Useful Project Preparation Guide

SOME STRATEGIC CONSIDERATIONS FOR POTENTIAL LENDERS

The Market and Commercial Environment

Lenders will require to get comfortable with the economics and strategic positioning of the asset compared to other similar projects in the region and adjacent regions;

Lenders will expect a comprehensive market study/business case addressing matters such as;

• Will growth come from growing markets or attracting customers from competitors
• What is the competitive position of the asset being financed (currently market environment and future shaping forces)
• Can ramp-up risk be mitigated? ? A project with new capacity may have a solid long-term business case, but how quickly can it attract new customers and grow net revenues to cover the investment costs? Can the developments be phased to align the asset base with the revenue profile?
• To what extent do longer-term agreements provide comfort to lenders? Do they truly mitigate volume and price risk or is an understanding of the underlying demand drivers the key to understanding asset value and cash flow generation strength?
• Sustainability of achievable margins against the backdrop of competing projects

Dependencies and Risks

The success of some projects is dependent on a number of factors which are out of control of the company. These include;

• The economic performance of the regional economy (performing at average pace currently)
• The performance of other entities within the value chain of the industry will impact on the performance of the new project
• Future competing projects in the pipeline
• Transportation logistics/strategic, commercial, operational & technical issues/factors impacting the project and subsequently project economics and viability

Construction and Operations Matters

Lenders will want to understand matters such as;

• What is the contracting strategy? Will there be a single civil and mechanical & electrical works turnkey contractor/Single Operations & Management Contractor OR managed work packages? If the latter:
• how will interface risk be managed?
• how will cost and scope risk be managed for works packages?
• Who will undertake the construction and what can they provide in the way of a security package?
• How land issues (title, planning, contamination, etc.) can be addressed satisfactorily?
• How technologically challenging are the works and what are the consequences if things go wrong (time, money…)
• The credibility and strength of the Sponsors and Management behind the project

Legal Framework

Lenders will need to understand:

• That the commercial agreements and regulatory environment are supportive of long term financing and development
• Whether there are any onerous or unusual provisions in the licences/permits and key project agreements, which pose risks to the continued operation of the business
• The level of co-operation discernible in the relationship between the business and the regulatory and licensing authorities
• What are the key terms of the main agreements and licences
• How the legal framework in the country supports exploitation of the opportunity by the Sponsors/new company
• Whether regulatory risks outside the licences and permits pose any risks to the Sponsors/new company