Article – Export Credit Agencies the key to Roy Hill funding

7 May 2014
Charles Macdonald
Australian Journal of Mining
Executives from investment bank BNP Paribas reprised details of their advisory and funding role in the US$10bn Roy Hill iron ore project this week, at a press briefing.

According to Didier Mahout, chief executive Australia and New Zealand for BNP Paribas, the key to success in Roy Hill’s US$7.2bn debt financing package – billed by the bank as the world’s largest non-recourse mining project finance deal – was securing the involvement of five export credit agencies (ECA) from Korea, Japan and the USA.
“The critical element was to break the ice with the ECAs,” he said, suggesting that created “the mood and credibility” that saw commercial lenders from around the world fall into line.
In the event, a consortium of 19 commercial banks signed up, with the five ECAs, to fund the deal. NAB, ANZ, Commonwealth and Westpac were enthusiastic participants, with three of the four making the largest commitments to the package.
“ECA banking is quite new in Australia but BNP Paribas has the insights and access to key ECA which put us ahead of the pack,” said Bruce Spencer, BNP Paribas’ key mining investment banker, in explaining his organisation’s snaring of a co-financial advisory role (with NAB) on the Roy Hill deal.
According to the BNP Paribas team, the Korean and Japanese ECAs’ motivations in participating in the deal were not commercial but in terms of their national interests. They wanted a high quality source of iron ore out-with BHP Billiton and Rio Tinto.
The Export-Import Bank of the United States signed up on a “tied” basis, its participation conditional on locos and mining trucks being procured from US facilities.
Spencer said that the Roy Hill transaction was a demanding one to put to bed.
“The complexity of the deal came from the volume of debt and the high level of due diligence needed for lenders to become comfortable,” he said.
Roy Hill will ramp up to 55mtpa of production, with first production scheduled for September 2015.
Samsung is delivering a fixed price, fixed time EPC contract for the project.
BNP Paribas has 600 staff in Australia. The Australian branch of the company is active in funding mining deals, predominantly in Australia and Indonesia, but also in broader Asia and in Africa. The company has banked in Australia for 130 years, and for a century was the sole foreign bank operating in Australia.
BNP Paribas’ snaring of a plum role in Roy Hill built upon the company’s close relationship with Hancock over the latter’s Hope Downs project.
In terms of future deals in the mining space, BNP’s executives said they favoured commodities with no substitution issues, such as iron ore, coking coal and copper.
Courtesy of the Australian Journal of Mining