Best Banks in Project Finance 2003

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High energy prices could prove to be a tonic for a market that has been under the weather for the past few years. Global Finance selects the winners from a shrinking group of banks with the appetite to take on some big risks.

THE PROJECT FINANCE market is stirring once again, following several years of declining activity and the exit of a number of major banks from the business. "We are seeing a surge of activity now," says Chris Beale, a managing director and global head of project and structured trade finance at Citigroup. "My people are working longer hours and going home later." Current high energy prices and a shortage of natural gas in the United States are fueling an upsurge in a wide range of energy-related projects, from LNG production facilities, ships and receiving terminals to oil and gas platforms and pipelines, Beale says.

The biggest energy projects planned will be in the Middle East and Russia, as well as in the rest of the former Soviet Union, Africa and Latin America, he says. The LNG import terminals will be built in the US and Europe. Meanwhile, the blackout in parts of the US and Canada in August is expected to eventually result in the upgrading of power networks. The energy patch is not the only area showing signs of recovery. Infrastructure is bursting with project activity, which is centered on Western Europe and the countries getting ready to join the European Union.

This year, Citigroup is once again the winner of Best Global Rank in Project Finance, as well as Best Global Telecom Bank, and it won top regional honors in North America, Latin America and the Caribbean, and Asia.

The only global giant in project finance left standing, as other major banks have retrenched, Citigroup continues to lead the market in every category, including advice, loans and project bonds. Many of its competitors have dispersed project finance staff to other areas and are approaching the market on an ad hoc basis.

The thinning of the ranks of financiers has made some major project sponsors nervous about debt capital drying up, Beale says. But the Japanese banks are coming back into the market, which is a good sign, he adds, and the pure investment banks occasionally lend using the project structure. Meanwhile, more sponsors are turning to local bond markets.

Taking advantage of its global reach, Citi-group has arranged more local-currency finance than its competitors, thereby greatly reducing currency risk to its borrowers.

Jeff Thornton, head of infrastructure finance at Royal Bank of Scotland in London, says worries about the availability of financing may be overdone. "Several recent projects have been heavily oversubscribed," he says. "There are also some new banks entering the market, and sponsors are relying more heavily on project-bond investors." Royal Bank of Scotland is winner of Best Global Infrastructure Bank and Best Bank in Western Europe. The latter region was the most-active area in the first half of 2003, with 43 deals worth $13 billion, according to Dealogic ProjectWare, which maintains a global database covering project finance transactions.

The largest deal to close in the first six months was Metronet's $4.87 billion London Underground PPP, or public-private partnership. Metronet, a private-sector consortium, will rehabilitate and maintain two of three groups of lines in the London subway system.

Not only was Royal Bank of Scotland mandated lead arranger for Metronet's PPP, but it also is advising on the proposed $13 billion Crossrail project, which will link east and west London. The project involves a purpose- built tunnel that will cut the journey time for conventional surface trains through the center of the city.

Analysts say there are plenty of new projects coming down the pike, with major petrochemical plants in China, an Egyptian LNG facility and renewable-energy projects such as windmill farms on the drawing boards. …