How to attract ECA and project financing to frontier MENA markets: Qaiwan Case Study

1. How to attract ECA and project financing to frontier MENA markets: Qaiwan Case Study

2. History of the Group • The Qaiwan Group was established in the 1990’s as a privately owned company in Sulaymaniyah, Kurdistan Region of Iraq. The Group’s first line of business was in the general trading activities. • Over the past 20 years the group has witnessed remarkable growth to expand into other sectors: Oil & Gas, Power and Energy, Real Estate, Hospitality, Electronics and Transportation. Qaiwan Group Holding (QGH) Downstream Oil & Gas Power Generation Real Estate Sector Retail Transportation Sector Sign PPA for 750 MW Combined Cycle Power Plant Bazian Refinery Agreement & Phase 1 commissioning SKY Hotel & Slemani Mall Qaiwan City Commenced Qaiwan City Phase 1 Complete Partnership with Hitachi Start Rotana Hotel Group Establishment 2012 2013 2007 2004 2011 2003 2016 2008 2013 2014 2003 2012 2008 1993 2005 2009 Establishment of Oil Trading entity Bazian Refinery Phase 2 complete Bazian Power Plant Simple Cycle Commissioned Open Branch in Dubai First Real Estate Project Commenced Bazian Refinery Phase 2 commissioned Qaiwan Global Energy DMCC Incorporated Oil Trading Company Commenced

3. Bezhan Power Plant Key Highlights • 750MW Combined Cycle Plant, comprising 500 MW of Simple Cycle Gas Turbines commissioned in Q4 2016 and 250 MW Steam Turbine currently under development. • The off take for the produced power will be the Kurdistan Regional Government (KRG), Ministry of Electricity (MoE). • Qaiwan has developed, designed, constructed and will operate the Plant for the duration of the PPA and is responsible for inclusion of up to 20km gas pipeline, overhead lines and interconnections. • The plant will primarily utilize Gas fuel and Light Fuel Oil (diesel) as a back up fuel. • PPA with MoE is for 15 years from Commercial Operation Date of Steam Turbine, ensuring 16 years of revenue since Gas Turbines will be commissioned 1 year earlier. • Debt finance of $105 million disbursed in February 2016, comprising $75 million COFACE supported ECA loan with Deutsche Bank and Bankmed as MLA’s. GE also arranged a $30 million commercial loan which was disbursed in Q4 2015.

4. Case study: raising LT financing in Iraq: complexities (1) • In 2013, Qaiwan worked on the development of a 750 MW combined cycle gas-fired power plant in the Kurdistan Region of Iraq; • It resulted in a long-term Power Purchase Agreement (PPA) signed with the Kurdistan Regional Government in November 2013; • In the second quarter of 2014, CT&F was officially mandated by Qaiwan to structure and raise long-term financing for the project; • Raising financing supposed to cope with a number of complexities related to Iraq, the Kurdistan Region of Iraq and the project;

5. Case study: raising LT financing in Iraq: complexities(2) • Scarcity of financing: CT&F and Qaiwan quickly concluded that local bank financing in Iraq was not available, that Gulf-based or international banks had a very limited risk appetite for any project in Iraq, and that one of the most attractive sources of funding would consist of leveraging the supply contracts with turbine manufacturers to obtain support from their respective Export Credit Agencies (ECAs) in France, Italy or Switzerland to structure long-term financing for the gas turbines; • Very restrictive official policies from ECAs towards countries like Iraq: Official credit policies of ECAs on Iraq (no official policy for Iraqi Kurdistan) consisted of only approving loans to local corporates backed by a sovereign Iraqi guarantee or an acceptable state-owned Iraqi bank guarantee; any such guarantee would be impossible to obtain for a group active in the Kurdistan Region of Iraq for obvious political reasons; • Intense time pressure: the PPA was already signed and imposed on Qaiwan very strict deadlines in terms of project completion; in order to meet these deadlines, Qaiwan had to make a final selection of the EPC contractor and of the gas turbine supplier in order to start construction; Qaiwan was in discussion with two potential EPC contractors from Turkey and with three turbine suppliers: Ansaldo (Italy), General Electric (France) and Alstom (Switzerland);

6. Case study: raising LT financing in Iraq: innovative approach (1) • After a detailed analysis of Qaiwan’s financial performance over the 3 previous years, CT&F concluded that Qaiwan, thanks to its sound balance sheet structure and profitable business, could be eligible for senior unsecured financing (i.e. balance sheet lending, without collateral and / or external guarantee); • CT&F and Qaiwan, based on such conclusion, decided to approach and visit each relevant ECA (SACE in Italy, SERV in Switzerland, COFACE in France) with a detailed presentation of the sponsor Qaiwan, the power plant project, to request for the proposed financing structure; • Over a number of weeks, CT&F and Qaiwan conducted extensive discussions with each ECA (and their respective Ministries of Finance) in order to convince them, based on factual and financial arguments, that Qaiwan should be eligible for senior unsecured financing; • Furthermore, due to the above-mentioned time constraints, CT&F insisted that each ECA would have to approve the principle of a “refinancing”, i.e. instead of disbursing the loan by effecting payments to the selected turbine supplier, ECAs would approve that Qaiwan would move ahead with the project before the loan would be available, and that the loan, once in place, would be used to refinance payments already made by Qaiwan to the selected turbine supplier, which is rather unusual for ECA financing;

7. Case study: raising LT financing in Iraq: innovative approach (2) • Over the summer of 2014, CT&F managed to obtain letters of support from all three ECAs confirming their acceptance of the senior unsecured approach and of the refinancing principle; • After obtaining such letters of support, Qaiwan was able to finalise negotiations and select the EPC contractor and the gas turbine supplier; • During such negotiations, CT&F and Qaiwan also started discussions with the gas turbine supplier about additional supplier financing on the same senior unsecured basis as accepted by the ECAs; these discussions resulted in a term sheet signed with GE for a USD 30 million senior unsecured vendor loan, that would fund Qaiwan’s project in addition to a COFACE-supported financing for the gas turbines; • On that basis, in August 2014 Qaiwan signed the EPC contract with ENKA, Turkey, and the gas turbine supply contract with GE, France; • CT&F and Qaiwan, based on the letter of support of COFACE and the signed term sheet with GE, started to approach in parallel a number of international banks with an invitation to arrange the COFACE-supported loan and selected Deutsche Bank as lead arranger towards the end of 2014; they then worked on the implementation of both financings and on the completion of all conditions required by all parties involved, including environmental, social, credit and compliance requirements;

8. Case study: challenges and risk mitigations identified • French Erbil consulate under the French Ministry of Foreign Affairs, US embassy in Bagdad and US consulate in Erbil were all instrumental during the whole process with consistent and constructive approaches towards the project, visiting Qaiwan’s management, supporting GE’s bid and helping by renewing three times the Coface promise of cover on a challenging country like Iraq; • Large support and help from Multilateral Financial Institutions : IMF through the SBA agreed $5.5bn over next 5 years to Iraq – $2.7bn loan supported by US congress – IFC etc…; • Statement from German foreign minister, Steinmeier on KRG : September 2014 “We in Europe and Germany cannot remain indifferent to these developments. The collapse of the Kurdish lines of defence, or even the collapse of the Iraqi state, a military conflagration throughout the Middle East: all this may happen if the international community does nothing to prevent precisely that”; • Know Your Customer process during the enhanced due diligence: location of the refinery near Iran border, bidding procurement process according to KRG and Iraq law etc…; .

9. Case study: Environmental and Social Impact Assessment • Full environmental assessment study from the initial report to gap analysis by appointing an independent consultant (2U1K); • Project seen as a benchmark / pioneer that be replicated for other financings on frontier markets similar to Iraqi Kurdistan; • Pragmatism and solution-oriented approach for issues identified, i.e. associated facilities for gas and water pipes to be constructed according to international standards even if their ownership is in the hands of an external party (KRG); • ESAP during construction and operation phases – close monitoring during the lifetime of the credit facility; .

10. Case study: raising LT financing in Iraq: additional complexities • In the course of 2015, meeting the requirements of lenders became increasingly complicated by the very challenging environment prevailing at the time: • The invasion of a great part of Iraq territory by ISIS in summer 2014; • The start of the military action between the Kurdish army and ISIS that is still ongoing as of today; • An oil exports related dispute between the Kurdish Regional Government and the central government in Baghdad that has been smoothened since; • A sharp fall in oil prices towards the end of 2014 that has put great pressure on the region’s financial situation over the last 2 years; • After several credit reviews and numerous Q&A sessions with lenders caused by the difficult security, political and economic situation of the Kurdistan Region of Iraq, CT&F and Qaiwan managed at the beginning of 2016 to close and disburse the following long-term financing for a combined amount of USD 105 million: • A USD 75 million buyer credit supported by COFACE and arranged by Deutsche Bank, with Bankmed as co-arranger, on a senior unsecured basis for a tenor of 8 years after delivery of the gas turbines; • A USD 30 million vendor loan granted by GE on a senior unsecured basis for a tenor of 5 years after delivery of the gas turbines; .

11. Case study: raising LT financing in Iraq: conclusions • This financing was a truly landmark deal in the Kurdistan Region of Iraq for the following reasons: • It is the first COFACE-supported loan in Iraqi Kurdistan; • It is the first GE vendor financing in Iraqi Kurdistan; • It is the first corporate debt for Qaiwan; • It is the first senior unsecured loan obtained by a local corporate in Iraqi Kurdistan; • The financing package enabled Qaiwan to start the construction of the power plant before obtaining the financing, and refinanced Qaiwan while the power plant was reaching completion at the beginning of 2016; • For these reasons, the USD 75 million buyer’s credit arranged by Deutsche Bank with the support of Coface was awarded Deal of the Year by TFR; • The financing was closed in a very challenging environment and demonstrates that factual and financial arguments combined with persistence can lead to very attractive results for corporates that: • Can show strong and consistent financial performance; • Have solid industrial projects; • Invest some time and resources in order to develop projects according to international standards in order to meet requirements of international financial markets. .