Monday, September 21, 2020

Mmamabula developers might dribble financial crisis to secure funding for the project

JOHANNESBURG: At a time when projects around the world that are project financed are suspended because of a squeeze from global credit crunch, developers of the Mmamabula Export Energy Project might avoid falling into the trap.
Executives for the largest greenfield energy project in Africa said here on Thursday that they are targeting sovereign lenders not commercial banks like what other projects developers are doing for source of funding.

“Definitely, the financial crisis will affect the building of new power plants. Most of them are financed through commercial banks and they have to suspend the projects,” Gregory Kinross, CIC Energy President and CEO, told select journalists from Johannesburg and Gaborone.

However, the promoters are looking at international development agencies that are not necessarily affected by the financial crisis. The credit crunch originated in the US Wall Street as a result of a collapse in mortgage backed securities.

“It will be a typical private sector funding. We are targeting international financiers that are not affected by the financial crisis. They are largely sovereign banks,” added Kinross.

The anticipated lenders are development finance institutions and other export credit agencies in support of export of goods and services from their host countries.

The project is expected to be financed by 80% debt and 20% equity and the promoters are already in talks with strategic partners including Independent Power Producers (IPP) for equity participation.
CIC Energy recently appointed NM Rothschild and Sons as its financial advisors for debt financing for the envisaged power plant.

The London based investment bank will be involved in all aspects of the project finance process, including participating in term sheet and loan documentation negotiations.

The expected capital costs for the Phase 1 of the project is $3 billion (about P24 billion) although other costs will arise during construction and escalations.

Some of the financiers that had previously been said to have interest in financing such projects include a leading global project financierÔÇöthe Japan Bank for International Cooperation (JBIC). There is a lot of appetite from South African banks to finance the project because it meets the environmental requirements.

Other financiers that might finance projects of socio-economic significance, like the energy project, are International Finance Corporation (IFC) of the World Bank and African Development Bank (AfDB).

“We are establishing our credentials as a Greenfield project. We are happy with the mix of equity partners. They will fill the gap left by commercial banks,” added Jennifer Feinberg, CIC Energy’s Executive Vice President-Finance.
“The project has a huge socio-economic impact on the region. CIC is in a strong position to negotiate with lenders. It meets environmental requirements,” Feinberg added.

As the promoters bring more equity partners, CIC Energy remains a publicly listed company in Botswana and Australian bourses.
The equity partners will only participate for the project while CIC Energy will be a minority shareholder in the project, but holding a majority shareholding in the coal reserves and mine. Coal reserves are estimated at 3 billion tones and can support 6000 MW power plant for 40 years.

Kinross said CIC Energy will operate the mine while a strategic partner will be responsible for the power plant. “Lenders want power plant operators that have experience in running power plants”. CIC Energy already has a partnership with International Power (IPR) and recently the two signed a successor agreement on top of Project Development Agreement (PDA) they already had.

Under the PDA, IPR affiliates have subscribed for shares representing 50% ownership interests in each Meepong Energy and Meepong Resources.

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