Best banks in project finance in 2001

Global Finance, Oct 2001 by Glasgow, Bo

Global Finance scopes out the top players in a global game that requires a special kind of fortitude and finesse. By Bo Glasgow

Today the premier project financiers, in spite of-and in some cases as a result of-unsettling economic conditions, are enjoying opportunities and meeting challenges presented by dynamic trends. Those indude the expanding global reach of both corporate and financial institutions; widespread infrastructure privatization; the fusion of formerly distinct commercial and investment banking; the desire by sponsors and project stakeholders to maximize earning streams and lighten balance sheets, while at the same time retaining maximum flexibility in navigating capital and credit markets. And at the core of seminal project finance activity lies the practically insatiable appetite for developing new power and energy-related sources.

In this universe inventiveness in financial instruments takes no back seat to creativity in the fine arts. A curator at the Museum of Modern Art in New York might trumpet conceptual art, cubism, abstract expressionism; but the leading project finance banks will say touche and counter with one-offs, asset pools, synthetic leases, political risk covers, risk management derivatives, limited nonrecourse obligations, tranches or special trusts, credit enhancements or securitizations-take your pick. It's an easy matter to declare a draw as long as the bet is property hedged, leveraged, or secured.

Since there are probably only a dozen or so banks that have the wherewithal-the reach, the resources, the commitment, and the intention-to fully participate in the globally interconnected financing of project financing, and given the fact that some historic players are scaling back their efforts, the field of award candidates narrows to the rarified few. We based our final calls on their prominence in the league tables, their innovative and trend-setting realizations, and the high regard in which they are held by industry colleagues and experts.

In addition, a unique characteristic interdependence in global project finance produces the unusual situation where banks are fierce competitors on one deal and dedicated partners on the next. A typical deal involves a revolving consortium of multiple banks sharing and parsing out varying role assignments: financial adviser, loan arranger or provider, bond bookrunner, or manager. Winning a regional award, therefore, does not in any way imply the bank in question is not also strong in other regions.

GLOBAL-CITIGROUP

Again Citigroup is our global winner as best bank. Citi is unsurpassed for the sheer breadth of its business. Last year it arranged for $38 billion of project finance in more than 50 countries. The bank is innovative in small and big deals alike. It continues to perform all functional project finance roles as well as manifest a strong presence in all regions and in all manner of league tables, with projects in telecom, power, oil and gas, infrastructure, and water industries, tapping international and local capital sources in the loan and bond markets, and utilizing first-time credit enhancements from export credit agencies, multilateral agencies, and development banks as well as from private sector insurers.

"Firsts" have a familiar ring for Citi: first collateralized bond obligation of global and emerging market project assets, worth $350 million, selected from its own inventory, anchored with a 7% equity stake, and employing two tranches with separate insurance wraps; first "blind" pool, for Trust Company of the West (TCW), to buy $500 million in unspecified future global project assets, again using "wrapped" tranches stacked on top of a layer of TCW and outsider investor equity; and, first currency deal guaranteed by a local export credit agency, for an $80 million bond denominated in Kenyan shillings, floated and distributed in Kenya to help Sefaricom (60% owned by Telkom Kenya, 40% by Vodafone) pay for Siemens equipment manufactured in Belgium.

Citigroup also arranged a $1.3 billion American National Power megafinancing for merchant power portfolio of five plants with a total capacity of 4,029 megawatts; two individual independent US power plants,TECO-Panda, with 4,340 MW of combined capacity, financed together to leverage separate streams of cash; and it concluded the first project financing of nuclear-power generating assets (Entergy Nuclear Holding Company), which assigned merchant power and interest rate risk to lenders and operating and nuclear risk to the sponsors.

Further Citi accomplishments: Chilquinta Energia Finance, which used a monoline insurance wrap from MBIA to refinance Chilean and Peruvian electric distribution companies; advisory on the Chad-Cameroon Pipeline, the largest sub-Saharan project finance undertaking ever; Globe Telecom, the largest multisourced nonrecourse telecom financing in the Philippines to date. Global Citibank's ample balance sheet and Salomon Smith Barney's immense distribution capability make a formidable force, indeed.