Buyer Credit - Project Finance

Page updated 22 Mar 2010

The NZECO can play a key role in securing project finance by guaranteeing a project’s repayment risk.

How a typical NZECO backed project finance transaction is assessed, structured and executed.

An example of the structure of a project finance transaction is illustrated in the following diagram.

What information does the NZECO assess for a project finance transaction?

The NZECO considers project finance on a case by case basis, but typically requires the following information to complete a full credit assessment of transactions. We can provide an introduction to suitable advisors to assist firms prepare the documentation, application to the NZECO and attraction of debt.

• Project information including (where possible) feasibility study, market overview, forecast financial statements and NZ content of the project.
• Financing plan of the project setting out the proposed capitalisation structure. Typically projects have a minimum 40% equity component.
• Buyer information including shareholders, financial statements, and background on operations.
• Exporter information including shareholders, financial statements, and background on other completed projects.

How long does the process take?

As a key player in the finance of a proposed transaction the NZECO is typically involved well in advance of an application. We can provide an indication of our appetite, level of cover, indicative, non-binding premium pricing and potential information requirements.

The NZECO assessment process is dependent on the level of information provided, size of the deal and degree of risk. It can take as little as two weeks or possibly months for large project finance or direct corporate risk deals to be assessed and negotiated.

What are the typical terms applied by NZECO for a project finance transaction?

The NZECO operates on commercial terms, and to mitigate the Crown’s risk, some terms that may be applied after assessment to ensure appropriate risk-sharing among the partners of the project (including shareholders, exporters, suppliers and off-takers) include:

• A lower level of cover on the outstanding debt facilities. Typically the NZECO takes between 50% - 80% of the credit risk, and sometimes lower depending on the political risk rating of the country.
• Priority deduction from project revenues of operating costs and debt service.
• Third party guarantees (i.e. via project sponsors).
• Asset-based securities for proceeds/assets of the project (e.g. assignments, pledges, proceed accounts; e.g. ship chartering).
• Proven exporter participation that can minimise performance risk. If the NZECO is asked to provide cover during the project design and build, then NZECO will need to review the ability of an exporter to manage the project and of the sub-contractors’ businesses to deliver their respective goods and services.

What are the typical financing charges associated with a NZECO backed project finance transaction?

• NZECO extended repayment transactions attract an assessment fee which is 0.1% (up to NZD$40,000) of the credit amount sought. Part of an assessment fee may be rebated against the premium on a case by case basis. If an offer is accepted, a premium is then payable which takes into consideration the project risks, buyer’s country risks and buyer’s financial capacity to pay, and the exporter’s technical and financial capacity to complete the project.
• The banks charge interest rates, plus fees which can consist of a commitment, arrangement and administration fees.
• Legal fees (including the lending bank and NZECO’s) associated with the execution of all legal documents, and advisory fees.

These financing costs are additional and need to be factored into the total project cost to be borne by the Project Sponsor.

What should an exporter do if they think they have the potential for project finance transactions?

The NZECO recognises that there will only be a handful of valid enquiries for project finance transactions every year. When approaching the NZECO we want to understand an exporter’s business, products, and potential buyers. The NZECO may be able to provide referrals to suitable advisors to assist in the arranging of debt and equity, and also a non-binding indication of our level of support and pricing.

For further information read an article on how NZECO assisted Marinescape by supporting an EU 17m project finance transaction.