Case Studies in Port FinancingAndrii TsokolPrincipal Banker, Transport Team

14 April 2023

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What is a good project?

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Reciprocal framesConcept

“ A reciprocal frame is a class of self-supporting structure made of three or more beams and which requires no center support to create roofs, bridges or similar structures...

The failure of a single element may lead to the failure of the whole structure. ”

Wikipedia

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Reciprocal framesUsed in architecture since long

Leonardo Da Vinci’s self-supporting arc bridge (1485-1487)

Chinese Rainbow Bridge – Qingming scroll (12th century)

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Reciprocal framesModern times

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Project structureBuilding blocks

Macro environmentCountry rating

Economic growthRegulatory environment

Business caseMarket test

Project structureStrong sponsor(s)

Offtake commitmentsRisk allocation

Financing structureCash flow generation

Security package

Successful project

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Overview of Global Transport Financing

Global transport financing overviewInstruments and their specifics

Characteristics of transport assets Long payback period

Big ticket projects ($100M+)

Regulation

Fluidity of traffic flows

Financing requirements Long tenors

Key role of debt / Syndication

Risk allocation

Offtake agreements

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2008 2009 2010 2011 2012 2013 20140

20

40

60

80

100

120

140

Financing by instrument

Equity LoansBonds IFI Government Support

USD

bn

Global transport financing overviewGlobal trends

1%

99%

Bonds

4%

96%

Loans

Non IG IG

15%

85%

IFI / Gov

Source: IJ Global, Fitch, S&P, author’s calculations

• Bank loans are the main source of debt financing for transport projects

• Bank lending is adapting to the constraints posed by regulation (Basel III):o shorter tenors (5

years)o local banks replacing

international banks in emerging markets

• Growing share of bonds

• Investment grade sovereign rating (BBB- and above) is critical for bonds

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Global transport financing overviewGlobal trends

2008 2009 2010 2011 2012 2013 20140

20

40

60

80

100

120

140

Financing by purpose

Primary Financing Refinancing

US

D b

n

35%

53%

12%

Bonds

51%

36%

13%

Loans

95%

3% 2%

IFI / Gov

Source: IJ Global

• Primary financing in decline until 2014

• Bond investors are most averse to construction risk, IFIs more willing to take it

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Case Study: Odessa grain terminal (Ukraine)

Case Study: Odessa Grain Terminal (Ukraine)Overview

Client: Brooklyn-Kiev LLC

Total project cost:

$104M

EBRD finance:

Senior loan $60M

Signed: 2014

Construction of a new grain terminal in the Port of Odessa with a maximum design throughput capacity of 4.5 million tons

Sponsors:

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Case Study: Odessa Grain Terminal (Ukraine)Business case

• Growing grain production and exports from Ukraine (record 32M tons in MY 2013/14)

• Biggest sales growth potential in distant markets (China #4 importer already)

• Large vessels generate up to 20 $/ton cost savings on long-distance transportation

• Shortage of deep water port capacity in Ukraine => high stevedoring charges

• Modern deep water terminal with advantageous location and good hinterland connections

Yuzhnyi

Nikolaev

Odessa

Illichevsk

Berdyansk

Kherson

Mariupol

Sevastopol

Kerch

Others

0.0 2.0 4.0 6.0 8.0 10.0

Ukraine grain turnover

2014

2013million tons

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Case Study: Odessa Grain Terminal (Ukraine)Project structure

• Strong partnership between a leading private port operator (BK) and a major international commodities trader and top-3 grain exporter from Ukraine (LDC)

• BK’s existing business generating stable cash flows

• New Terminal developed in stages => cash flows during construction

• Berth developed by the Administration of Sea Ports => third party risk (?)

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Case Study: DCT Gdansk (Poland)

Case Study: DCT Gdansk (Poland)Overview

Client: DCT Gdansk S.A.

Total project cost:

€361M

EBRD finance:

Senior loan €31M

Co-financing:

€259M syndicated loan financed by six banks

• Construction of a second deep-water container terminal at the Port of Gdansk to enable extension of capacity from current 1.35 million TEU to 2.55 million TEU

• Refinancing of existing loan facilities3 Australian pension funds

Sponsors:

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Case Study: DCT Gdansk (Poland)Business case

• Gdansk is the gateway terminal for Poland and a major transshipment hub for the SE Baltic and CEE regions

• Direct deep-sea call of the largest ULCS ships (up to 18,000 TEUs)

• Transportation cost savings of 20% on deliveries from Shanghai to Warsaw and 12% on deliveries to CEE compared to W European ports

• Market tested business case – 92% capacity utilization at Terminal 1

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Case Study: DCT Gdansk (Poland)Project structure

• Terminal 1 fully operational with an existing offtake from Maersk

• Cash flows from Terminal 1 alone are sufficient to cover debt service

• Strong sponsor and management team with a successful track record

• Fixed price turnkey EPC contract with a top tier construction company + direct lenders’ agreement with the contractor

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Case Study: Mersin Port (Turkey)

Industry Recognition 2013Port Deal of the Year (MEA)

Case Study: Mersin International Port (Turkey)Overview

Client: Mersin International Port

Total project costFinancing:

$857M

$450M Eurobond

EBRD stake:

$79.5M

Signed: 2013

• Refinancing of the company’s loan portfolio to restructure and strengthen balance sheet

• Capacity expansion including construction of a new deep-water berth (17.5 m)

Sponsors:

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Case Study: Mersin International Port (Turkey)Business case

• Established business with stable cash flows and growth prospects capitalizing on the development of the Turkish economy

• Diversified client and cargo base

• Strong competitive position (2nd largest container port in Turkey with a market share of 19%) and a dominant position in its catchment area (82% market share in SE Turkey)

• Limited construction risk – key facilities are operational, expansion limited in scope and not affecting existing business

Ambarli

Mersin

Kocaeli

Gemlik

Izmir

Aliaga

Antalya

Iskenderun

Others

Turkey container traf-fic, 2014

million TEU

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Case Study: Mersin International Port (Turkey)Project structure

• Favorable macroeconomic conditions (BB+/BBB- sovereign credit rating at the time of placement)

• Established business with predictable cash flows

• Strong partnership between a leading Turkish infrastructure investment group (Akfen) and a major international port operator (PSA)

• Stable regulatory framework: 36 year concession with clear terms & conditions and a good reputation on the market

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Summary and conclusions

Project structure building blocks

Odessa Gdansk Mersin

Macro environment

Sovereign rating

Economic growth

Regulatory environment

Business case

Market test

Project structure

Strong sponsor(s)

Offtake

Risk allocation

Financing structure

Cash generation

Security package

• Key challenges in Ukraine:o Macro environment

(outside of our control)

o Legal and regulatory issues (land and property titles, stable regulation, etc.)

o Timely delivery of commitments by the state

• Which projects are still successful despite the challenges?o Strong sponsorso Tested business caseo Offtake commitments o Balanced risk

allocationo IFI financing

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Thank you!

Contacts

© European Bank for Reconstruction and Development 2015

25

Andrii TsokolPrincipal Banker – Transportemail: tsokola@ebrd.com

European Bank for Reconstruction and DevelopmentKyiv Resident Office16 Nemyrovycha-Danchenka StreetKyiv 01133Tel: (044) 277 1100

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