Annual survey/ world’s best project finance banks
Global Finance selects the winners from among the leading banks that create and implement financing plans for major projects around the world.
The project finance market is buzzing with activity, especially in Europe, where private-public partnerships are building infrastructure without stretching budgets beyond approved limits, and in the Middle East, where high oil prices are stimulating investment and new Islamic financing techniques are being introduced.
The growth of the project finance market has accelerated in the past 18 to 24 months, says Tom Hardy, global head of project and export finance at Royal Bank of Scotland. “Global liquidity is flooding over the market,” he says. A number of banks that had left the business in recent years are coming back in.
Global project finance loan volumes grew more than 50% to $88.8 billion from 182 issues in the first six months of 2006, according to Thomson Financial. Project finance borrowings in Europe, the Middle East and Africa accounted for a record $56.6 billion of the total from 97 issues.
High oil prices have contributed to a rise in the number of projects being started in the Middle East, Hardy says. Countries in the region are being much wiser in their investment of petrodollar inflows than they were in the last oil boom, and new projects are not only in the oil and gas industries but also in telecommunications, shipping and other sectors, he notes. “These countries realize that oil is not an infinite resource, and they are diversifying their economies,” he says. “This is happening in parallel with the rise and rise of Islamic financing. It’s good to see this progress being made,” he adds.
Saudi Arabia has surpassed Qatar so far this year as the leading country for project financing in the Middle East, but the outlook for future projects is bright across the countries of the Gulf Cooperation Council. With its major liquefied natural gas expansions, including Ras Gas II and III and Qatargas III, Qatar raised the highest volume of project financing in the region in 2005 with $20 billion worth of deals. It will soon become the world’s largest exporter of LNG. While the country has taken a breather from major projects so far this year, it plans to spend $130 billion in various sectors by 2012, says Philip Thorpe, CEO and chairman of the Qatar Financial Center Regulatory Authority.
A number of international banks are applying and receiving licenses to operate in the financial center to capitalize on the opportunities in Qatar and the region. Morgan Stanley and Barclays Bank received licenses in September, bringing the total to 21 firms. “Qatar has one of the world’s fastest-growing economies, and there will be plenty of new projects coming down the pike,” Thorpe says.
Meanwhile, project finance loan volumes in the Americas seem to be back on track, with $20.6 billion of proceeds in the first half of 2006, according to Thomson Financial. This was the highest mid-year volume for the region since 2001, when a total of $28.2 billion in proceeds was raised.
In selecting this year’s winners, the editors of Global Finance considered not only the capability of banks to structure and implement complex multi-billion-dollar project financings but also their willingness to take into account the environmental and social impact of the projects they enable. Among the factors considered were the banks’ quantitative performances over the past year, the banks’ market positions and their innovations in putting deals together, as well as the strength of their project finance teams.
We considered data provided by the banks and by leading international market research organizations, and we surveyed key project finance attorneys, consultants and other market observers. While our criteria included a bank’s position on league tables for project lending and financing, we also considered the institution’s ability to mobilize third-party resources and manage risks, as well as to provide good advice on a wide range of issues related to sustainable development.
ROYAL BANK OF SCOTLAND
Royal Bank of Scotland was the number-one mandated lead arranger of project finance loans worldwide in the first half of this year. With $7.4 billion of global loan proceeds during the period, the bank more than doubled its level of the same period a year earlier, according to Thomson Financial. Last year’s first-half total for the bank was double that of 2004’s first half. RBS is a leader in UK, European and international project finance loan proceeds. It was mandated lead arranger of a $1.25 billion loan agreement signed in April for the Al Hidd independent water and power project in Bahrain. Japan Bank for International Cooperation, or JBIC, also participated in the financing. This is the first loan that JBIC has extended in project financing for a project in Bahrain. The deal was significant not only because of its size but also because it was in the power sector, and not in oil and gas or refining. In Europe, RBS was a lead arranger of the Autobahn Tank and Rast restructuring. Terra Firma, one of Europe’s leading private equity houses, purchased the German motorway service operator in 2004. The company has 338 filling stations and 382 service areas with restaurants around the country. By moving the financing of the purchase from the leveraged market to the infrastructure project finance market, RBS helped Tank and Rast to benefit from sharper conditions.
ROYAL BANK OF SCOTLAND
Royal Bank of Scotland has completed more than 100 public-private financing transactions, including PFIs (public-finance initiatives) and PPPs (public-private partnerships). The concept started in the UK and has taken root on the European continent and elsewhere, where budget constraints have made it difficult to fund public infrastructure, such as schools, hospitals and transport. The RBS team understands the dynamics of these complex partnerships and has the most experience in the field. A New York-based group of RBS project finance specialists focuses on infrastructure in North America. RBS was lead arranger of the financing for the $3.8 billion Indiana toll road project, which closed in July. The deal sold well in the syndicated lending market. It was the nation’s largest highway privatization and is expected to serve as a model for other states as they turn to PPPs to help fund infrastructure projects.
The power sector was the most-active area for project finance lending in the first half of 2006, with some $24.6 billion of proceeds from 75 issues. Morgan Stanley was bookrunner to NRG Energy’s $5.6 billion project finance loan agreement that closed in February. Morgan Stanley announced in October that it plans to invest in approximately $3 billion of carbon emissions credits, projects and other initiatives related to greenhouse gas emissions reduction over the next five years. The majority of this investment will represent increased commitments to purchase carbon credits from projects. The European Union has implemented a successful trial phase involving capping and trading of emissions allowances across industrial and utility sectors through 2007. The Kyoto Protocol covers more than 160 countries and 55% of greenhouse gas emissions but has not been signed by the US and Australia. Denmark, Norway and the United Kingdom have carbon taxes. Norway and Japan have national emission-trading systems.
GLOBAL OIL & GAS
HSBC’s strong position in Middle East project finance and its key role in developing Islamic financing techniques have helped earn it the distinction of leading project finance bank in the oil and gas sector. HSBC was mandated lead arranger of the $9.8 billion Petro-Rabigh project financing in Saudi Arabia, which was one of the biggest oil refining and integrated petrochemicals projects in the world. Last year, HSBC was mandated lead arranger in connection with the $145 million project financing for Horizon Singapore Terminals Private’s construction of an oil terminal on Jurong Island in Singapore. This was the first project financing for Emirates National Oil in Asia and the first oil terminal to be financed on a project basis.
In June 2006 Citigroup underwrote a $442 million five-year loan for Tunisiana, Orascom’s mobile telecom subsidiary in Tunisia. The company has 2.5 million subscribers, and its network covers 99% of the country. Algeria-based telecom Wataniya selected Citigroup to advise on a limited-recourse financing in July 2005 to enable it to expand its mobile network across the country. Citigroup structured and led a $490 million multi-sourced financing that incorporated local-currency debt and guarantees from development finance institutions. Citigroup has demonstrated that it is fully capable of putting together complex project finance transactions in just about any part of the world.
Citigroup was the top mandated arranger of project finance loans in the Americas in the first half of 2006, according to Thomson Financial. Citigroup also was the leading bookrunner of project finance loans in the region, with more than $4 billion in proceeds from four issues in the same period. It increased its market share by eight points from last year’s first half. Citigroup was the bookrunner to NRG Energy’s $5.6 billion project finance loan transaction that closed in February, which was the largest transaction in the Americas in the first half of this year. Citigroup was instrumental three years ago in helping establish the Equator Principles, a voluntary code of conduct on environmental and social issues related to project financing. The principles were broadened and strengthened earlier this year. More than 120 members of the bank’s project finance and independent risk-management team are directly involved in implementing the revised principles.
LATIN AMERICA & CARIBBEAN
Morgan Stanley has been busy lately running a major bond-exchange program for Petrobras, the Brazilian state-owned oil company. John Mack, Morgan Stanley’s chairman and CEO, says the firm will concentrate on the big emerging markets, such as Brazil, Russia, India and China, as it goes after new business. Morgan Stanley placed second in the bookrunner rankings for project finance loans in the Americas in the first half of 2006 and was responsible for issues worth $3.5 billion, according to Thomson Financial. Morgan Stanley was the underwriter in March of a $162 million bond issue for Autopistas del Nordeste in the Dominican Republic to fund the construction and operation of a toll road, proving that projects can go ahead even in risky markets. The road will make it possible to travel from Santo Domingo on the southern coast to Samaná on the northern coast in a little over an hour.
ROYAL BANK OF SCOTLAND
Royal Bank of Scotland is the leading project finance bank in western Europe, as well as globally. The bank has expanded its project finance activity in continental Europe, as well as in central Europe and the Mediterranean region in recent years, where it is introducing the public finance initiative, or PFI, concept. It is helping to take projects off of the public-sector borrowing base and into the private sector. Meanwhile, its London-based project finance team has grown dramatically and has taken on additional people to deal with the growing deal flow. The bank’s structured-finance business operates in seven countries and 10 locations. RBS was the leading mandated arranger for project finance loans in Europe, the Middle East and Africa for the first half of 2006, just as it was in the year-earlier period, according to Thomson Financial. Its proceeds in the region rose to $6.1 billion from $4.8 billion in last year’s first half.
CENTRAL & EASTERN EUROPE
Société Générale Corporate & Investment Banking ranked third globally in mandated arranger league tables in the first half of 2006, with $4.3 billion worth of proceeds from 16 issues, according to Thomson Financial. The bank improved its ranking from number four in the same period of last year. Structured finance is one of the bank’s core strengths. In October 2006 it closed a $575 million refinancing facility for Maritza East III Power project in Bulgaria. Société Générale was sole mandated lead arranger and sole underwriter for the refinancing. Maritza East III is 73%-owned by Italian power company Enel and 27%-owned by NEK, Bulgaria’s state-owned electricity company. The transaction includes an unconditional first-demand guarantee from SACE, the Italian export credit insurance agency, for the full amount of the refinancing. The deal was structured to reflect the improved risk environment with Bulgaria’s accession to the European Union. It included funds to refurbish the generating system to ensure its competitiveness and the long-term future of the facility.
Mitsubishi UFJ jumped nine places to rank number two behind Royal Bank of Scotland in global project finance loans in the first half of 2006 compared to last year’s first half, according to Thomson Financial. The Japanese bank closed a total of $5.2 billion worth of project finance loan transactions from 33 issues in the first six months of this year. It helped close the biggest Asian transaction of the first half, the $1.9 billion project finance loan for eMobile. The transaction was the largest-ever non-recourse financing in Japan for a greenfield telecom project. The bank was a lead arranger of the commercial bank facility for the $9.8 billion Petro-Rabigh project in Saudi Arabia, one of the biggest oil refining and integrated petrochemical projects in the world.
Westpac Banking was the leading mandated arranger of project finance loans in Australasia in the first half of 2006, with proceeds of $668 million from five issues. Australia & NZ Banking was a close second. Australians were active project finance borrowers in the first six months of this year, with $4.1 billion in proceeds raised from 12 issues, according to Thomson Financial. Westpac in July committed itself to the revised Equator Principles, the voluntary set of guidelines that have been developed for managing social and environmental issues relating to the financing of development projects. The bank was a founding signer of the Equator Principles and the only Australian bank to have adopted them. The revised principles apply to all project financings with capital costs of more than $10 million.
MIDDLE EAST & AFRICA
GULF INTERNATIONAL BANK
Gulf International Bank is the leading provider of project and structured finance services in the Middle East & Africa region. The bank participated in both the Islamic finance and commercial bank portions of the financing for the Petro-Rabigh project in Saudi Arabia, one of the biggest oil refining and integrated petrochemical projects in the world and the largest in the region to incorporate long-term Islamic financing. The project’s capital of $9.8 billion is divided equally between Saudi Aramco and its Japanese partner, Sumitomo Chemical. In September GIB arranged a $235 million loan for Oman Gas to refinance the outstanding balance of a $410 million facility established in 2000. GIB arranges, finances and manages oil and gas, power-generation, petrochemical and manufacturing projects across the Gulf Cooperation Council states. The six GCC governments own 72.5% of the bank, while the Saudi Arabian Monetary Agency owns 27.5%. GIB’s net interest income rose 11% to $149 million in the first nine months of 2006 from the same period a year earlier. The increase was driven by the ongoing development of the bank’s project finance and specialized lending activities.