maritime & transport business solutions

Investments in ports in financial turbulent timesMaritime Days, Odessa

MTBS Services and Solutions

05 July 2011 Scope of Works - Portinvest Yuzhny 13www.mtbs.nl maritime & transport business solutions 13

Value & Business StrategyPort Sector Reform

Port PolicyPublic Private Partnerships

Institutional & Regulatory ChangeOrganizational Reform & Alignment

Value Creation & ProtectionFinancial Modeling and AnalysisFeasibilityProject Structuring & PackagingBusiness CaseRisk Valuation, Allocation, Mitigation

Transaction StrategyTransaction ManagementDocumentation & ContractsTendering & negotiated SolutionsFinancial SolutionsLegal Solutions

Financial StructuringProject Finance

Due DiligenceProcurement of Finance

Investment / DivestmentMerger & Acquisition

strategy

finance transactions

valuation

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MTBS is a global leader in port & maritime advisory services

MTBS’s experience in the Port & Infrastructure Sector MTBS’s Clients in the Port & Infrastructure Sector

Global leader in Port Transaction

MTBS is the global leader in transaction advisory services in the port sector with a high success rate on both sell-side & buy-side transactions

MTBS is independent, flexible and international. MTBS are recognized content-leaders: implementing

international best practice transaction services and products.

Experienced and Qualified Team

MTBS dedicated port team is the largest and most experienced team, certainly when compared with global accounting & strategy consultants.

MTBS’ senior experts have a long corporate history in blue chip organisations such as Deloitte, PWC and Royal Haskoning, Royal Boskalis, Port of Rotterdam, PSA.

MTBS’s team of experts all have deep-rooted experience in Strategy, Business valuation, Transaction and Finance.

International Sector Focus MTBS is an international consulting company with leading maritime sector focus.

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… with a global track record of port projects…

Ongoing TransactionSuccessful Transaction

Completed Port Project

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… with significant recent successful Port Transaction implementations …

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Financial Advisor

Brooklyn-Kiev PortOdessa, Ukraine

Container Terminal Equity Valuation

Deal size US$ 37 million senior loanTotal project cost US$ 130 million

2009

Financial Advisor

Egypt, Cairo

Bid Preparation Dry Bulk Terminal El Dekheila

2006

Deal size confidential

Flag of Country Transaction advisor

Public Water Transport SystemDubaiUAE

Deal Size: US$ 25 million

2007

Financial Advisor

West Africa Container TerminalOnne

Nigeria

Dealsize confidential2004

… with significant recent successful Port Transaction implementations …

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530 Mt*

150Mt

The Region

Recent key shipping economic developments Recent key political developments

390Mt

* Excluding Russia Far East

Diverse and challenging landscape

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Mediterranean Port LandscapeIt is a patchwork

• High CAPEX• Highly Competitive (initial cash flows)• Many players• Multiple PPP structures• Range Greenfield - Privatisation• Major trades/ different demands

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International Operators in the Med

HPH

PSA

DPW

Eurogate

ICTSI

Contship Italia

Mersey Docks

Dragados / Noatum

APM Terminals Evergreen

COSCO

MSC

CMA CGMTCB

Summa

HPC/HHLA

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Challenges for investors – a snapshot

• Political Risk• Physical war or upraises, also if outside country• Trade war & custom regulations• Change of Contract• Change of Control

• Shipping patterns• Direct calls to Black Sea• Or, on the contrary: fragmented again• Ships deployed/ Bosphorus

• Capacity developments• Large addings of capacity in Marmara and East Med• Overcapacity in Ukraine• Taman development?• Privatisation leading to stronger competition

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Unlocking Value

𝑁𝑃𝑉 (𝑖 ,𝑁 )=∑𝑡=0

𝑁 𝐹𝐶𝐹 𝑡 ,𝑔

(1+𝑖)𝑡

Growth

Free Cash Flows

De-Risking

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What to do as an investor

• Hinterland Cargo • anchor important (different commodities)

• BOT/ Concession contract• Force Majeure clause• Sovereign guarantees• Flexible concession fee structure• Flexible guarantees• Flexible term

• Financing:• Role for DFIs and ECAs• Sovereign guarantees• PPP Equity?

• CAPEX allocation PPP• Fix vs moveable

• Risk engineering• Safety• Permitting

• Value Engineering:• Phased investment• Combined cargo mix• Offtake/ secured volumes allignment

• Diversification:• Geographically• Cargo mix

• Partnering:• How to secure long term?• Changing structures of power?

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The bankability Challenge

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21(400,000,000)

(300,000,000)

(200,000,000)

(100,000,000)

-

100,000,000

200,000,000

300,000,000

400,000,000 Cash Flow Diagram

Cumulative FCF Investments Opex Revenues

mio

USD

• This Greenfield port project has a project IRR of 19% and a positive NPV.

• However, the first year of positive Free Cash Flow is in year 6

• The pay-back period is 10 years from initial investment.

• Vale created after the expansion investments in year 15 are not of interest for the lenders!

• So, how bankable is this project for project financing?

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The Bankability Challengea viable project is not yet a bankable one

Economic & Financial Balance

Financial Viability Bankability

IRR NPV Secu-rities DSCR

• Determined over a period of > 20 years

• Includes future project phases

• Determined over a period of < 20 years

• Depending of project start-up phase

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Project Bankabilitya viable project is not yet a bankable one

• Debt service• CAPEX aligned with revenues• Value Engineering• Increased need for proper valuation methods and modeling

• Securities• Proper structuring• Proper risk engineering• Quantification (value) of impact of different structures and risk allocations: create value• Safeguarding in the mean time authorities interest to retain discretion over policy• New era of contract engineering

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Value engineeringAdditional value should be created to make the project bankable

• Commercial understanding is primordial: • Engineering follows commercial reality• Off-take contract versus TSA growth• How to tie in committed cargo

• Value engineering to increase initial bankability while preserving financial and commercial viability (NPV/ IRR), some examples

• Mobilisation costs• Cost of possible later demolishing costs• Costs for eventual later stage of expansion

• Impact of value engineering options on commercial and financial viability and on bankability have to be quantified in a clear valuation model

• Value engineering options need to be translated in a proper structuring of the project, split of obligations and risks, and consecutive contract flow

Commercial aspects

Technical aspects

Value Engineering options:• Securing cargo/ cargo types• Phasing• Construction time

Quantification of options:• Viability (NPV/IRR)• Bankability (DSCR)• Commercial viability (sensitivity)

Translate option in structuring

Translate option in contract flow Va

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172nd MED Ports 2014 Exhibition and Conference Marrakech23 & 24 April 2014

Full BOT Medium BOT BOT light Landlord

Viable +/- high risk Yes Yes No

Bankable Uncertain +/- Yes Limited

Market appetite Limited/ uncertain Attractive Highly attractive Only Terminals

Concession term Freehold Long (>50yrs) Shorter Terminal: 25y

BOT• Land• Environmental• Breakwater• Dredging• Port civils• Fleet • Quays

Terminal operators

PA

PA• Land• Environmental

PA• Land• Environmental• Breakwater

BOT• Breakwater• Dredging• Port civils• Fleet• Quays

BOT• Dredging• Port civils• Fleet• Quays

Terminal operators

Terminal operators

BOT Full BOT Medium BOT Light

= BOT

= PA

PA• Land• Environm.• Breakwater• Dredging• Port civils• Fleet • Quays

Terminal operators

Landlord

= TO

Project StructuringDifferent models with different specifications

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PDMC Model as balanced alternative to BOT

Leadshareholder

Public shareholders

Privateshareholders

DFI’s

Portauthority 1. Master Concession

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Structured Financing

Potential involvement of DFI’s:• Longer tenors• Longer grace periods• Sculpted repayment schemes• Often regarded as subordinated to commercial lending• Interest similar to commercial banks, unless it is tied or backed by sovereign guarantees• Standby credit facility

Equity

Debt

Lead Partner

Other

International Terminal Operator

Infrastructure Funds, Shipping Lines, etc.

DFI

Commercial Loan

Pool of DFI’s / Multilaterals

Pool of Commercial Banks

35%

65%

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Creating value and Bankable ProjectsImpact of Value Engineering and Structuring

Value/ viability

Bankability

DSCR ü üSecurities ü

Initial Value Engineering

Value Contracting

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What to do as an investor

• Hinterland Cargo • anchor important (different commodities)

• BOT/ Concession contract• Force Majeure clause• Sovereign guarantees• Flexible concession fee structure• Flexible guarantees• Flexible term

• Financing:• Role for DFIs and ECAs• Sovereign guarantees• PPP Equity?

• CAPEX allocation PPP• Fix vs moveable

• Risk engineering• Safety• Permitting

• Value Engineering:• Phased investment• Combined cargo mix• Offtake/ secured volumes allignment

• Diversification:• Geographically• Cargo mix

• Partnering:• How to secure long term?• Changing structures of power?

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Conclusions

• Investors face many challenges investing in East Med and Black Sea:• Political risk• Shipping line patterns• Capacity additions• Improved performance competing port following privatisation

• Unlocking investments institutional:• CAPEX structuring• Concession contract conditions: flexible, guarantees, Force Majeure• Sovereign Guarantees• Structured (DFI) financing

• Business approach• Cargo diversification• Geographical diversification• Partnering• Hinterland anchoring (multiple cargoes)

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General Conclusions

• Each region has peculiar problems and challenges

• Each country is specific• PPP models• State intervention and Guarantees (financing)• Labour

• Cargo flows not always logic: customs, trade agreements, impediments

• Every deal is tailor-made

• Concessions: Quid Force Majeure? Who takes the risk?

• Role for DFIs?

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