Société Générale wins our award for best project finance house of the year in the face of stiff competition, not least from CSFB, which has continued with much of the work which helped it win the prize last year.
The ability to execute has been crucial over the past 18 months as the number of banks committed to the sector has continued to diminish, and with it the amount of capital readily available. That coincided with a near-credit crunch last year, especially in the US, with calamitous developments stemming from California’s power crisis, and with an increased need for project finance capital from Asia, a region emerging from its own crisis at a time when the big liquidity providers were distracted by problems closer to home.
Throughout this tumultuous period, banks such as CSFB and SocGen have held firm their commitment, but SocGen wins this year for innovative deals worldwide.
In September it closed a deal for PG&E Turbine Master Trust. It has the headline-grabbing advantage of being the largest-ever project finance deal in the US at $7.8 billion, although the figure is somewhat misleading as well over $7 billion comes as commitments that were never expected to be drawn. Nonetheless, those commitments exist, and SocGen managed to persuade all the major bank names in project finance to back the deal at a time when the parent of the issuer, PG&E, was getting increasingly mired in the post-deregulation mess in California.
The deal was to provide up-front financing for turbines, which have become a scarce commodity in the power industry, so putting orders in early is crucial. But there is a problem with early orders.
The turbines sit on the company’s balance sheet even though the projects for which the turbines are to be used are still in the early stages of development: assets but not revenues. So SocGen set up a synthetic leasing trust. The backbone of the deal, representing over $7.2 billion, is collateralized by US treasury notes, which has the added benefit of allowing SocGen and its bank syndicate to claim a zero risk-weighting on the loan commitments. And these allow the turbines to remain off PG&E’s balance sheet.
SocGen has also helped with this and other deals to restructure the existing debt of PG&E’s unregulated subsidiary, PG&E National Energy Group, and fellow California victim Edison Mission Energy.
Later this year it will, along with JPMorgan and Citigroup, be co-lead arranger on $3.1 billion in new financing for PG&E, and is acting as adviser to Edison Mission Energy for its next major power plant – to be built in California.
Another US deal was the $508 million financing for Occidental Taft. SocGen used a unique financing structure, a synthetic lease, during construction of the gas-fired plant in Louisiana, and a leveraged lease thereafter. $325 million of senior notes were sold in a private placement.
Two other firsts were as arranger of the longest-dated transaction to come out from Argentina, the $315 million 10-year financing of a fertilizer plant for Profertil, completed while Argentina stumbled through its economic crisis; and the $1.55 billion financing for three power plants in Turkey for Intergen, the largest power deal in Europe and the Middle East last year.
SocGen has been at the forefront of the re-emergence of project finance deals in Asia, including power projects in the Philippines ($383 million) and Thailand, a mobile phone financing deal in Hong Kong for Hutchison ($4 billion), a container terminal financing in Hong Kong (HK$3.4 billion), and the first ever international project financing in Korea, the $184 million limited recourse deal for petrochemicals firm PolyMirae.
The Thai deal involves the $1.5 billion restructuring of the Rayong Refinery company, owned by Shell and PTT, which was one of the major project finance deals of the 1990s when it first came out. SocGen has had a good deal of success in China as well, serving as adviser to BP Amoco on its $3 billion Shanghai Ethylene project, and to Shell on its $500 million Guangdong liquid natural gas terminal.
In fact, SocGen is a leader in arranging LNG projects, and last year concluded deals in Indonesia ($303 million), India ($500 million) and Portugal (e300 million).
