Structured Finance as A Means of Developing Nigeria’s Oil & Gas Assets

1. Structured Finance as A Means of Developing Nigeria’s Oil & Gas Assets Konyin Ajayi & Ibi Duro-Emanuel

2. Depth, breath & wealth of Nigeria’s convection is not in doubt Increasing pressure on competing markets Russian market Middle East “Socialising” US backyard The gulf of guinea especially Nigeria is now a cradle!!! Nigeria’s Oil & Gas Assets

3. Oil & Gas Projects generally capital intensive Both the State & private sector engaged in developing O&G assets Local Content Policy & indigenous intervention high domestic interest rates short term finance limited access to international longer term finance Limited resources of State to fund O&G -v- other competing interests Though expanding limited resources of private sector to fund International investors interest given opportunities & returns Developing The Assets

4. Traditional methods of funding such as corporate finance (equity, loans) project finance Trade finance Asset finance Becoming less attractive because they are expensive there is increased sovereign and political risks etc. There is a need for innovative financial products given problems with traditional funding techniques, and constitutional issues on O&G revenues Statutory & accounting treatment of secured financing Funding Sources

5. Section 162 of 1999 Constitution Federation Account issues Ownership, rights and title to natural resources Negative Pledge on assets of State. ICPC Act Landmines in developing O&G Assets

6. A form of finance which uses innovative products to meet the specific needs of a client. A broad term for a sector of finance created to help transfer risk using complex legal and corporate entities. A beneficial cheaper mode that avoids constitutional landmines So what really are we talking about? The alternative: Structured Finance

7. Encompasses all advanced private and public financial arrangements that serve to efficiently refinance and hedge any profitable economic activity beyond the scope of conventional forms of on-balance sheet securities (debt, bonds, equity) in the effort to lower cost of capital and to mitigate agency costs of market impediments on liquidity. It is any "non-standard" way of raising money. These tailor-made securities go beyond "standard" securities like conventional loans, debentures, debt, and equity. According to UNCTAD it is “a technique where certain assets with cash flows can be isolated from the originator in order to deal with the risks specific to these assets, the objective being to secure or improve credit . Its basically about securitisation & credit derivatives Some notes on Structured Finance

8. The process of pooling certain assets/receivables of a company or financial institution and using them as collateral for the issue of securities. In other words securitisation may be seen as a process of making illiquid assets, liquid. The conversion of existing assets into marketable securities is known as asset-backed securitisation, (ABS) while the conversion of future cash flows into marketable securities is known as future-flow securitisation. A brief word on Securitisation

9. Sale by an entity of a pool of assets to an SPV Generally structured as an asset sale Thus the assets are removed from the Originator’s balance sheet. SPV to fund itself issues securities sold in (international/domestic) market. Investors rely on the cashflows from the pool of assets for repayment. Matters of note: Credit Rating & enhancement True Sale Insolvency Securitisation Mechanics

10. Collective term for a financial product derived from another financial product Mainly Contracts for differences Serves principally as risk mitigants Used as credit enhancements for securitisations The vanilla ones Forwards ● Futures ● Swaps ● Options The exotic types CDS ● CLN ● CDOs Credit Derivatives

11. They will tell you of their Nigerian Oil & Gas Industry experience Challenges in using structured finance Approaching the international markets Getting a good rating Structuring a deal Avoiding the landmines For Chidi. Dan & Godwin

12. Over To Dan, Chidi & Godwin For Me I say Thank You!