Project Finance

Driving Green Growth with Smart Partnerships

EU-Malaysia Switch-Asia Programme 26th September 2011

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Smartadjective

“1. (of a person) clean, tidy, and well dressed: you look very smart– (of clothes) attractively neat and stylish: a smart blue skirt– (of an object) bright and fresh in appearance: a smart green van– (of a place) fashionable and upmarket: a smart restaurant2. informal having or showing a quick-witted intelligence: if he was that smart he would never

have been tricked– (of a device) programmed so as to be capable of some independent action: hi-tech smart

weapons– chiefly North American showing impertinence by making clever or sarcastic remarks: don’t

get smart or I’ll whack you one

3. quick; brisk: he set off at a smart pace”

Oxford Dictionary

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Partner

noun

“a person who takes part in an undertaking with another or others, especially in a business or firm with shared risks and profits”

Oxford Dictionary

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HSBC Climate Partnerships

“As a global company, HSBC understands that it has a strong role to play in the fight against climate change. In this turbulent time, the importance of maintaining a long-term focus is even greater. Organisations of this scale should embed the principles of sustainability into their business and respond strategically to the new risks and new opportunities.”

Lord Stern, Special Adviser to the HSBC Group

Chairman on Economic Development and Climate

Change

Launched in May 2007 as a 5-year global programme on climate change to inspire action by individuals, businesses and governments.

HSBC is committing US$ 100 million into the programme to tackle impacts of climate change on people, forests, water and cities

Groundbreaking partnership between HSBC and four environmental charities

HSBC has been carbon neutral

since 2006

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The HSBC Renewable Energy teamExtensive M&A, equity and debt experience

Renewables Sector Leadership

Senior LeadershipRussell Julius

Head of Global Banking, Asia-Pacific, Hong Kong

Peter O’Malley

Head of REG, Asia,

Hong Kong

Siobhan Smyth

Global Head, Renewable Energy

London

Alexander Nassuphis

Managing Director, REG

London

Che Ning Liu

Head of Global Banking, Hong Kong and China

Hong Kong

Note: REG denotes Resources and Energy Group; DIG denotes Diversified Industry; PF denotes Project Finance; EF denotes Export Finance

Regional Sector Management

Project and Export Finance

Rohan Ranavat

Associate, REG

Hong Kong

Robert Todd

Director, Renewable Energy, Asia

Hong Kong

Jaume Pujol

Managing Director, Renewable Energy, Europe

Spain

ECM DCM

James Cameron

Head of PF, Asia

Hong Kong

Christopher Green

Head of EF, Asia

Hong Kong

Rod SykesHead of DCM, Asia Pacific

Hong Kong

Anne Kao

Managing Director, REG, Hong Kong

M&A Advisory

Tom Lanners

Co-Head of Equity Capital Markets, Asia Pacific

Rui NieManaging Director

Head of China, ECM

Siwei Cheng

Associate, DIG

Hong Kong

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Other

Equity Capital Markets

HSBC provides global expertise in the alternative

energy sector across multiple banking products

HSBC Principal

Selected recent alternative energy experience

2009

US$475 million placement

Placing agent

Advisory

2010

Listing of K-Green Trust by way of introduction

Issue manager

2010

US$82.8 million

Follow-On primary equity issuance

Co-Manager

2007

€76 million

Backstopped accelerated bookbuild of primary shares

Sole Lead Manager / Bookrunner

2011

Approx. €11.4 billion

Proposed merger by absorption of Iberdrola Renovables, its listed renewable energy arm

Financial Advisor

2010

Approx. €260 million

Combined Equity and convertible bond rights Issue

Financial Advisor

2010

Principal Investments invested $50m in the manufacturer of the world's first commercially viable solid oxide fuel cells

Principal Investor

DCM

2011

RMB 150 million

Offshore bond to finance a China Clean tech project

Sole Lead Manager and Sole Bookrunner

2011

RMB 750 Million

First offshore public wind energy bond issue in Asia

Sole Lead Manager and Bookrunner

2010

Better Place

Principal Investments led $350m round of equity financing for Better Place and took a 10% stake

Principal Investor

2009

JV Partnership to develop 2,000MW of wind/hydro plants

Sole Financial Advisor

2011

US$245 million

Advisor to S-Oil on itsacquisition of 33.4% stake in HK Silicon

Financial Advisor

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HSBC research

HSBC’s expertise in the Cleantech sector is

complemented by #1 ranked Global Clean Energy

Research team

Selected companies covered by research

Recent awards

Renewable EnergySector research coverage

Specialist salesIntegrated Climate Change

Sector research Coverage

Leading Brokerage Individual for Integrated

Research on Climate Change

Nick Robins

#1Extel

rankings

Clean Energy research team

Robert Clover

Global Co-Head of Clean Energy Research

United Kingdom

Nick Robins

Head of the HSBC Climate Change Centre of Excellence

United Kingdom

Christian Rath

MidCap Research

Germany

Joseph Jacobelli

Global Co-Head of

Clean Energy Research

Hong Kong

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Leading project finance franchise

Award winning and market leading project financing and

Renewables business

HSBC leads from 2006-2010 the PF Financial Advisor

League Tables

Source: www.ijonline.com

Power and Renewables PF Financial Advisor (2006-10)

Advisor Amount (USDbn)1 HSBC 18.52 SBI Capital Markets 16.93 BNP Paribas 14.34 Citigroup 13.8

Source: Project Finance magazine, 2010

Euromoney Award 2009European onshore Wind Deal of the YearRotor Wind Farm HSBC role: MLA / Structuring bank

Source: The Banker,October 2010

• Most innovative Investment Bank for Infrastructure and Project Finance

• Most innovative Investment Bank for Corporates

• Most innovative Investment Bank for Bonds

• Most innovative Investment Bank for Islamic Finance

Selected renewables project finance transactions

2010 Regional awards • Best Project Finance House

• Best Loan House

• Best Bond House

• Best Debt House Source: The Asset Triple A Awards, 2011

2011

92MW wind energy project which is India’s largest project financed wind power financing and first to be ECA supported

Structuring Bank& MLA

2011

GBP340m

100 MW of solar panels on social housing across UK

MLA, Swap Provider and Market Bank

2010

€543 million

Palma Saetilla Solar Thermal Project in Spain (150MW)

MLA & Co-ordinator Bank

2010

€354 million

Solacor 1 & 2 Solar Thermal Project in

Spain (100MW)

Structuring Bank& MLA

2009

GBP340m

220MW Wind Power Portfolio (194MW offshore)

Mandated Lead Arranger

2010

US$80 million

Baicheng Wind Farm

China

Mandated Lead Arranger

Renewable financing franchise

HSBC has consistently led the execution of ground breaking

financing transactions in Renewable Energy including

Renminbi bond financing

Exemplary transactions for HSBC clients

Date Highlights

March 2011

First financing of large scale roof-top solar PV in the UK on non-recourse basis100MWp project across the UK through 38,000 2.6Kw installations with free installation and free electricity for tenants, 25y guaranteed FiT for SPVHSBC equity partnership through HSBC Environmental lnfrastructure fund (40%)

March 2011

China WindPower Group Limited debut bond offering in international debt markets and the first ever offshore public wind energy bond issue in AsiaDespite an uncertain market backdrop, the bond priced at the tight end of price guidance, and was upsized from RMB 500 to 750 million on the back of strong demandHSBC acted as Sole Lead Manager and Bookrunner on this landmark transaction

April 2010

49.95MW wind farm in Baicheng China utilizing Suzlon turbinesFirst non-recourse financing for a wind farm closed in China under the Chinese frameworkFirst RMB denominated financing in ChinaHSBC acted as sole structuring bank, joint-MLA, facility & security agent, account bank

March 2011

92 MW Jangi wind farm project is one of the largest wind IPPs in IndiaThe largest wind power financings in India on a project finance basis and the first ECA supported Indian wind sector transaction HSBC acted as mandated lead arranger, swap counterparty, agent for the commercial facility and EKF facility, security agent and account bank

First ever offshore public wind energy bond issue in Asia

First financing of large scale UK distributed project finance

First RMB denominated non-recourse wind financing in China

First ECA supported Vestas wind farm in India

Most innovative Investment Bank for Infrastructure and Project Finance

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Low carbon markets forecast to show strong growth

Estimated market size of low-carbon themes in 2020 (USD bn)

203 192

0 8 18

11387 93

14 10

544

368

731

93

677

245

183

6623

Renew ableelectricity

Nuclear CCS Renew ableheating

Biofuels Transporteff iciency

Buildingeff iciency

Industrialefficiency

Energystorage

Smart Grids

2009 2020

Low-carbon energy production Energy efficiency and management

Source: HSBC estimates

According to forecasts the low carbon market is

expected to triple in size to US$ 2.2 trn by 2020, from

c.US$740 bn in 2009

This growth will be driven by energy efficiency and

management, in particular hybrid and electric vehicles,

as well as strong growth in renewable energy (slower

growth vs. Energy Efficiency due to policy risk and impact

of EE)

The fastest growth is likely to be focused in emerging

markets, which offer superior economic growth

and strengthening regulatory frameworks for low carbon

energy

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Technology cost comparison under current commodity pricesLevelised cost of electricity (LCOE) of different power generation technologies

Full cost comparison of different power-generation assets (EUR/MWh)Levelised cost of energy (US$/MWh)

Source: Bloomberg New Energy Finance

0 50 100 150 200 250 300 350 400

Marine-w aveMarine-tidal

PV-c-SiPV-thin f ilm

PV-c-Si trackingSTEG-parabolic trough+storage

STEG-parabolic troughWind-offshore

Biomass-anaerobic digestionBiomass-gasficationBiomass-incineration

Wind-onshoreLandfill gas

Municipal solid w asteGeothermal-binary plantGeothermal-f lash plant

Natural gas CCGTCoal f ired

LCOE Carbon emission Mediam cost

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Who are your Partners?

1. Government

2. Shareholders

3. Technology Provider(s)

4. EPC Contractor

5. Material and fuel Suppliers

6. Debt Providers

7. Offtaker(s)

8. Maintenance Provide

9. Transport providers

10. Service consultants e.g. taxation accounting, audit etc

• Communities, families, schools, etc

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Government

The role of Government is important and it role is keenly watched by financiers

•International Protocols, conventions, treaties etc.

•National legal system

•Taxation systems

•Energy Policy

•Green Energy Policy

•Policy into laws and regulation– Targets are fine, but action by example and investment is better– e.g. Buying green power, national equity investment pools, residual risk management– Forms of Assistance: Fuel, FIT, direct subsidies (land, funds, etc), taxation provisions, grants, loans,

insurance (backstop, liability assumption, provision, etc), ownership, demand quotas

Developed with input from all industry groups

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Shareholders

• Identity

• Relevance

• Skills

• Passive or active

• In the supply chain?

• Community

• Terms, exit mechanisms and valuations

• History

• Realization and return horizons

• Part of the Management team – Critical link

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Partners’ roles - Clarity brings Certainty

The Project Level – Contractual Terms

•Structure: Simple, with minimal risk of interference/untoward change. Scalable?

•Capital costs and recurrent costs: Obligations to complete and operate as stated?Pass through of penalties? How will the plant manage declining industry unit costs. Fixed vs operating, operating costs more important where energy consistency and offtake is not certainOften a focus on capital costs and insufficient allowance provided for working capital (6 months min)

•Feedstock supplyTenor of contract, 3 -5 years, failure to supply leads to. Measurement (wet corn waste?)Quality assuranceDiversity of supply or alternativesTransport and logistics

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Clarity brings Certainty

• TechnologySelection, source and securityImpacts on the level of financing support and the fixed cost baseRepresentations and warranties, good and enforceableCost per MTMaintenance, by whom, when and predicateble

• Site – Cost, certainty, approvals etc

• Infrastructure support: eg. transmission infra to grid.

• Income: Min debt servicing assuming downside case. Subsidy certainty.

• Returns: ROE and payback period vs debt tenor

• Non-recourse: Equity preference, lenders objective.

The details are important and the more that are “missing” the greater concerns and perception of risk

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Offtake Terms

• The FIT is a great step forward and will provide a high level of certainty

• Power Purchase Agreements Start Date – CODPayment terms, delayed payment, calculation Billing and metering by whom, etc. Dispute resolutionTermination paymentsPerformancePass though of penaltiesAssignableStepSales of plantTenor and right of review

The focus of financiers

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Disclaimer

HSBC Bank Malaysia Berhad (“HSBC”) has prepared this document (the “Document”) for information purposes only. This Document does not constitute a commitment to underwrite or purchase or subscribe for all or any portion of the securities mentioned herein. Any such commitment shall be evidenced only by a fully executed subscription agreement, purchase agreement or similar contractual document. This Document should also not be construed as an offer for sale of or subscription for any investment, nor is it circulated to invite/solicit any offer to purchase or subscribe for any investment.

HSBC has based this Document on information obtained from sources it believes to be reliable but which it has not independently verified. HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability for the contents of this Document and/or as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Document. HSBC and its affiliates and/or its or their respective officers, directors and employees may have positions in any securities mentioned in this Document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and/or any of its affiliates may act as market maker or have assumed an underwriting commitment in the securities of any companies discussed in this Document (or in related investments), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform banking or underwriting services for or relating to those companies. As HSBC is part of a large global financial services organisation, it or one or more of its affiliates may have certain other relationships with the parties relevant to the proposed activities as set out in this Document, and these proposed activities may give rise to a conflict of interest, which the addressee hereby acknowledges and which will be addressed accordingly.

No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. This Document is not a substitute for, and should not be regarded as, an independent evaluation and analysis and does not purport to be all-inclusive. Each recipient should perform and is deemed to have made its own independent investigation and analysis of the Project, the Shareholders, the Sponsors, the Guarantor and all other relevant matters. This Document, which is not for public circulation, must not be copied, transferred or the content disclosed, to any third party and is not intended for use by any person other than the addressee or the addressee's professional advisers for the purposes of advising the addressee hereon.

HSBC Bank Malaysia Berhad, 2 Leboh Ampang, Kuala Lumpur, Malaysia.

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