Commodity finance house of the year, Asia: Societe Generale

Energy Risk Asia Awards 2019: French bank plays critical role in funding Asia’s energy transition

daniel-mallo
Daniel Mallo, Societe Generale

Few banks could match Societe Generale in 2019 for the breadth and scale of its involvement in Asian commodity financing.  The French bank worked across multiple sectors – oil & gas, power, renewables, and metals & mining – in a wide range of countries, in every area of financing, from arranging to structuring and hedging services. Moreover, it didn’t run scared from some groundbreaking projects that had little historical precedent. Many of the projects the bank worked on are now helping to transform the energy landscape in Asia.

A good example is Taiwan’s 640 megawatt (MW) Yunlin offshore wind project, the largest such project financing in Asia-Pacific to date with $3.08 billion of project finance debt. It is only the second offshore wind project in Taiwan, but paves the way for many more as the country moves away from coal and nuclear towards renewables. Societe Generale – which also helped finance the first project – served as the mandated lead arranger (MLA), hedge provider and leading foreign bank to issue Taiwan dollar-denominated green bonds in Taiwan.  

Advances in wind power technology are making offshore wind power a more viable option across Asia now. Maximum output per turbine has jumped from 3MW a few years ago to 8MW currently. The Yunlin project will consist of 80 turbines of the 8MW class and will be situated eight kilometres off the Taiwanese west coast.

However, while advances in technology improved the viability of the project, financing something on this scale that is so new to the region and where capital markets tend to be less liquid, was a huge challenge, says Daniel Mallo, head of natural resources and infrastructure, Asia-Pacific at Societe Generale.

While there is plenty of local liquidity in Taiwan, tapping funds from local banks can be difficult. Out of more than T$170 billion ($5.57 billion) in debt financing raised in the past 16 months for such projects, around 80% came from international investors. “The challenge on the financial side has been, how do you channel that [local] liquidity, and how do you bring those banks gradually into this sector to continue to fund the development?” says Mallo. Educating Asia-based investors is key to this, he notes. 

Taiwan’s move towards offshore wind is likely to be followed by Japan, South Korea and Australia in the coming years. “This is an asset class that is going to go from zero a little over a year ago, to a handful or more countries in a few years’ time,” says Mallo. “The fact that [it] is now on the rise in Asia is an exciting development.”

But, while renewables are making in-roads in Asia, it is likely to be liquefied natural gas (LNG) that sits at the heart of Asia’s transition to a lower carbon economy.  A standout LNG project this year was the Jawa 1 LNG-to-power project in Indonesia. Societe Generale led the funding of the $1.8 billion greenfield project with a new funding structure that included a contingent hedge element to mitigate interest rate risk between signing and drawdown.

With increased supply driving LNG prices down, gas-fired electricity generation has made a comeback as a competitor to coal, meaning such transactions can serve as a template that can be replicated across the region. “This has the potential to really grow as a regional asset class across South-east Asia and south Asia,” says Mallo.

Another important deal for the bank this year was the Dargues Gold Project in Australia. This was structured in a way that allowed Diversified Metals to continue developing the Dargues greenfield gold project while being flexible enough to allow it to continue exploration and development of other highly prospective tenements.

Societe Generale also acted as MLA in a landmark prepayment deal with JSW Steel. This was a unique structure for India allowing the growing producer to tap alternative liquidity sources. The deal set a precedent as the largest trade finance facility yet for an Indian steel company at $700 million, which involves reimbursing the prepayment with physical steel over the next five years.

The bank also acted as MLA in a refinancing of Talison Lithium’s Greenbushes mine. The financing required a tailored approach to meet supply-chain requirements and mitigate sales risk while supporting capital expenditures that will double production capacity.

As a critical part of the value chain for batteries that power both electric vehicles and renewable energy storage, the deal is another example of one that will aid the global transition towards a low-carbon economy. “We tend to focus on producers that are best in class from a technology and environmental and social footprint standpoint,” says Mallo. “That is a consideration in terms of the long-term sustainability of their operations.”

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