Friday, February 27, 2009
RBS
The bank’s market share and track record have put it in charge of key transactions in all sectors.
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“We understand this business because we are coming at it from an equity, mezzanine and debt perspective” |
The project finance market in 2008 is a very changed environment from the market of 2007. But despite reduced liquidity from many lending banks, deal volumes are healthy and opportunities rife. Indeed, interest in project finance is unprecedented: as a stable and long-term investment proposition it looks attractive to many firms burnt by their experience elsewhere in the credit markets.
But it is not a market where a presence can be built up overnight. “In this market, clients need to be able to rely on a knowledge of the marketplace and an understanding of the liquidity pool,” says Mark Parry, managing director and head of Europe at Euromoney’s global project finance house for 2008, RBS. “In order to understand the marketplace you need to pursue volume and be a major player. This gives you a good understanding of where pricing should be. Being able to call on relationship banks is very important.”
Between 2002 and 2007, while the market overall grew by 79%, funds raised by RBS more than tripled from £3.3 billion in 2002 to £11.7 billion ($22.8 billion) in 2007. The bank routinely tops the mandated lead arranger league tables and has achieved consistent and stable growth across products and geographies.
But it is not enough to be big. Negotiating any market over the past 12 months has required skill and flexibility. “Deals that were caught in September and October last year were not appropriately structured and had to be flexed,” says Philip Hall, managing director and head of infrastructure finance at RBS. “We knew that a reduced liquidity pool would require higher pricing or a materially larger group of MLAs. Many sub-underwriting banks were no longer there.”
The key skill over the past year has therefore been not only to win key mandates but to close the deal successfully. The ability to react to circumstances and restructure accordingly has been crucial. This was in evidence on the Coentunnel Company financing – a 30-year design-build-finance-maintain tunnel concession in Amsterdam. The €500 million debt financing, which closed in June, had been in the works for two years, and when liquidity dried up last year had to be completely restructured as a club deal. RBS lead managed the deal together with Fortis Bank and Bayerische Landesbank.
“There are lots of banks now jumping up and saying that they are focused on project finance,” says Hall. “But we have been in the market for 14 years. Problems arise when people try to push the wrong product in order to buy market share. There are still some banks out there being very aggressive and there are deals that are struggling in syndication. In this market it has to be a sensible structure, not the cheapest structure.” Hall points to the Korinthos-Tripoli-Kalamata (KTK) motorway financing in Greece as an example of RBS’s ability to tap into relationship banks in syndication. The deal is the third wave of the Greek government’s €7 billion programme of infrastructure PPP projects and involved €835 million of commercial and EIB debt. RBS’s market share and track record have meant that it has been at the helm of key transactions in all sectors over the past year. In infrastructure it was sole lead manager and bookrunner on Highstar Ports’ acquisition of MTC Holdings – a deal that was so oversubscribed that the entire second-lien term loan was flexed into a wholly first-lien structure. In oil and gas, the bank lead arranged the Rak Petroleum Block 8 deal, which involved the first use of upstream borrowing base technology for an independent oil and gas company in the Middle East. RBS was also at the helm of the largest ever project financed wind portfolio acquisition, for Trinergy Ltd.
Another significant deal this year was the €2.8 billion Trianel Power deal in Germany. This deal is illustrative of the thinking behind RBS’s commodity trading joint venture with Sempra Energy. The deal was signed in July 2007 to enable RBS to provide physical hedges in its commodity business. Sempra and Trianel signed a 20-year coal supply agreement with a nominal value of more than $5 billion. “Providing physical hedges is something that very few other financial institutions in this market can do,” says Andrew Jameson, head of structured trade finance, energy and natural resources at RBS. “We can cover off the whole value chain for the client. It is far better to lock in the price than to have a contract with a poor-quality purchaser.”
The merger with ABN Amro brings the number of countries in which RBS has a presence from 13 to 55 – something that the project finance team sees as crucial to its competitive edge – particularly in emerging markets. This, together with its long experience and structural expertise, makes RBS the bank to beat in any project finance mandate. “We understand this business because we are coming at it from an equity, mezzanine and debt perspective,” says Jameson. “If you are there as an equity sponsor then the client can take comfort in your commitment on the debt side.”
