PROJECT FINANCE | 27 MAY 2019

Absa contributes to Africa’s largest project financing deals ever concluded

Theuns Ehlers Author

Theuns Ehlers

Head: Project Finance

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Absa participates in two Mozambique-based liquefied natural gas (LNG) projects that are expected to exceed US$50 billion.

Absa Corporate and Investment Bank (CIB) is excited to provide project funding for two Mozambique liquefied natural gas (LNG) projects being developed by lead sponsor Anadarko and Exxon Mobil respectively.

The project development and construction costs for the two projects is expected to exceed US$50 billion.

Two landmark projects for African investors

The projects, which are anticipated to make good progress towards financial close later this year, will be the largest project financing deals ever to be concluded on the African continent.

The project sponsors and their advisors are in the process of finalising the debt financing package. It is expected that the international and regional financing community will show significant appetite to participate in the financing of these landmark projects.

Export Credit Agencies and development financing institutions are all expected to play a significant role in the debt financing, alongside international and regional commercial banks.

This financing represents a significant opportunity for regional banks, such as Absa, to contribute with meaningful debt financing commitments to these projects.

Absa’s local presence in Mozambique places it in a unique position to also assist with banking and financing for the host of contractors and people who will be employed during the construction and operational phases of the project.

A boost to Mozambique’s economy

Construction of the two projects is expected to take between five and six years and will provide significant employment opportunities for the local market.

Development of these LNG projects is expected to be transformational for the Mozambican economy, with the country’s GDP expected to more than double by the end of the construction period.

Once commissioned, the Mozambican government will earn revenue through their direct investment stakes in the two projects, as well as from taxes and royalties associated with the projects.

Over time, these projects will add significantly to Mozambique’s overall tax base, which we expect will go a long way to uplifting the basic living conditions of the people of one of the poorest countries in the world.

The South African significance

Because of South Africa’s proximity to Mozambique, we see business opportunities for South African companies, particularly those in the construction and civils sector.

There will be a significant benefit for South Africa from the two projects which I estimate will be over US$1 billion. With its strong skills base and experienced contractors South Africa is well positioned to support these projects.

Development of gas finds such as those in Mozambique, as well as other discoveries in East and West African markets, are also expected to stimulate gas-to-power opportunities on the continent, with gas fired power plants well suited to complementing a power generation mix that is expected to see progressive renewable energy penetration.

Investors and operators of these gas power plants, as well as traditional coal and nuclear base load operators however remain mindful to the advancements in battery storage both from a cost and application perspective.

The future remains very exciting for Africa, where the continent has the potential to leapfrog developed markets through the introduction of cheaper and cleaner power generation options – all of which are desperately needed to supply affordable power to new industries and the 650 million people across the continent still sitting without access to electricity.

Theuns Ehlers Author
Theuns Ehlers

Head: Project Finance

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