Commodity finance house of the year: Societe Generale

Energy Risk Asia awards, 2018: standout financing deals reflect growing appetite for renewables and new approach to risk

Daniel Mallo, Societe Generale

Societe Generale (SG) takes the award for commodity finance house of the year on the back of a portfolio of standout deals in the region, across renewables and power, mining and metals and oil and gas, which combine capital-raising, structuring and risk management expertise. 

The bank has financed more than 6GW of solar, wind and hydro generation in Asia-Pacific over the past three years, and is leading the charge in new technologies, says Daniel Mallo, managing director and the bank’s Asia-Pacific head of natural resources and infrastructure.

The region is fast catching up with Europe and North America in its embrace of clean energy, as is illustrated by Taiwan’s first offshore wind farm, the 128MW Formosa 1 project, under development by Australia’s Macquarie Capital, Danish energy firm Ørsted, and local developer Swancor. SG played a lead role in arranging a NT$18.7 billion (US$12.24 billion) financing to fund its construction – the first such financing in the region. 

“This is a new asset class being born in the region,” says Mallo. “We expect it to mushroom and develop rapidly,” he adds, citing ambitious plans for offshore wind build-out in South Korea, Japan and Australia.

While the financing utilised expertise that SG has developed in offshore wind projects in Europe and North America, Formosa 1 posed unique challenges, while also opening up new pools of capital to clean energy investment.

“Taiwan is unlike any other place in terms of its exposure to extreme weather,” notes Mallo, meaning that the funders had to get comfortable with the ability of the project engineering to withstand strong typhoons, and ensure both that appropriate insurance is in place, and that the project can maintain sufficient contingency funds to sustain it through weather-related shutdowns.

This is a new asset class being born in the region. We expect it to mushroom and develop rapidly

Daniel Mallo, Societe Generale

In addition, the wind farm’s power purchase agreement will be denominated in Taiwanese dollars; for project financings of this nature, banks generally raise debt overseas and swap it into the local currency. However, going forward, the bank has set up an onshore green bond-funding programme: “This project is clearly not a one-off – this will be the first transaction of a large series. This will allow us to lend to the offshore wind industry by issuing green bonds in the local market in Taiwanese dollars.”

While it is playing catch-up in offshore wind, the region is leading the world in other clean energy technologies. Australia is blazing a trail in the deployment of large-scale battery storage alongside renewable energy projects, helping to overcome the intermittency of power generation that is dependent on wind or sun. 

Earlier this year, SG acted as mandated lead arranger, hedge provider and bank guarantee provider on the A$235 million (US$166.7 million) project financing of the Bulgana Green Power Hub. The project, undertaken by French renewable energy developer Neoen, combines a 194MW wind farm with a 20MW/34MWh Tesla lithium ion battery.  

“Renewables remain subject to the vagaries of the wind blowing or the sun shining. This is taking renewables to the next step … making them not only a sustainable source of energy, but also more reliable,” says Mallo.

The financing of the Green Power Hub – the first such transaction including a Tesla battery in the Asia-Pacific – is mostly secured against cashflows from the wind farm. However, Mallo says it also includes revenues earned by the battery for grid balancing services, as well as taking into account how the battery can enhance project profitability by arbitraging the power market, charging when prices are low and dispatching during times of peak demand.

“Societe Generale’s extensive structuring capabilities and support with the smooth financing of this project has helped make this possible and get us where we are today,” says Franck Woitiez, managing director, Neoen. “I hope we can see this model replicated elsewhere in Australia and across the globe.”

Societe Generale has also demonstrated its capabilities in more conventional commodity markets – with strong deal flow. “We’re in a much more conducive commodity price environment compared with 2015 to early 2017,” says Mallo. “As a result, there’s more M&A activity and the industry has refocused on bringing new production to market.”

On the first front, he gives the example of Jadestone Energy, a Singapore-based oil and gas development and production firm, for which SG extended a 2.5-year, US$120 million reserve-based loan that allowed it to acquire the Montara oil field in Australia. Hedging “a meaningful portion of production” forward allowed Jadestone to maximise the debt it was able to raise.

Meanwhile, there is more appetite to fund expanded commodity production. Mallo cites an additional US$50 million of project financing that SG helped raise into the Tujuh Bukit Gold Project in Indonesia, building on US$130 million raised by the bank in 2016. “We were able to upsize the debt by bringing in new lenders who wouldn’t have participated three years ago.”

“There’s definitely a change in tone,” Mallo adds. “There’s more appetite for risk on the commodity side. It’s a good barometer for where the industry stands.”