Corporate Finance Webinar
Energy Finance 2015
Tom Sanzillo, Director of Finance
March 5, 2015
Overview
• Economic Analysis
• Financial Analysis
• Corporate and Project Analysis and Risk
• Risks from Public Opposition
• Purpose of IEEFA Finance 2015
Economics
“BIG” PICTURE – WORLD, NATION,
MARKETS, REGION
Economic Measures
What is economy?
•
GDP “Gross Domestic Product”: How economy/ countries/ markets/ regions
– Types & size of sector: agriculture, energy, manufacturing, mining, energy,
Most important for economy: Growth
•
Market profitability
– Project Profits: mines, plants, ports, & rail
– Corporate Profits: “pure play,” integrated companies, diversified
Critical role of extractive industries
•
Coal/oil economics: Reserves, supply/demand (tons, barrels, cubic feet),
•
Price of coal/oil/natural gas/power from plants/electricity
– Cheap power – household budgets and business
•
Competition
– Within coal
– Between coal & other energy sources
Country
Australia
Size 2013 GDP (trillions)
2013 % GDP Growth
$1.6
2.5%
$0.15
6.0%
Canada
$1.8
2.0%
China
$9.2
7.7%
India
$1.9
5.0%
Indonesia
$0.9
5.8%
Italy
$2.1
-1.9%
Japan
$4.9
1.6%
Mozambique
$0.02
7.4%
Philippines
$0.27
7.2%
Poland
$0.52
1.7%
South Africa
$0.35
1.9%
Thailand
$0.4
1.8%
Turkey
$0.8
4.1%
United Kingdom
$2.7
1.7%
United States
$16.8
2.2%
Vietnam
$0.17
5.4%
Bangladesh
Adani’s Corporate Structure
Example of Corporate Presentation
Mining Company: Cloud Peak
Link to presentation: http://tinyurl.com/qzfd5gp
Finance
“LITTLE” PICTURE INDUSTRY,
COMPANY, PROJECT
Income Statement: The Business/Production Process
Revenues
Money In:
Coal = $ Per ton
How much buying Power = Currency/Megawatt Hour (MWh)
Ports = Fees
selling?
Oil/Liquefied natural gas (LNG) =
$barrel(bbl); Gas $/cubic foot (cf);
Shipping miles per ton
Expenses
Money Out:
Cost of
Production: What
Operating
Profit or
Loss
Is the company or Earnings Before Interest, Taxes,
project a going
Administration (EBITDA)
concern? Worthy
Investment?
Labor
Fuel
Chemicals
Electricity
Machines
Facility Maintenance
Reclamation
Corporate Administration
Income Statement
Item of Expense
Interest
Taxes
Royalties
Depreciation
Corporate
Net Income/Loss
Description
Interest on Short & Long Term Debt
Federal, State, Local
Usually Extraction Related
Annual depletion of property, plant, materials
Front Office
Comprehensive Income or Loss
10
Income Statement:
Understanding Debt
• Why Important? – Extraction, Power – rely heavily on debt.
• What is function of debt? Raises money to build
plants/mines/ports -- assets. Assets produce revenue/pay
back debt and profit. Or not.
• How much is too much debt, overleverage? When operating
profit cannot cover interest. (taxes, depreciation and other
expenses)
Income Statement:
Where Does Debt Come From
• Borrowing: Debt and Equity
– Private Investment Banks – Bonds, Private Equity,
– JP Morgan, Morgan Stanley, Citi, UBS.
– Public Banks – “Development Banks” - International
(“IFI”) – multiple countries provide capital to spur
– Company Equity: Stock, Cash, Assets – Borrow from
– Combination of all three is not unusual in energy.
CORPORATE AND PROJECT
ANALYSIS
Corporate and Project Analysis
• Public/Private Corporations drive project development
– Similarity – Growth
– Differences of enterprise wide missions – Profit versus, Development
Policy
• Project Finance is a piece of broader corporate strategy and finance
– Corporate parents and subsidiaries
– Business and Capital Markets
– Policy and Development Goals of Country
Companies and Projects Require Investment:
All investments have risks
• Profit: Investment + time and effort must return revenue - cover costs, spur more investment
– Risks to Successful Projects
• Economic – GDP Health, Markets, Demand/Supply, Price
– Business Leadership, Vision, Policy, CEO and Board
• Finance – Asset Allocation - Revenue/Expense/Profit/Loss
– Good Management: Board/Managers Setting Policy/Execution
• Legal & Regulatory – Good Citizen, Good Partner, Good Neighbor
• Traditional Concepts of Political Risk
– Good Negotiator, Knows How To Get Things Done
– Cumulative Risk: Key Financial Concept
THE RISK OF PUBLIC OPPOSITION:
REPUTATIONS CORPORATE/ PROJECT SUCCESS
Risk of Public Opposition
• Dynamic of Reputational Politics – Government/Business
– Corporate/government actions have symbolic importance – to
governments, market stakeholders, public – “Sending Signals”
– Actions – policy, program, investments, taxes, law/regulation,
delays.
– Civil society attaches positive and negative connotations to these
• Part of the Brand, part of the profile
• Instant Communication – instant profile
– All Forms of Corporate/Government Success build reputation
– All Forms of Corporate/Government Failure hurt reputation
Risk of Public Opposition
• Benefits of Good Reputation
– Company Growth
– High Salaries for Corporate Leaders
– Elections for Government Leaders
• Power Positions of Ministers
– Public Opinion and Editorial Support
• Creates space for consumer relations and public benefits
– Access to Public and Private Benefits: Profit Enhancement
• New Laws, Regulations, Budgets, Contracts, Cash
• Approval of Investors (Banks, Shareholders)
• Favorable Regulatory Outcomes and Financing
• Political Protection: Markets, Oversight, Leverage over competition
Risk of Public Opposition
• What Undermines Corporate Reputations?
– Financial Losses – Stock decline, dividend cuts, delayed or canceled
shrinkage
• Changing perception in business world – rating agencies, analysts.
• Project Delays, Hearings, Investigations, Reviews
– Something is Wrong
– Improves accountability – new forums for issues
– Costly to project – cuts into profits
– Violations of Law
– Exposes - Media
– Loss of Allies – business, professional, political, editorial, regulatory
– Breaking Public Promises (Polls) – price to consumers, commitments to
agreements, legal/contract/labor disputes go to management and
– Unfair Advantage – political contributions tied directly to bad activity
Risk of Public Opposition
• What Undermines Government Reputations?
– Unmanageable government finances – Tax increases, expenditure cuts,
downgrades .
– Program failure: delayed or canceled projects, closing facilities,
• Changing perception in business world – rating agencies, audits,
• Cost Overruns: Something is Wrong
– Exposes – Media
– Loss of Allies – business, professional, political, editorial, regulatory
– Breaking Public Promises – price to consumers, commitments to
agreements, legal/contract/labor disputes go to management and
– Leadership Crisis – polls, scandals, elections, policy/political fights
– Unfair – political contributions tied directly to bad activity
Risk of Public Opposition
“There is no way we could have ever predicted
that we would become the lightning rod for a
debate around fossil fuels and the development of
the Canadian oil sands.”
• Russ Girling, CEO, TransCanada,2011
• Lead Sponsor of Keystone Pipeline
APPENDIX
Appendix
Country
Agency
U.S.
Securities and Exchange Commission www.sec.gov
Australia
Australian Securities and Investments Commission
Bangladesh
Bangladesh Securities and Exchange Commission
Canada
13 Provincial Securities Regulators
http://www.osc.gov.on.ca/en/home.htm
Ontario Securities Commission
http://www.osc.gov.on.ca/en/home.htm
Alberta Securities Commission
http://www.albertasecurities.com/Pages/home.aspx
China
China Securities Regulatory Commission
(EN): http://www.csrc.gov.cn/pub/csrc_en/
(CH): http://www.csrc.gov.cn/pub/newsite/
Indonesia
Indonesian Capital Market Supervisory Agency
India
Securities and Exchange Board of India http://www.sebi.gov.in/sebiweb/
Country
Japan
Agency
Financial Services Agency
(JPN): http://www.fsa.go.jp/ (EN): http://www.fsa.go.jp/en/index.html
Mozambique
Limited Disclosure: Summary of Accessible information
 http://www.doingbusiness.org/data/exploreeconomies/mozambique/protecting http://www.mic.gov.mz/
 http://www.cpi.co.mz/index.php/en/2012-03-14-03-21-37/useful-links
Philippines
Securities and Exchange Commission Republic of the Philippines http://www.sec.gov.ph/
Poland
Ministry of Justice Poland (Polish version access to company info) http://ms.gov.pl/pl/
South Africa
Financial Services Board of South Africa https://www.fsb.co.za/Pages/Home.aspx
Thailand
Securities and Exchange Commission
(TH): http://www.sec.or.th/TH/Pages/home.aspx (EN):
Turkey
Capital Markets Board of Turkey http://www.cmb.gov.tr/
SermayeP iyasa Kurulu http://www.spk.gov.tr/
United Kingdom
Companies House https://www.gov.uk/government/organisations/companies-
Vietnam
State Securities Commission of Vietnamwww.ssc.gov.vn
Links to Securities
Financial Regulators


http://www.world-stock-exchanges.net/regulators.html
https://www.nrd.ca/nrd/userguide/english/helpful_info/securities_administrators.h