09 February 2017

From proprietary copper extraction technology to lighting up Egypt, FLOW takes a closer look at four of the Deutsche Bank deals that scooped best deal in the TFR Deals of 2016 awards.

During 2016, no fewer than 24 Deutsche Bank trade finance deals completed in 2015 were recognised in the industry media’s clutch of Deals of the Year awards – all judged by panels of industry experts for innovation, social purpose, clever risk mitigation and continued support to trade.

As Daniel Schmand, global head of trade finance said at the time, “This recognition is testament to the professionalism and expertise within the teams and the ability to provide innovative financial solutions to our clients”.

Now that TFR has published its full list of winning deals for 2016 (with other media sector awards following on shortly), flow has taken the opportunity to share more detail about the Deutsche Bank transactions that stood out from the crowd.

The TFR Deals of the Year awards separate fully commercial deals (in other words those with no government or development finance institution underwriting) from export finance deals. Despite the impact of low commodity prices and sluggish trade growth, the flight to quality in 2016 stood out in the 120 deals that did come into the magazine, so for Deutsche Bank to win two in each category is a notable achievement.

Fangyuan Group

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Deutsche Bank and ING structures this US$385m pre-payment in a market many feared to tread, aligning this copper producer’s finance with its operational demands

Banking Chinese metals takes rather more than iron grit in a climate where, two years after multiple loans were secured against the same collateral in China’s Qingdao port, a bottoming out of commodity price lows was not enough to banish some rather unpleasant memories.

However, this is the third year in a row that Fangyuan Group, has tapped the syndication market and the alacrity with which lenders participated (the deal was oversubscribed by 54%) only goes to show how much the structured commodity trade finance market rewards track record. While this 2016 transaction was raised in the offshore syndication market, the 2014 and 2015 deals tapped the onshore market. 
 
In 2016, Deutsche Bank, together with ING as mandated lead arrangers (MLAs) and book runners, led the syndication for this US$385m working capital financing following the global transaction bank’s commended US$145m three-year onshore outing in June 2015. This has firmly established the Chinese producer’s profile in the SCTF market, and enhanced its reputation with major international trading houses such as Trafigura and Mercuria.

As one of the lowest cost producers in the world, thanks to its access to energy savings, proprietary technology (such as its “oxygen bottom blowing” technique for processing complex ores using less energy and with zero emissions), and overall efficiency, Fangyuan Group is the fourth largest copper producer and the largest privately owned copper producer in China. Its proprietary extraction technology is also highly sought after, and the group licenses this to carefully selected strategic partners such as Chile’s state-owned copper mining company Codelco.

Capacity is 821,00 tonnes a year, and it comprises two core operating entities:

  • Dongying Fangyuan Non-Ferrous Metals Co, Ltd (a copper refinery with a production capacity of 221,000 tonnes per annum.
  • Dongying Lufang Metals Materials Co, a copper smelter/refinery with a production capacity of 600,000 tonnes per annum.

Transactional highlights

This was the largest SCTF syndication for a Chinese copper producer to date, and astutely leveraged Fangyuan Group’s allotted Short-Term Foreign Debt Quota (STFDQ) under China’s new cross-border foreign currency cash-pooling scheme.

An oversubscribed syndication brought in new international lenders and the reassurance that this facility would get smoothly repaid was evidenced in not only the security package consisting of a pledge of future account receivables under the off-take contract and a pledge over the cash deposits in the collection accounts but also a personal guarantee from the chair, Cui Zhixiang, and a payment guarantee from the off-taker’s parent.

Commenting on the deal after it was announced on 16 September 2016, Liu Xiaohui, CEO at Fangyuan Group said, “Deutsche Bank and ING Bank’s outstanding structuring and syndications capabilities combined with their proven track record gave us the confidence that they would help us raise funding in an innovative way. This successful collaboration between the banks and Fangyuan Group takes into consideration our actual needs in terms of supply, production and consumption and, therefore, is very much aligned with the requirements of our asset conversion cycle. As such, it is a perfect illustration of the benefits attributed to structured finance facilities for the development of productive enterprises.”

Panel comment

“Well structured deals for Chinese borrowers usually deserve attention because it is not easy for international banks to do business with Chinese corporates given challenges around transparency”

Key facts

Borrower: Fangyuan Group
Nominated by: Deutsche Bank AG, ING Bank NV
Region: China
Deal: Pre-delivery finance
Purpose: Working capital requirements
Signed: 22 September 2016
Amount: US$385m
Tenor: One year

Participants: Deutsche Bank AG (co-MLA and bookrunner with ING Bank NV, facility agent, security agent and account bank). Other lenders: ING Bank NV, Société Générale, ABN AMRO Bank NV, First Gulf Bank PJSC,  Nanyang Commercial Bank Limited, The Korea Development Bank, Banca Monte de Paschi di Siena SpA, ICICI Bank Limited, China CITIC Bank International Limited, Sumitomo Mitsui banking Corporation (SMBC)

Legal adviser: Simmons & Simmons

Offtaker: Mecuria (China) Metal Resources Co

Tengizchevroil

oil

Once Tengizchevroil’s latest expansion project gets underway, Kazakhstan will be pumping out 260bbl/d of the black stuff by 2022, thanks to a landmark US$3bn pre-export financing package.

Discovered in 1979, the Tengiz oil field covers a 2,500 km2 project licence area on the north-eastern shores of the Caspian Sea in Kazakhstan. Operated by Tengizchevroil, a limited liability partnership formed between the Republic of Kazakstan and Chevron Corporation in 1993 to explore and develop the giant field, TCO now comprises Chevron (50%), ExxonMobil (25%), KazMunayGaz (20%), and LukArco (part of Lukoil, 5%).

TCO is the holder of an exclusive production licence to develop and market the production of what is widely recognised as a supergiant, low-cost oil field, which, together with a second, smaller field (Korolev) has an estimated nine billion barrels of recoverable oil.

As explained on the Chevron website, the integrated Future Growth Project-Wellhead Pressure Management Project (FGP-WPMP) is designed to “further increase total daily production from the Tengiz reservoir and maximise the ultimate recovery of resources”. Using sour gas injection technology that was developed during TCO’s earlier expansion in 2008, daily output could rise to as much as 260bbl/d. The first oil from this project is planned for 2022.

Structure of the transaction

Deutsche Bank AG, Amsterdam Branch and Societe Generale (nominating banks of this deal) together with ten other international banks acted as mandated lead arrangers and book runners for the US$3bn, seven-year hydrocarbon products pre-export financing facility (PXF) in favour of TCO. This is where a loan is made to a producer or exporter of commodities based on the value (price and quantity) of commodities to be sold and delivered to an eligible off-taker. Key to the structure is that the ultimate credit risk remains with the exporter, who must ensure that the size and timing of shipments are sufficient to meet the debt service requirements. Even if the off-taker defaults, the exporter is legally obliged to repay the loan.

In this deal, the PXF is secured by the export proceeds from TCO’s sales of crude oil, liquefied petroleum gas, and sulphur, all to be paid into offshore pledged collection accounts. In addition, TCO has unconditionally and irrevocably guaranteed all the repayment obligations. It was a landmark transaction for Kazakhstan, TCO and the PXF syndicate, and it was hardly surprising that the deal was oversubscribed well in excess of the borrower’s fundraising target.

Impact and outcome

Deployment of the PXF has paved the way for the successful return of TCO in the capital markets following its early bond issue in 2004 to fund its Sour Gas Injection/Second Generation Plan (SGI/SGP) project. With the PXF facility providing a strong backbone to the overall fundraising strategy, TCO went on to raise a successful eurobond in July 2016. Capital projects such as this one are big generators of Kazakh-supplied content, with SGI-SGP engaging more than 200 Kazakh companies and workers.

Panel comment

“Chevron’s 20-year Kazakh adventure continues with the quality of this oversubscribed PXF demonstrated by no fewer than 12 banks”

“I believe this deal deserves an award because of size and tenor, combined with the complexity that comes with working with some of the largest oil companies in a context of uncertainties around the oil price and impact on Kazakhstan”

Key facts

Borrower: Tengizchevroil Finance Company International Ltd (TCO)
Nominated by: Deutsche Bank AG, Societe Generale
Region: Kazakhstan
Deal: Pre-export financing
Purpose: Part of a US$21.5bn capital expenditure financing package to allow TCO to further develop the Tengiz field and significantly increase its production
Signed: July 2016
Amount: U$3bn
Tenor: Five years with potential sixth and seventh year extensions

Participants: Banca IMI SpA, Bank of China Limited (senior MLA and bookrunners);  BTMU, Citibank, Deutsch Bank AG; HSBC Bank plc, ING Belgium SA, JP Morgan Chase Bank NA, Mizuho Bank Ltd, Societe Generale, SMBC, UniCredit Bank Austria AG (MLAs and bookrunners); Mizuho bank Ltd (facility agent).

Legal adviser: Latham Watkins LLP (lenders); Sullivan & Cromwell LLP (client)

Egyptian Electricity Holding Company

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Photo: ©www.siemens.com/press

Black-outs soon to be a thing of the past in Egypt thanks to these two Euler Hermes-covered power plant financings optimising Siemens technology.

In June 2015, Egyptian Electricity Holding Company (EEHC) Egypt’s state-owned energy group active in power generation, transmission and distribution, awarded a consortium of Siemens and Egyptian partners Orascom Construction and Elsewedy Electric a €6bn mandate to supply and build three combined cycle plants. The new plants are located at Beni Suef, Burullus and New Capital and their 3x4,800MW capacity adds about 45% to the power generation capacity in Egypt

The implementation of these mega projects in November 2015 (Beni Suef) and March 2016 (Burullus and New Capital) required funding of unprecented amounts. The €1.2bn Beni Suef project (signed 15 December 2015) was commended in TFR’s ECA category in February 2016 with Burullus and New Capital (signed 9 March 2016) being treated as one two-part winning deal in the same ECA deal category for 2016.

Egypt has struggled with one of its most serious energy crises for decades. As one of the most populous countries in Africa and the Middle East, at around 85 million, population growth in Egypt is relentless and forecasters predict that by 2050, it will have more than 187 million inhabitants.

This has a predictable impact on the demand for energy and other resources. In August 2014, the Guardian reported how parts of the country were facing around six power cuts a day for up to two hours at a time.

Commenting his government’s energy challenge, JE Dr Mohammed Shaker, the Egyptian Minister of Electricity and Renewable Energy said, “The role of energy in economic development is undeniable. This is why we are committed to efficiently meeting Egypt’s growing energy demand through balancing supply and demand, optimising the country’s natural resources such as natural gas and renewable energy, as well as ensuring a competitive energy sector through technology and know-how transfer.”

Structure of the transaction

When the wider three-project deal was first was first contemplated, there were no recent precedents or proxies in the market to determine market interest or pricing levels.

Deutsche Bank, in its role as coordinating initial mandated lead arranger (shared with HSBC and KfW Ipex-Bank) and coordinating bookrunner, arranged and syndicated the loans to 17 international banks. The loans were backed by Euler Hermes, the world’s largest trade-related credit insurer.

In addition, for the first time, Deutsche Bank assumed the role of environmental lead bank and managed a complex environmental and social project due diligence process.

Panel comment

“Although structured as a traditional ECA backed facility, these deals stand out because of a combination of size and the 15 year tenor, which are both impressive for a challenging credit such as Egypt”

Key facts

Borrower: Egyptian Electricity Holding Company SAE
Nominated by: Deutsche Bank AG, Banco Santander SA
Region: Egypt
Deal: Export finance
Purpose: To finance 85% of the Siemens AG contract value and 85% of the Euler Hermes premium amount in respect of the construction of a 4,400MW combined cycle power plant project (CCPP). The individual project costs of Burullus and New capital are €2bn each, including the Siemens element of around €1.2bn in each one.
Signed: March 2016
Amount: €1.16bn (Burullus), €1.19bn (New Capital)
Tenor: 15 (3+12) years

Participants: Deutsche Bank AG, HSBC Group, and KfW Ipex-Bank (CIMLAs); Banco Santander SA; Crédit Agricole CIB Paris; Commerzbank; ING Bank; JP Morgan Chase Bank; Landesbank Baden-Württemberg; UniCredit Bank AG; Societe Generale (MLAs); AKA Ausführkredit-Gesellschaft mbH; Bayerishe Landesbank; BNP Paribas Fortis; DZ BANK Deutsche Zentralgenossenschaftsbank; Heleba Landesbank Hessen-Thüringen Girozentrale (lead arrangers); IKB Deutche Industriebank AG (arranger)

Facility agent: KFW Ipex-Bank
ECA: Euler Hermes
Contractors: Siemens, Orascom Construction

Legal adviser: Allen & Overy

Qaiwan

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Four firsts for this Iraqi Kurdistan Region Coface-guaranteed financing to meet the country’s growing power demand.

The largest diversified industrial conglomerate in the Iraqi Kurdistan Region, Qaiwan owns and operates the Bazian refinery, one of the two refineries in the Kurdistan Region with a 35.000 barrels per day refining capacity, and is also active in the power generation, real estate and hospitality sectors.

The Qaiwan Group, founded in 1993 as a privately-owned company in Sulaymaniyah, is also active in the power generation, real estate and hospitality sectors.

 Regarding power generation, on 24  November 2013 its Qaiwan Company for Construction and Electrical Construction subsidiary signed a 15-year power purchase agreement with the Ministry of Electricity of the Kurdistan Regional Government for both the supply of gas and fuel and the off-take of electricity for a period of 15 years. In August 2014, a contract was signed with Turkish engineering, procurement and construction (EPC) contractor ENKA for the construction on a turnkey basis of a natural gas-fired 442MW simple cycle mode power plant in Bazian. This has the potential to be increased to 662MW in combined cycle mode.

In October of that year, General Electric signed a contract with ENKA to supply power equipment in the form of four model 9E gas turbines for the combined cycle power plant.  Commenting at the time, Saad Hassan, Qaiwan’s CEO said, “The Bazyan power plant is expected to address the growing demand for power in the Kurdistan region. Our objective is to enhance its operations through a combined-cycle plant with reliable and advanced technologies that contribute to greater efficiency in the long run. GE’s gas and steam turbines are an ideal fit to our requirements.”

Structure of the transaction

Deutsche Bank, the mandated lead arranger (MLA), structuring bank and facility agent arranged an eight-year US$75m buyer’s credit, with Bankmed – a Dubai International Financial Center based branch of the Lebanese bank Bankmed SAL – as co-MLA and co-lender in support of the GE contract and backed by Coface, the French export credit agency.

The buyer’s credit was part of a broader financing package also consisting of a US$ 30m five-year loans provide by GE, the gas turbine manufacturer. Dubai-based CT&F was financial adviser to Qaiwan on the entire financing package.

It attracted the attention of the judges because of four firsts: the first Coface-supported loan, the first senior unsecured loan obtained by a local corporate and the first GE vendor financing in Iraqi Kurdistan – and it is the first corporate debt for Qaiwan Group.

Furthermore the financing was transformational – it enabled Qaiwan to start the construction of the power plant before obtaining the financing, and refinanced Quaiwan while the power plant was reaching completion at the start of 2016.

"These transactions underscore Qaiwan Group's position as a model firm, operating with transparency and accountability, and one with robust operations. It also indicates that our growth strategy is one that engenders confidence from the international community," said Hasan.

Panel comment

"This is the ECA doing exactly what it should be doing. Helping banks go to places where they normally would fear to tread. Iraqi Kurdistan region deals are rare because they are difficult. Among the few transactions that have closed this year in Kurdistan, this one stands out because of its size and private nature of the borrower”

Key facts

Borrower: Qaiwan Company for Construction and Electrical Construction:  (Qaiwan)
Nominated by: Deutsche Bank AG
Region: Iraqi Kurdistan region
Deal: Export finance
Purpose: To co-finance a US$75m Coface-backed loan for the supply of four model 9E gas turbines to the Bazian simple cycle power plant in Kurdistan.
Signed: January 2016
Amount: €75m
Tenor: Eight years

Participants: Deutsche Bank AG (MLA, structuring bank and facility agent); Bankmed Dubai (MLA, lender)

Facility agent: KFW Ipex-Bank
ECA: Coface
Contractors: General Electric

 

Note that John MacNamara, Global Head of Structured Commodity Trade Finance and one of the judges of these awards (along with representatives from Citibank, Societe Generale and the law firm Clyde & Co),  will be speaking at the TFR Cross-border Trade Forum 2017 where these awards will be presented on 9 March 2017 in London, UK.

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