Challenging year for Oz project finance
East's third annual survey of Australasia's Project and Structured Finance markets has just been completed, following 158 interviews with senior executives from 48 firms sponsoring major projects in both Australia and New Zealand.
The survey canvasses their views on the performance of banks and legal firms working on 48 projects varying in size from as low as A$50 million to over A$5 billion. It covers some A$9.8 billion worth of transactions, constituting 95 percent of the total market in the 2001/2 financial year.
East's research finds that average deal value fell sharply from A$405.3 million in 2000 to A$215.7 million in 2001 (a 46.8 percent drop) and by another 5.3 percent to A$204.2 million in the year to October 2002.
In the year to October, 36.6 percent of projects were of A$1 billion or over, 30.3 percent were valued at between A$501 million-1 billion, 22.2 percent between A$101-500 million, and 11 percent at A$100 million or below.
East predicts that although pricing tightness is expected to continue in 2003, deal flow and value is expected to climb by around 20 percent to A$12 billion. Average transaction values, however, are expected to remain static.
The report's findings include:
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The top 3 lead project arrangers, by value, are Citibank/Salomon Smith Barney (19.9 percent), Barclays Capital (18.5 percent) and the National Australia Bank (16.5 percent).
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The top three mandated project advisors (a positioning many players are looking to develop) are Macquarie (14.6 percent), Citibank/Salomon Smith Barney (10.4 percent), and ABN Amro (8.3 percent).
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Among legal firms, Blake Dawson Waldron has the largest share of lead legal advisory positions with 14.6 percent, followed by Mallesons (12.5 percent) and Henry Davis York/Minters (10.5 percent).
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Macquarie Bank is the standout performer in the three categories rated as most important by project sponsors out of 29 factors surveyed. These categories are Execution Responsiveness, Quality of General Advisory People, and Knowledge of Market risks. Citibank/Salmon Smith Barney is rated second in each of these categories.
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Project sponsors are increasingly seeing benefits in having their debt rated, with 45.6 percent seeing this as critical or important in any project finance. The agency of choice is increasingly Standard and Poors, which is preferred by 65.2 percent of sponsors.
Commenting on the report, East and Partner's principal analyst Paul Dowling noted a "clear mismatch" between what project sponsors rate as important, and what lead managers are delivering.
Dowling noted that knowledge of the asset type was rated as the 4th most important service attribute out of 29 attributes, but was rated 4th worst in terms of performance.
The top rated performance attribute was responsiveness in transaction execution, but this was also rated as the 4th worst in terms of lead arranger performance.
"Sponsors also rated the Relevance of Other Banking Relationships as the least important factor, which is interesting given the growing focus by the banks on cross selling products," said Dowling.
"That result must cast doubt on the big investments banks are making in building institution-wide relationships with their clients.
"It seems that project sponsors are sophisticated enough to pick and chose which banks they want for different areas, and are resisting attempts by their bankers to become 'one-stop shops' in this area."
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