APICORP`s Objectives

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Industrial Project Finance in GCC Countries Forum
Federation of GCC Chambers of Commerce
October 12, 2010
Dammam, Saudi Arabia
Financing Energy Investments in the
aftermath of the financial crisis
APICORP’s perspective
Nicolas Thévenot
Arab Petroleum Investments Corporation
nthevenot@apicorp-arabia.com
October 12, 2010
Outline of the Presentation

Arab Petroleum Investments Corporation (APICORP),
has been since inception in 1975 a financial institution
dedicated to the financing of the development and
transformation of the Arab energy industry;

APICORP is noticing certain signs of recovery of the
energy capital investments in the MENA region;

However, APICORP considers that the financing of these
investments will be challenging and will require a
dramatic shift in the financing strategy of project
sponsors.
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ARAB PETROLEUM INVESTMENTS CORPORATION
(APICORP), A PIONEER IN FINANCING ENERGY
INVESTMENTS IN THE ARAB REGION
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Mission and Objectives
Arab Petroleum Investments Corporation (APICORP) is an inter Arab joint
stock company established in 23 November 1975 in accordance with an
international agreement between governments of the ten member states of
the Organization of Arab Petroleum Exporting Countries (OAPEC).
APICORP’s Mission is to contribute to the development and the
transformation of the Arab hydrocarbon and energy industries through equity
and debt financing, advisory and research.
APICORP’s Objectives
 Priority given to Arab Joint Ventures which benefit OAPEC member
states
 Active throughout the energy value chain
 Equity participation in new ventures
 Financial Advisory
 Arrangement of debt
 Business conducted on a commercial basis
 Teams made up of financiers, engineers and economists
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Shareholders
APICORP is wholly owned by the member states of OAPEC as listed below:
SYRIA
IRAQ
ALGERIA
US$ “000”
Total assets
LIBYA
EGYPT
2006
KUWAIT
BAHRAIN
QATAR
UNITED ARAB
SAUDI ARABIA
EMIRATES
2007
2008
2009
2,600,000
3,573,357
3,563,802
4,119,100
Shareholder’s equity
897,000
1,020,000
894,750
1001,635
Issued and paid-up capital
550,000
550,000
550,000
550,000
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APICORP Rating
Foreign currency issuer ratings
• A1 (long term)
• Prime 1 (short term)
• Stable Outlook
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Industry Segments
 Industry Segments
 Upstream development and production
(including rigs)
 Refining
 Petrochemicals
 Fertilizers
 Natural Gas Liquefaction (NGL)
 Gas-To-Liquids (GTL)
 Power Generation
 Combined Power and Water Production
 Oil Shipping
 Oil and Gas Terminals
 Geotechnical and Seismic Survey
 Manufacturing
 Operations and Maintenance Services
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APICORP Added Value
As Partner in Developing the Hydrocarbon Industry

Strong ties throughout the Arab world due to our pan-Arab ownership;

Strong technical and advisory capabilities in the hydrocarbon sector with
experienced teams of engineers, economists, and financiers;

Extensive experience and knowledge in all aspects of project
development:
 Selection of technology suppliers and contractors
 Product markets
 Feedstock supply and off-take arrangements
 Legal issues and documentation related to companies formation

Leadership position in investing in hydrocarbon-based projects and in
syndicating regional oil and gas financings.
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Core Business Structure
APICORP
Projects
Project & Trade
Finance
Treasury & Capital
Markets
Direct Equity
Investments
Project Finance
Money Markets
Energy Equity Fund
Trade Finance
Foreign Exchange &
Derivatives
Technical Support
Research
Advisory
Capital Markets
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Direct
Equity Investments
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Investment Criteria

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Due consideration shall be given to the geographical diversification of the
investments within the Arab world particularly in the member state
countries.
The size of the Corporation’s equity stake should ensure at least one
Board seat in the investee company.
The paid up equity capital of the project shall be sufficient to ensure the
success of the project. (Opportunity offers a US$ 5 million equity capital
injection by APICORP).
The targeted internal rate of return (IRR) on investment shall not be less
than 15%.
The equity part of the project’s financial structure shall not be less than
30% of the total project cost.
The financial indicators of the investment opportunity and the associated
risks shall be within the industry norms.
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Targeted Investment Opportunities

New technologies that are economically sound with high growth
potential.

Opportunities utilizing regional feedstock.

Opportunities that enjoy a comparative advantage with high
added value.

Opportunities that contribute to the support and integration of
Arab petroleum industries.

Opportunities that offer a substantial financial return in
accordance with the Corporation’s investment criteria.
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Our Strength
 Experienced Management Team with a successful record
 Extensive experience and expertise in both energy and hydrocarbon related
investments
 Strong footprint in the GCC and other Arab countries
 Excellent working relationships with multilateral institutions and governmental
agencies
 Wide-range network of strong relationships with business groups in the Arab
regions, and with international industry partners
 Proven ability to create deals
 Strong pipeline of projects
 Effective combination of academia and industry
 Professionals with engineering and economics background
 Enhanced accessibility through offices in Saudi Arabia and Bahrain
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Roles and Responsibilities
 Development
 Identifying potential investment opportunities
 Carrying initial assessment
 Evaluating full feasibility studies
 Actively participating in establishment of potential investee companies
 Monitoring
 Pursuing implementation progress of projects
 Active participation in the Board of Directors of investee companies
 Periodic evaluation/assessment
 Exiting
 Tracking exit opportunities
 Evaluating, negotiating, and concluding exit agreements
 Technical Support
 Providing technical support to project finance and financial advisory activities
 Participating in technical meetings and preparing technical reports and studies
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Investment Cycle
Steps
Identification
Type of Study
General opportunity
studies
Objective
•
•
•
Identify opportunity
Determine critical areas for support studies
Determine areas for pre-feasibility & feasibility
studies
•
Determine which of the possible choices is the most
viable
Identify the choice of project criteria
Support studies
Pre-selection
and preliminary
analysis
•
•
•
Determine provisional viability of project
Appraise whether the feasibility study should be
launched
•
Investigate in detail the selected criteria requiring indepth study
Feasibility study
•
•
Make the final choices of project characteristics
Determine the feasibility of the project and selected
criteria
Evaluation study
•
Make final investment decision
Project appraisal Appraisal report
•
For Investment Committee’s decision
Pre-feasibility studies
Support studies
Final analysis
Project
evaluation
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Project and Trade
Finance
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Key Objective
To be a partner of choice for arranging
debt and providing financial advisory
services on energy related projects promoted
by governments and private sector from the
Arab region.
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Financing Types

Project Financing

Islamic Financing (lease, murabaha, tawarruq, istisnaa, etc…)

Asset based Financing (Ships, rigs, FPSO, equipment, etc…)

Reserve based financing (proven oil and gas reserves)

Trade Financing (pre-export, LCs, risk participation, etc…)

Acquisition Financing (companies, plants, etc…)

Equity Financing
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APICORP Contribution to Financings
In addition to being in most cases a mandated arranger and underwriter,
APICORP aims to play an instrumental role in financings.
Role
Credentials
Bookrunner
AMPTC, Saudi Polyolefins Company, Qatargas 3, ELNG Train1, PetroRabigh, Oryx-GTL, Egyptian Fertilizers Company, Vitol, and Exmar Lux.
Technical Bank
Equate Petrochemical Company, Qatar Vinyl Company, Egyptian
Fertilizers Company, Saudi Polyolefins Company, Oman Polypropylene
Company, BAPCO and Oman Aromatics.
Documentation Bank
ADWOC, JANA, Egyptian Fertilizers Company, Ibn Zahr,
Oman Polypropylene Company, Vitol, EGAS and GASCO.
Agent
ADWOC, EGAS and GASCO.
Account Bank
EGAS.
Modelling Bank
ADWOC, JANA, Saudi Polyolefins Company, EAgrium,
Ibn Zahr, GASCO and EFC.
Onshore Security Agent
Saudi Kayan and Yansab.
Offshore Security Agent
EGAS.
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Lending Guidelines
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Quality of sponsors and their degree of commitment and interest.
Economic rationale and competitiveness of the project (for example:
feedstock cost advantage).
Degree of “off-shorisation” of the project (for example: revenues in US$
for US$ loan).
Degree of protection of the project from local factors (for example:
exchange rate).
Resilience of the project against negative changes in certain parameters.
Maximisation of export-credits and multilateral loans in financings in
difficult countries.
Transaction to benefit Arab energy industry.
Preference towards supporting existing and future equity investments of
APICORP.
Role and visibility of APICORP in the financing.
Preference for transactions where APICORP can provide support as
financial advisor / structuring bank.
Remuneration.
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APICORP as Financial Advisor of Choice
 Competitive proposal
 Comprehensive and clear mandate document
 Fast track basis
 Dedicated team of professionals
 Qualified team leader
 In-house technical and legal support
 Significant local insight in the Arab region
 Comprehensive project financing database
 Extensive network of third party consultants
 Total confidentiality
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Financial Advisory Activities
Phase: 1
Phase: 2
Understand project,
Key issues and requirements
Due diligence reports from
consultant, legal, insurance,
technical, marketing and
financial modeling
Identify key risk issues
Assessment of project
economics
Develop optional
financing structure
Develop term sheet
Evaluate project contractual
structure
Arranging/Syndication
strategy
Phase: 3
Invite debt providers
Selection of arrangers
Negotiation of term sheet /
commitment letter
Final Acceptance of
due diligence reports
Develop financial model
Sources of finance
Evaluate potential sources of
finance
Phase: 4
Prepare information Package
Initial market sounding
Information gathering
Negotiate documentation
jointly with the legal counsel
on behalf of the Sponsors
and assist in completion of
CPs
Appointment of consultants
and legal counsels
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SIGNS OF RECOVERY OF THE ENERGY CAPITAL
INVESTMENTS IN THE MENA REGION
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Rebound of the energy capital investments in the Arab region
300
200
APICORP Research - Oct. 2010
400
Arab apparently shelved
Arab actual requirements
100
0
2011-15 Review
2010-14 Review
2009-13 Review
2008-12 Review
2007-11 Review
2006-10 Review
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500
2005-09 Review
Higher capital
investments prospects
and lower amount of
projects postponed or
shelved.
600
2004-08 Review

Gradual recovery of
global demand for
energy and stabilization
of crude oil prices within
an anchor price range of
US$ 70-90/bbl.;
US$ billion

Figure 1: Rolling 5-year reviews of energy investment
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Geographical pattern of these energy investments
Saudi Arabia

A reflection of the
distribution pattern of
crude oil and natural
gas reserves in the
region;
Iran
UAE
Qatar
Algeria
Egypt
Kuwait
Iraq
Libya
Actual
requirements
Oman
Syria
Sudan

Three countries largely
below potential: Iraq,
Iran and Kuwait;
Tunisia
Bahrain
Jordan
Yemen
Morocco
Lebanon
APICORP Research - Oct 2010
Mauritania
0.0
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20.0
40.0
60.0
80.0
100.0
120.0
140.0
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Sectoral pattern of these energy investments

Oil supply chain
accounts for 41%;
Oil Chain

Gas supply chain
accounts for 35%;

Power generation
accounts for 24% and
is expanding.
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Gas Chain
Power
generation
APICORP Research - Oct 2010
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A critical challenge: funding accessibility
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The challenges of Funds availability
 Reduced lending capacity
 Balance sheet constraints;
 Increased funding and liquidity costs.
 Flight to quality
 More stringent due diligence;
 More conservative structures;
 Emphasis on core sponsors in core countries.
 Cautiousness in respect to syndication
 Underwritings versus club deals.
 Addressing liquidity mismatch
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The challenges of Funds availability.
Cont’d
Need to access all potential sources of finance ….
International Bank Market
 Decision to lend to be
determined by relationship
considerations
Regional Bank Market
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Local Funds
 Can lend up to 15 years
tenor
 PIF recently has increased
its lending limit up to US$
1.6 Bn per project
 SIDF can lend up to US$
160 Mn per project
4 regional banks historically
active in GCC project
finance market
Appetite
severely
constrained
Islamic Financial Institutions
 To date, only a few IFIs active
in project finance market
 Prefer to focus on local
market
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Saudi Bank Market

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7 banks truly active in
project finance market
Currently almost no lending
in US$
ECAs
 Likely to emerge as most
sought after source of finance
in the current environment
 All ECAs from major OECD
countries open to GCC
 Familiarity
with
regional
project
finance
market
requirements
Sukuk
 Sukuk markets still in
development phase
 Pre-completion
risks
complex to understand
International Capital Markets
 Credit rating needed
 Conditions in international
credit
markets
remain
challenging
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Key features of a successful project finance transaction
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Transaction structure :
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Compliance with all standard Project Finance contractual requirements;
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Completion guarantees;
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Tighter financial covenants;
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Shorter tenors;
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Solid economics.
Credit profile:
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Government-owned sponsors as well as private sponsors with high credit
rating and solid experience /track record;
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Strategic industry;

Strategic project
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Key features of a successful project finance transaction
(cont’d)
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Financing structure :
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Multi-currency tranches;
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Islamic and Conventional;
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ECAs and other government related funding;
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Capital market instruments.
Syndication strategy:
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Club deals
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Relationship banks;
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Key role of the financial advisor.
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Why Financial Advisory is Critical
 Prepare a suitable financing structure and information package.
 Attract financing from various debt providers at competitive terms.
 Identify key project risks and develop ways to mitigate them.
 Provide input on commercial issues in key project agreements.
 Assess various sources of debt (capital markets, commercial banks,
Islamic banks, multilateral agencies and export credit agencies).
 Bridge the gap between the Sponsors and the debt providers.
 Ensure that the interests of the Sponsors are being served at all times.
 Facilitate achieving financial close in a timely manner.
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THANK YOU
APICORP
P.O. Box 9599
Dammam 31423
Kingdom of Saudi Arabia
Telephone
Fax
Telex
(+966) 3 847 0444
(+966) 3 847 0011 / 0022
870068 APIC SJ
E-mail
Website
apicorp@apicorp-arabia.com
www.apicorp-arabia.com
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APICORP
Bahrain Banking Office
26th Floor, Al Moayyed Tower
Al Seef District
P.O. Box 18616
Manama
Kingdom of Bahrain
Telephone
Fax
(+973) 1 756 3777
(+973) 1 758 1337
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