Financing Energy:

A Philippine Bank Perspective

Energy Investment Forum
4 December 2014

Edmundo S. Soriano
Executive Vice-President
BDO Unibank, Inc.

1
 OUTLINE
• Philippine Banking
• Then and Now
• Key Players
• Our Capacity
• Available Financing and Lending Criteria
• Challenges
• Conclusion
2
EDC Burgos 150 MW Wind Farm
GNPOWER MARIVELES 600 MW COAL-FIRED PLANT
EDC GEOTHERMAL POWER
Palinpinon, Negros Oriental
 BIOMASS POWER
San Jose iPower Corporation
San Jose City, Nueva Ecija

12 MW rice husk – fired

powerplant

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Status of local banking 15 years ago

Local banks could not fully compete with

foreign banks due to limited resources

High dependence on foreign financial

institutions, multilaterals (e.g. IFC, ADB) and
export credit agencies (ECA)

None or low risk appetite to take on

project-financing/limited or non-recourse
risk

Preference for short-to-medium term

exposure only
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Fast Forward

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Philippines- Loan Growth v GDP

9
 The banking industry has grown significantly following
several mergers and capital-raising activities
In Peso In Peso
Trillions Trillions

In Peso billions In Peso

Trillions

Source: BSP (Data is for all Philippine banks); as of March 2014

Loans and Receivables – net*
- Consolidated; in Php billions -

790

631
564

266 237
191 182 148 146 125

MBT BPI LBP PNB RCBC China DBP SECB Citi

• Consists of Loans to BSP, Interbank Loans Receivable, Loans and Receivables-Others,

and Loans and Receivables arising from RA/CA/PR/SLB
Capital Accounts of Asian Banks
Most Asian banks have high capital ratios
when assessed against regulatory
requirements. Philippine banks rank 2nd in
core equity Tier 1.

12
 Total Capital Accounts
- Consolidated; in Php billions -

159 • Banks strengthening Capital in

anticipation of Basel 3.
137 • SBL of top 3 (P98bn) top 10 (P188bn)

97
78 75
46 42 41 40 38

Metro BPI PNB LBP RCBC China UBP DBP SECB

YoY
Growth 56% 22% 11% 28% 4% 13% 15% 4% 2% 9%
(%)
Philippine Interest Rates 2000-2014

Favorable interest rate regime

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 Philippine banks’ exposure to the energy sector
indicates much room for growth

Outstanding Loans by Sector

4.90%
Agri, Fishing, Mining
Manufacturing
18.40% 12.90%
Electricity, Gas, Water
8.00%
19.80% 2.00% Construction
12.50% Trade
16.60% Transport, Comm.
Financial
5.10% Real Estate
Others

100%=Php 5.0 Trillion

Source: BSP (Data is for all Philippine banks); as of March 2014
BDO EXPOSURE – POWER GENERATION
0.20% biomass
0.02%
5.38% 10.81%
coal
1.00% 13.87%
diesel
17.52% distribution
51.2% geothermal
hydro
natural gas
wind
Current state of local banking
Notwithstanding global concerns, loan growth has
expanded in the past 5 years spurred by increased
economic activity and a better interest rate
environment
Local banks have grown more sophisticated over the
years in response to changing corporate and
consumer demands

Most local banks are adequately-capitalized and

have a higher capacity for lending

More pronounced technical know-how, particularly

in project finance/structured finance

Active investment banking- advisory, syndications,

underwriting, distribution
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Types of Available Financing to the Energy Sector

 Short-Term Facilities
• Working Capital Lines
• Bridge-financing
• Standby Letter of Credit
• Import Letter of Credit

 Project Financing (limited recourse)

 Commercial Term Loans (with recourse)

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Types of Available Financing to the Energy Sector

 Acquisition Financing

 Structured Trade Finance/ECA

 Leasing

 Capital Markets- Debt and/or Equity

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Financing terms may be customized according to
the Project’s requirements

• Size of financing not an issue

• Multi-currency facilities
• Combination of fixed rate or floater
• Can break up fixed-rate into various
tranches
• Local bank-financing combined with
ECA and Supplier-Financing
• No off-take agreement with Philippine
Government
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 Criteria for Lending
Optimal project design should
properly balance the risks and
rewards among all stakeholders

•Cashflows
•Sponsors
•Project •Project IRR
Completion RISK REWARD •Equity IRR
•Technical •Dividends
Risk
•Regulatory
BDO’s process will take from 6-8 weeks
from mandate to closing if there are no
significant issues with the project

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 Typical Project Structure

Fuel Supplier Off-taker

Assured market/stable Secure market/secure

supply supply

Equity Energy Power Debt

Project Sponsors Lenders
Company
Returns Debt Service
Enhanced order Long-term
book/Delivery of power contract/efficient
station power delivery

EPC O&M

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 Criteria for Lending
Stable
cashflows and
financial
ratios

Long-term
Stable fuel
Power Supply
supply
Agreements

Reputable Turn-key EPC

sponsors & contract with
reliable EPC performance
contractor guarantees

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Criteria for Lending (Renewables)

Peak-months should be sufficient to

cover revenues during lean months

Permits and licenses should be in place

(i.e. ECC, NCIP, NIA, etc.)

Hydrology, wind mapping, and

irradiation studies to be provided by
reliable technical advisors
If vying for FIT allocation, project should
be viable under a non-FIT scenario (i.e.
WESM)
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 Sample project-financing terms
TENOR Up to 10-12 years

STRUCTURE Bilateral or Syndicated

INTEREST RATES Fixed or Floating

Fixed: 5 + 5 + remaining balance
7 + 5 + remaining balance Subject to a floor rate
10 years + remaining balance
Floater: PDST-R + margin subject to a floor rate

CURRENCY US$ or PHP

REPAYMENT Sculpted or Equal Amortization

GRACE PERIOD Up to Commissioning Date (maximum of 3.5 years)

SECURITY a) 1ST-ranking Lien on project assets

b) Pledge of sponsors’ shares
c) Assignment of cash waterfall accounts and DSRA
d) Assignment of all contracts & insurances
COVENANTS DSCR (1.3x-1.5x); D/E (70:30); Dividend stoppers, etc. 25
 Challenges

 Limited equity
 Track record of project sponsors
 Credible local partners
 Incomplete legal and regulatory
approvals
 Sustainability of fuel supply
 New technology
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 Approval Process
BDO’s process will take from 6-8 weeks
from mandate to closing if there are no
significant issues with the project Financial Close

Documentation

Credit
Approval
Due
Diligence
Credit
Evaluation
Secure
Project
Pre-clear Mandate
Proposed
Project
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 Documentary Requirements
 Articles of Incorporation/By-Laws
 Information on Project Sponsors
 Project Feasibility Study
 Business plan and financial projections
 Site development plans
 EPC contract
 Off-take agreements
 Supply agreements
 Technical Reports
 Market Study
 Insurance & Risk cover
 Legal & Regulatory Clearances
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 Key Takeaways

Local banks are more sophisticated and can

address complex project-financing requirements.

Banks are more aware about the climate

change/clean energy discussion.

There is strong appetite for lending particularly to

the power sector due to foreseen supply shortage
across the 3 grids.

Competition will keep costs at reasonable levels.

Cashflow is KING for project-financing on a limited

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recourse basis.
A few words about my
Sponsor…

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 BDO is at the forefront of a fast-growing
banking industry

The Philippines’ largest bank in terms of assets, loans, deposits

and capital

A full-service universal bank with one of the widest networks

One of the country’s strongest Board of Directors in terms of

• Banking experience
• Corporate governance

Part of the SM Group with associated synergies and benefits

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 A market leader across major business
segments
Has leading market positions in its core business lines including
corporate and middle-market banking, consumer banking, credit
cards, asset management, remittances, and leasing and finance

Wide distribution network of over 800 branches and more than

1,800 on-site and off-site ATMs

Listed at the PSE with market cap of Php 386 B (@USD8.6B)

Corporate Banking team that focuses on local energy sector

Investment Banking expertise

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 A universal bank with full-service operations
Account Management Consumer Lending Branch Banking
 Corporate & middle  Auto  Deposit products
market lending  Mortgage  794 branches
 Trade finance  Credit Cards  1,800 ATMs
 Specialized lending  Personal loans

Treasury Trust Banking Transaction Banking

 Fixed income  Investment  Cash management
dealership management services
 FX transactions  Unit Investment Trust  Internet and phone banking
 Portfolio management Funds  Call center
 Living trusts  Retails cards (Cash Card &
 Remittances
Smart Money)
 Derivatives  Retirement funds
 Merchant acquiring
 Correspondent Banking
Investment Banking Insurance Private Bank
 Underwriting & distribution of  Brokerage  Investment & financial
fixed income & equity  Bancassurance advisory for high net
securities  Life and non-life worth individuals
 Financial advisory products offered thru  Structured investments
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Generali Pilipinas
 BDO’s Recent RE and EE Deals
P 270 million loan for energy P 500 million loan for HVAC,
Arranger for P 30 billion
efficiency of onion cold storage Motors, Lighting of Commercial
300-MW Coal
facility of PowerinPlant
a logistics Luzon Building in Makati
in Mindanao
P 40 million loan for a 0.318 MW
rice husk-fired co-gen project for P 800 million loan for 9.9 MW
a rubber production company in bio-mass (rice husk) project in
Bulacan Nueva Ecija

P 330 million loan for HVAC, P 1 billion loan for 8 MW mini-

lighting of a shopping mall in hydro project in Antique
Muntinlupa City province

P 7 billion 7 and 10 year P 1 billion participation in

bonds to partially fund 87 MW syndicated loan for 150 MW
wind farm in Ilocos wind farm in Ilocos 34
 BDO’s Recent Energy Deals
Arranger for P 30 billion 300-MW Arranger for US$ 280 million
Arranger for P 30 billion
Coal Power Plant of Therma 100-MW Coal Power Plant of
300-MW Coal
South in Power
MindanaoPlant Sarangani Energy in Mindanao
in Mindanao
Arranger for US$ 425 million
Arranger for P 17 billion
refinancing of 460-MW Coal
2 x 300 MW Coal Power Plant of
Power Plant of Quezon Power in
Sem-Calaca in Batangas
Quezon

Arranger for US$ 180 million 54- Arranger for P 13.8 billion 216-
MW Wind Farm of Alternergy in MW Co-gen plant of SMC Power
Pililla, Rizal in Limay, Bataan

Arranger for P 11.5 billion 2 x Arranger for P 8.7 billion 135-MW

150-MW Calaca expansion of Coal plant of South Luzon
Southwest Luzon Power Thermal in Calaca, Batangas
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 BDO has won several accolades* for its
strength & leadership in the industry

Leading Counterparty in the

Best Bank in the Philippines Philippines
Best Private Banking Services Overall
Best Retail Bank in the Philippines

Best Investment Bank in the Best FX Bank for Corporates

Philippines Best Investment Bank in the Philippines
Best Trade Finance Bank in the Best Equity House in the Philippines
Philippines Best Private Wealth Management

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*awards received in 2013
 Trusted Brand Gold Award
Best Bank in Asia
Best Bank in the Philippines
Best Private Bank in the Philippines
Best Equity House in the Philippines
Best Domestic Investment Bank in the Best Investment Bank in the
Philippines Philippines

Credit Card Initiative of the Asia’s Best CEO

Year
Asia’s Best CFO
Best Investor Relations Company
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*awards received in 2013
 Conclusion
BDO can provide short, medium and long-
term financing to creditworthy sponsors of
viable energy projects

BDO has dedicated Corporate and

Investment Banking teams that focus on
traditional and alternative energy projects.

BDO has a dynamic credit approval process

that ensures fast-turn around and
competitive terms.
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 Institutional Banking Group
Walter C. Wassmer
Senior Executive Vice President – Group Head 8407000 loc 4354-56

Edmundo S. Soriano
Executive Vice President & Head-Corporate Banking
Telephone: +63(2) 878-4848 Email: [email protected]

Cecilia L. Tan
Executive Vice President-Corporate Banking
Telephone: +63(2) 840-7000 loc 37808; DL+63(2) 840-78089
Email: [email protected]

Joseph R.B. Lledo

First Vice President
Telephone: +63(2) 840-7000 loc 6156 Fax: +63(2) 878-4399;878-4400
Email: [email protected]
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WE FIND WAYS!

THANK YOU.

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