NEW INVESTORS DRIVE PROJECT FINANCING
The largest fully nonrecourse project finance deal of 2014, in fact the largest ever, was the expansion of a liquefied nitrogen gas (LNG) facility near Freeport in Texas. Besides its sheer size, approximately $11 billion, the deal embodies key trends in the project finance space, which is expanding but not without challenges for traditional players.
In the first nine months of 2014, global project finance lending totaled nearly $178 billion, according to Thompson Reuters’ Global Project Finance Review. The figure represents a 17.9% increase from 2013. The most active market was Europe, the Middle East and Africa, though it actually suffered a 1.3% decline. The Americas experienced the biggest jump, nearly 60%. “Globally we have seen a very active transportation sector, as well as social infrastructure like universities, prisons, hospitals,” says Denis Stas de Richelle, global head of infrastructure and asset-based finance at Société Générale Corporate and Investment Banking. “In Europe, however, there’s been a reduction in the number of projects coming to market, largely because of public spending constraints in many countries.” These also hamper the enormous potential of developing countries, especially in Africa.
There are several notable elements of the Freeport LNG deal, which was handled by Australian firm Macquarie Capital. First of all, in an environment with too few projects and too much cash chasing yields, it was oversubscribed by more than a billion dollars. Additionally, the first stage of the project is financed by the Japanese government, via the Japan Bank for International Cooperation, and Japanese, or Japan-based, commercial banks, from the ever-present Sumitomo Mitsui Banking Corporation to The Bank of Tokyo-Mitsubishi UFJ to the Tokyo Branch of ING Bank. “We have seen a reshuffling of the competition,” says Carlos Milans del Bosch, global head of structured finance for BBVA. “Asian banks lead everywhere, and there are a number of local banks, like the State Bank of India, that are defending their position at home and slowly expanding into new markets.”
IFM Investors—a global fund manager owned by 30 pension funds—committed $1.3 billion in equity for the second phase of the Freeport LNG deal—demonstrating another broader market trend, the increasing participation of institutional investors. “There is a lot of liquidity around, which means increased competition from nonbank sources and continuous pressure on pricing and structures,” says Michael Dinham, head of infrastructure finance for ING Commercial Banking. “Banks are getting squeezed on the other side too, as governments still use multilateral bodies like the European Investment Bank to fund infrastructure even where there is ample private capital available.”
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