW IPEX-Bank Abu Dhabi Representative office of KfW IPEX-Bank Mumbai Bangkok Singapur Other foreign locations of the KfW Group São Paulo Johannesburg 6 Our Africa loan portfolio of almost EUR 2 billion Other 5% Angola 2% Ethiopia 8% Egypt 9% Mauretania 4% Morocco 4% South Africa 47% Mozambique 2% Nigeria 13% Zambia 3% Namibia 3% As of: 31 December 2014 Differences in totals due to rounding As of: 31 December 2013 Differences in totals due 7 to rounding 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 Million tonnes crude steel production (2013) Rank Country Mt Rank Country Mt 1 China 779.0 14 France 15.7 2 Japan 110.0 15 Iran 15.4 3 United States 86.9 16 Spain 13.8 4 India 81.2 17 Canada 12.4 5 Russia 68.7 18 United Kingdom 11.9 6 South Korea 66.1 19 Austria 8.0 7 Germany 42.6 20 Poland 8.0 8 Turkey 34.7 21 South Africa 7.2 9 Brazil 34.2 22 Belgium 7.1 10 Ukraine 32.8 23 Egypt 6.8 11 Italy 24.1 12 Taiwan/China 22.3 13 Mexico 18.2 World 1,606.0 World Steel Association 2014 9 Steel Production and Usage (2013) World Steel Association 2014 10 Major Exporters and Importers of Steel (2013) Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Total Exports China Japan EU South Korea Ukraine Germany Russia Turkey Italy Belgium-Luxembourg France Belgium United States Taiwan, China India Spain Netherlands United Kingdom Brazil Austria Mt 61.5 42.5 38.7 28.9 24.7 24.3 36.6 17.3 16.9 16.6 14.2 13.9 12.5 11.6 10.1 9.3 8.8 8.4 8.1 7.0 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Total Imports EU United States Germany South Korea Thailand Italy China Turkey France Indonesia Belgium-Luxembourg Belgium Vietnam Canada Poland Taiwan, China Mexico India Spain Saudi Arabia Mt 30.8 30.3 22.1 19.0 15.9 15.6 14.8 14.5 13.2 12.3 11.3 10.1 10.0 8.9 8.1 7.8 7.7 7.5 7.4 6.7 World Steel Association 2014 11 Steel Production 2014 - 2015 10,00% 5,00% 0,00% -5,00% -10,00% -15,00% -20,00% -25,00% China Brazil US Russia Turkey India France Ukrain Spain Italy Germany South Korea Japan South Africa Global -30,00% Source: engineeringnews.co.za 12 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 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 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 Bodies/Policies South Africa 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 Ghana Investment Promotion Center (GIPC), Mining Act, Income Tax Act , Local content policy. Nigeria Nigerian Investment Promotion Council (NIPC), Mining Act, Income Tax Act , Local content policy. Angola National Private Investment Agency (ANIP), Industrial Development Institute of Angola (IDIA),Income Tax Act, Local content Act. Botswana Botswana Investment & Trade Center (BITC), Mining Act, Income Tax Act Mozambique Mozambique Investment Promotion Centre (CPI), Mining Act, and Income Tax Act Zambia Zambia Development Agency (ZDA), Mining Act , Income Tax Act. 15 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 REC Southern Africa The Southern African Development Community(SADC). East Africa East African Community (EAC) West Africa Economic Community of West African States (ECOWAS), West African Economic Monetary Union (WAEMU) Central Africa Economic Community of Central African States (CEEAC), Economic and Monetary Community of Central Africa (CEMAC) North Africa Arab Maghred Union (UMA) Others 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 Governmental policies supporting the development of mining, energy infrastructure and steel in African countries… Multilateral policies.. 2002 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 111 17 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 2015 18 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 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 2013) Top 10 SSA countries with best operating environment ( World Bank/Transparency Index 2014) Botswana Rwanda Namibia The Gambia Ghana Botswana Burkina Faso Liberia Eritrea Zambia South Africa South Africa Nigeria Namibia Ivory Coast Ghana Zimbabwe Uganda Angola Burkina Faso 20 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 What are the political and economic issues that lenders should be aware of ? Conclusion … Political issues • Africa wide mining and tax reforms Economic issues • 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 2017. • 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 • Mining remains the backbone of many African countries . Labor issues continue to be dominant. Increasing state participation and growing tax burdens • • . • Macroeconomic issues - Insufficient local capital; Inflationary and currency conversion risks. 22 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 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 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 Financing Methods Bank Financing: Project Finance vs. Corporate Finance Project Finance Corporate Finance company size cash flow orientation typical financing method typical financing method for new mining projects for existing companies with a track record cash flow based analysis analysis of financial statements forward looking analysis historical financial performance off balance sheet financing analysis Tailor-made financing balance sheet sometimes complex & time more standardized consuming usually simpler & quicker 26 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 43-101/ 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 30 – 50 % (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 PwC and EulerHermes – the German mandate holders The German Export Credit & Investment Guarantee program: Investment Guarantees Untied Loan Guarantees / UFK Lead Partner: 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 ECA covered Export Finance Contractual structure and payment flows Supply contract Optional: - Manufacturing risk cover - Suppliers credit cover HERMES (ECA) Exporter „Verpflichtungserklärung“ (letter of undertaking) „Exporteurerklärung“ (exporter‘s declaration) Supplies and services Importer = Borrower Down- and interimpayments (15%) Repayment of the loan Disbursements collateral Loan agreement (85%) Buyer credit cover (85%) KfW IPEX-Bank Payment guarantee potentially: foreign guarantor 29 Overview about the Export Credit Agency Market Country ECAs and Ratings Austria (AA+) OeKB Belgium (AA) OND S&P Rating Levels AAA Netherlands (AA+) Atradius Poland (A-) KUKE AA+ Czech Rep. (AA-) EGAP AA Portugal (BB) COSEC AADenmark (AA+) EKF A+ Finland (AA+) Finnvera A- A BBB+ BBB France (AA) COFACE BBB- Slovak Rep. (A) EXIMBANKA Spain (BBB) CESCE Sweden (AAA) EKN BB+ Germany (AAA) HERMES Italy (BBB-) SACE ECA Workshop with KfW IPEX-Bank 2015 BB South Africa (BBB-) ECIC BBB+ Switzerland (AAA) SERV (Ratings as per April 2015) 30 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 Costs of an ECA-covered buyer credit ECA premium of Case Study Assumptions / Project details of case study: Loan Amount: USD 42.5mn Borrower: Local Bank Bank classification: CC0 Country classification: 3,4,5,6 Starting Point of the credit: 12 months after first disbursement Repayment: 20 semi annual instalments Percentage of ECA-cover: 95% ECA Hermes CC Approx. Premium % flat *) Premium % p.a. **) 3 6,3 1.1 4 8,4 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 PwC and EulerHermes – the German mandate holders The German Export Credit & Investment Guarantee program: Investment Guarantees Untied Loan Guarantees / UFK Lead Partner: 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 Untied Loan Guarantees / Ungebundene Finanzkredite (UFK) Typical structure of an Untied Loan Guarantee Project German Federal Government represented by PwC Untied Loan Guarantee Foreign Government › Approvals › Concessions › Permits › …. The maximum covered amount is based upon the value of the raw material shipments Lender German Importer / Offtaker Project Finance / Loan Foreign Project Company Offtake Agreement 34 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 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 1.000.000 t/a Raw material price 100 USD/t Covered loan amount up to Total Offtake Volume Total Contract Value =10,000,000 t =USD 1 bn =USD 200-250 mn UFK premium calculation: • E.g. Project Category 2, Country Category 2, Horizon of Risk of 5y 0,3454*5+0,2695 Cost of UFK cover • • • • =1,9965% of the loan amount ≈ 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 Untied Loan Guarantees (UFK) Untied Loan Guarantees are approved on a case by case basis General Requirements: Eligibility for cover Long-term offtake contract Financing must be assured Contribution to local economic development › Raw materials must › A long term offtake › The project has to be eligible contract with a contribute to the (e.g. Cu, Fe, Mo) German importer economic › Risk has to remain must be in development of the justifiable place project‘s host country Environmental & social compatibility, › Before UFKs › Particular importance are granted the is attached to the financing structure of possible negative the project has to impacts on be in place environment and local society Qualified for Approval 37 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 Case Study Steel Mini Mill Project Big River Steel LLC, USA ›The The Challenge Challenge ›› Hard Largedeadline investment for provision with longof term all financing 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 plantinand a volatile market equipment environment for existing facility ›› Heterogeneous Specific regulations groupofofReserve equity and Bank other of India investors adding tofor 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 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 Have a look at some of our references Metals & Mining Canada Switzerland Iron Ore Company of Canada Corporate Financing KfW Investment USD 100,00,000 Peru Glencore International AG Revolving Credit Facility Total Investment USD 8,700,000,000 KfW Investment USD 100,000,000 Mandated Lead Arranger Arranger 2014 Chile Revolving Credit Facility Total Investment USD 2,100,000,000 KfW Investment USD 70,000,000 Senior Lender, Joint Bookrunner Mandated Lead Arranger 2013 Minera Esperanza Corporate Financing Corporate Financing Total Investment USD 1,800,000,000 KfW IPEX-Bank USD 60,000,000 Arranger Total Investment USD 900,000,000 KfW Investment USD 100,000,000 2014 United Arab Emirates Glencore International AG Project Finance Sociedad Minera Cerro Verde S.A.A. 2014 Switzerland Minera Antucoya Chile Total Investment USD 12,990,000,000 KfW Investment USD 100,000,000 USA Mississippi Silicon EMAL Phase II ECA-backed Facility Total Investment USD 4,000,000,000 KfW Investment USD 128,600,000 Hermes Agent, Coface Agent Arranger 2013 Mandated Lead Arranger, Documentation Agent 2013 2013 Project Finance Total Investment USD 200,000,000 KfW Investment USD 108,600,000 Mandated Lead Arranger 2013 41 Have a look at some of our references Steel (1) USA Germany Big River Steel LLC Project Finance ECA-backed Total Investment USD 1,300,000,000 KfW Investment USD 794,000,000 Turkey HKM Hüttenwerke Krupp Mannesmann GmbH Term Loan Total Investment EUR 70,000,000 KfW Investment EUR 35,000,000 Initial Mandated Lead Arranger, Sole Bookrunner, Euler Hermes Agent Lead Arranger 2014 ECA-backed Facility ECA-backed Facility KfW IPEX-Bank USD 9,700,000 Hermes Agent, Sole Lender 2014 KfW Investment EUR 45,553,607 2014 2014 Turkey Kardemir Karabük Demir Çelik Sanayii ve Ticaret A.Ş. Facility ECA-backed KfW Investment EUR 21,237,500 Habaş Sınai ve Tıbbi Gazlar İstihsal Endüstrisi A.Ş.(Habas) ECA-backed Facility KfW Investment EUR 17,700,000 Sole Lender Arranger, Sole Lender 2013 Kardemir Karabük Demir Çelik Sanayii ve Ticaret A.Ş. Facility ECA-backed Arranger, Sole Lender Turkey JSW Steel Ltd. Hermes Agent, Sole Lender KfW Investment EUR 93,225,000 2014 JSW Steel Ltd. KfW IPEX-Bank USD 20,000,000 Kardemir Karabük Demir Çelik Sanayii ve Ticaret A.Ş. Facility ECA-backed Arranger, Sole Lender Indien Indien Turkey 2013 2013 42 Export- and Project Finance selected KfW transactions in Sub-Saharan Africa South Africa 2015 Ethiopia Ethiopia 2015 2014 South Africa 2014 Gibson Bay, South Africa Export Credit Facility ZAR 2,100,000,000 111 MW (Wind) Project Financing Cargo Airport Terminal Ethiopia EUR 32,000,000 – Export Credit Facility EUR 83,000,000 Co-LA Namibia 2013 Senior Secured Loan for 1 A330-200 Operating Lease to Senior Lender Ethiopian Railways Corporation Ethiopian Airlines Nigeria Transnet SOC Limited Export Credit Facility $ 153,000,000 Mandated Lead Arranger Term Facility EUR 49,500,000 Mandate Lead Arranger 2015 2013 South Africa 2012 South Africa 2010 MTN Nigeria Eskom Holdings, South Africa USD 300,000,000 (incl. SEK CIRR Tranche of USD 100mn) EUR 300,000,000 Ingula Pumped Storage Scheme Sole Arranger EUR 75,000,000 Mandated Lead Arranger Sasol Finance International Hermes covered Export Finance Facility EUR 13,600,000 Sole Lender, Hermes Agent 43 44