Energy Risk Awards 2016
Early last year, Deepwater Wind was facing a do-or-die moment. The Rhode Island-based offshore wind developer had only a three-month window to secure financing for its pioneering Block Island Wind Farm project, under the terms of its agreement with the turbine manufacturer, France's Alstom. Failing to secure the funds would be a blow not just to Deepwater, but to the nascent US offshore wind industry as a whole, which has struggled with lawsuits, delays in getting regulatory approval and other setbacks.
Luckily, Societe Generale was ready. Drawing on its extensive experience in financing offshore wind in countries such as the UK and Germany, the French bank fully underwrote the $298 million deal, then syndicated the debt after the financing closed. That made Block Island the first successfully financed offshore wind farm in the US. Construction is now under way in the waters between Rhode Island and New York state's Long Island, and the five turbine, 30-megawatt project is expected to be up and running by the end of 2016.
Federico Turegano, New York-based global head of natural resources and energy finance at Societe Generale, says the project involved many "difficult firsts" for the US market, not least assessing and managing the risks of planting such large structures on the seabed and navigating local homeowners' concerns about the impact of the wind farm on the view from their beachfront homes. "Each of these issues were addressed," Turegano says. "And the local population will benefit via reduced overall power prices."
Over the past 18 months, Societe Generale has tackled a huge variety of energy and commodity finance projects, requiring it to plumb the breadth and depth of its market expertise. These have run the gamut from large marquee projects with complex financing structures to simple refinancings for existing clients. Regardless of size and complexity, though, every deal is important to maintaining Societe Generale's status as a leading global commodity finance bank, according to Turegano.
"A small, recurrent deal such as financing cotton production in Burkina Faso is important," he says, referring to two €70 million ($79 million) facilities arranged in February 2015 and January 2016 for Sofitex, the West African country's largest cotton company. "Part of being a commodities lender is to make sure those recurrent deals are facilitated. It may not be as eye-catching as an offshore wind farm, but it is critical to our client and critical to that market."
Unlike some of its competitors, Societe Generale has stuck to commodity finance despite the headwinds of a severe downturn in commodity prices. Prices of Brent North Sea crude oil, even after a modest rally in recent months, are down more than 50% from their average level in 2014, and markets have also been weak in commodities such as copper, iron ore and cotton.
Societe Generale has worked with hard-hit clients to provide them with mutually acceptable financing deals, executing structures such as oil prepayments, in which an oil producer gets cash upfront for deliveries of crude in future. In January, for instance, it closed a $500 million, five-year prepayment deal with Russian oil producer Bashneft, with Switzerland-based commodity trading house Vitol serving as the physical offtaker and two Chinese banks – Bank of China and Industrial and Commercial Bank of China (ICBC) – participating in the financing. The deal was the only prepay financing in the Russian oil and gas sector in 2015, according to Societe Generale.
Bashneft praises Turegano's team for their execution of the deal. Societe Generale is "the only international bank able to lead such a landmark transaction because of its unrivalled expertise in the Russian energy market and a deep knowledge of Chinese investors", Julia Titova, head of corporate finance at the Russian oil producer, says in a written statement.
The Bashneft deal involved a "kind of structure that has been tried, tested and has demonstrated resiliency in the current environment", Turegano says. While the prepay was a relatively standard structure, the participation of Bank of China and ICBC reflects a growing trend; Turegano calls the entry of Chinese lenders into commodity finance deals the biggest change in the business over the past five years. Such players represent a huge pool of lending potential, and they also have a vested interest in participating in such deals, given the growing demand for commodities from China.
"It is only a matter of time before Chinese banks become major players in financing commodities, leading some of these deals," Turegano says. "Commodities are global, they move all over the world and the entities that buy commodities are increasingly those that will contribute to finance them."