A LEADING CATALYST IN FACILITATING INDONESIA’S INFRASTRUCTURE DEVELOPMENT Financing Low Carbon Projects Darwin Trisna Djajawinata Director PT Sarana Multi Infrastruktur (Persero) Accelerating Private Sector Participation Towards Low-Carbon Development in Indonesia: Workshop on Joint Crediting Mechanism Jakarta, 30 November 2016
Project Finance and Corporate Finance Structure 1. Corporate Finance Lender relies on cashflows from all corporate activities Project 1 Loan Bank Company Project 2 Repayment Project 3 Share holding Non / Partial guarantee 2. Project Finance Non/ Limited recourse Lender relies on cashflows from the specific project only (Project 3) Loan SPC Bank Repayment Project Finance is relying on the project’s cashflow as the principal repayment source 2
Case Study: Key Issues in Renewable Energy Financing in Indonesia – Risk Perspective 3
Project Key Considerations and Concerns Typical Project Risks of Renewable Energy Projects Key Considerations 1. Optimal sharing of risks – principle is Planning Construction Operation that risks should be allocated to the party best suited to manage or minimize it Construction Delay & Project Sponsor Eligibility Cost Overrun Operation Failure 2. Having a conducive regulatory Constructor Default and environment Project Consultant Insolvency Screening Sustainability of Resources Environmental and Social Key Concerns Operator Screening Impact Unexpected Operation and Maintenance Costs Natural Disaster 1. Strong project sponsor Land Topography Offtaker Access to Infrastructure 2. EPC contractor with good track Grid Distance record Tariff Adjustment and Law and Regulation Approval 3. Stable cashflow Changes Supplier Screening Contract Termination 4. Solid project fundamental Land Acquisition Standard Quality Transport and Logistic 5. Suitable financing structure Costs 6. Professional parties 4
Case Study: Project DSCR vs Project Reliability Scenario-2: with 20% of cost over-run Scenario-1: base scenario 2,83 3,00 4,00 3,40 with 20% of cost… Base scenario 3,50 2,50 3,00 2,00 2,50 1,33 2,00 1,26 1,00 1,02 1,06 1,11 1,16 1,32 1,51 1,60 1,50 1,09 1,50 0,93 0,89 0,85 0,82 0,80 1,00 1,00 0,50 0,50 - 0,00 Y-1 Y-2 Y-3 Y-4 Y-5 Y-6 Y-7 Y-8 Y-9 Y-1 Y-2 Y-3 Y-4 Y-5 Y-6 Y-7 Y-8 Y-9 Scenario-3: with 20% of cost over-run & 17,5% of CF (Year-1) The Debt Service Coverage Ratio (DSCR) is the ratio of 3,00 2,68 cash available for debt servicing to interest, principal and with 20% of cost over-run & 17,5% of CF 2,50 lease payments. (Year-1) It is a popular benchmark used in the measurement of an 2,00 entity's (person or corporation) ability to produce enough 0,76 0,77 0,80 0,83 0,87 1,03 1,20 1,26 1,50 cash to cover its debt (including lease) payments. The higher this ratio is, the easier it is to obtain a loan. 1,00 The minimum DSCR, particularly for new sector, for the banking acceptance is about 1.4-1.5 x 0,50 - Y-1 Y-2 Y-3 Y-4 Y-5 Y-6 Y-7 Y-8 Y-9 5
Case Study: Improving Project Bankability Indicative Ratio Remarks Indicator of project’s bankability Financing size = 30% With mezzanine portion, senior lenders will more secure or Senior debt comfortable to finance the project Limitation of senior debt portion due to new sector Using cash waterfall mechanism Using bullet payment mechanism for principal Financing size = 40% Reduce cash flow’s burden during senior debt’s Mezzanine tenor Using cash waterfall mechanism Equity sponsor still has room for excess cash Equity Equity size = 30% Using cash waterfall mechanism 6
Our case: financing Structure in RE project (e.g: Mini-hydro Power Plants) PLN PLN PPA PPA • Intl Institution Senior Loan Senior Loan SMI • SMI • PE overseas Private Equity Mezzanine Assets Assets Mezzanine • SMI overseas Project Project Equity Equity Sponsor Sponsor Project Finance: Mini-hydro Power Plant Project Finance: Mini-hydro Power Plant • • SMI and International Institution (Co-financier) SMI as a Senior Lender • as a Senior Lender PE as a Mezzanine Lender • On the next stage: PE overseas & SMI as a Mezzanine Lender 7
Typical Financing Structure of Renewable Energy Projects Typical Financing Source of Funds Financing Mix Institutions Banks • International Banks • Large Domestic Banks e.g. deposits (mostly short term for domestic • Local Branch of Foreign Bank banks) & capital market • Small-to-medium Domestic Debt Banks e.g. government, private investors ECAs e.g. multilaterals/ bilaterals member countries, Multilaterals/bilaterals capital market e.g. Government, multilaterals/ bilaterals, private Infrastructure Financing investors & capital market Institutions (PT SMI/IIF) Sub-Loan Quasi-Equity • Strategic Investors Mezzanine Equity • Private Equity / Hedge Funds e.g. private investors, multilaterals/bilaterals, capital market • Infrastructure Financing Convert Institutions (PT SMI/IIF) Equity e.g. climate funds, green funds, • Donors Grant adaptation/mitigation funds, multilaterals/ • Multilaterals/bilaterals bilaterals funds 8
Our Business Model PT SMI Business Pillars Sources of Funds Sectoral Focus FINANCING & CONSULTATION PROJECT INVESTMENT SERVICES DEVELOPMENT Project Electricity Transportation Telecommunication Infrastructure Capital Injection Development Financing Public Sector from GOI Facility (PDF) Advisory • Senior loan (Working PPP Project Capital, Investment Conventional Loan) Rolling Stock Oil and • Junior Loan PDF & Donor Funds of Trains Gas Capital Market • Mezzanine Management Training & Capacity (Bonds, Notes, • Equity investment Building Renewable Energy Project Drinking Securitizatio) Road and • Arranger & Underwriter Energy (Geothermal Exploration) Water • Standby Lender PPP Bridge Efficiency TA & Donor Funds Management Municipal Financing Irrigation Waste Management Investment (PIP/RIDF) Loans and Grants Advisory Municipal Projects (Conventional and Sharia) IMBT/Lease with Sharia Capital Option to Own Correctional Education Hospital Market Technical Infrastructure Infrastructure Murabahah/Installment Assistance Sale with Deferred BPJS, Sharia Payment Sharia * Financial Insurance Region Advisory Tourism MMQ/Diminishing Market Infrastructure (Conventional and Hajj & Syirkah Infrastructure Partnership Donor Funds Sharia) Funds Management MMOB/Restricted Investment Sovereign Wealth Social Infrastructure Fund * Islamic Business Unit is expected to be operational at the end of 2016 9 IMBT= Ijarah Muntahia Bittamlik MMQ= Musyarakah Mutanaqisah MMOB= Mudharabah Muqayyadah on Balance Sheet
PT SMI’s Sustainable Financing Initiative Sustainable Financing Focus Economical Social • New & Renewable Energy • Energy Conservation • Waste Management Product Sustainable • Loan Development & • Grant • Quasi Equity Facility Green Growth • Technical Assistance Strategy • Create strategic relationship with potential clients • Create strategic cooperation with multilateral institutions • Coordination with government institutions Environmental 10
PT SMI Eligible Sectors for Sustainable Finance Industrial and Domestic Municipal Waste Low Emission Waste Water Management Transportation Treatment System Drinking Water Social Irrigation Supply System Infrastructure New and Renewable Energy Energy Efficiency Biomas Green Smart Street Wind Energy Geothermal Solar PV s Building Lighting Energy Energy 11
PT SMI has Implemented Environmental and Social Safeguard PT SMI ESS Architecture Policy Procedures Compliance of the Environmental Evaluating E&S Risk and Social Rules and Regulations Transaction Screening ESS Governance and Management System Risk Identification Risk Categories E&S Due Diligence Biodiversity and Natural Resources Management Conditions of Financing Land Acquisition and Resettlement Monitoring E&S Risk Indigenous People and Cultural Heritage Reviewing Client/ E&S Performance Gender Policy Consultation and Grievance Managing non-Compliance Handling Mechanism Continuous capacity and capabilities improvement Monitoring and Reporting ESS: Environmental & Social Safeguards 12
Generic Partnership Model With International Institutions Capacity building Intermediary Fund Management Co-financing Model programme/ PDF Climate Climate Climate Structure the project & Fund / PT SMI Fund / Fund / manage TA Grant Donor Donor Donor Assign for fund Fund manager disbursement Fund Training Coordinator Fund management Co- financing Special/ Loan Loan PT SMI Esc. PT SMI repayment repayment Account Loan Loan Loan Loan/ repayment / TA revolving Grant Loan Low- Low- Low- Carbon Carbon Carbon Projects Projects Projects 13
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