2. Introduction
Wimpole
Is a Network of experts with unrivalled capabilities in the architecture and implementation of
market instruments and infrastructure
Institute for International Energy Studies (IIES)
For Research on international energy markets and energy economic issues
2 13/06/10
3. Session Three - Executive Summary
Conventional Funding
Debt & Equity
Hybrids
Capital Partnership
Origins
Nondominium
Partnership Types
Energy Applications
Capital Equipment
Refinancing
3 13/06/10
4. Conventional Funding of Productive Assets
Debt
Interest-bearing credit created by credit institutions ie banks
Secured by a claim over the asset – a 'mortgage' or 'charge'
Equity
Ownership shares in a Limited Liability Joint Stock Company
Shares receive a dividend
4 13/06/10
5. Conventional Funding - Conflicts
Conflict of interest between the ownership claim of the
shareholders and the debt claim of the bank
Conflict of interests between the shareholders and the management
– the 'Principal/Agent' problem
5 13/06/10
6. Hybrid Funding
Equity hybrids – preference shares, redeemable preference shares
Debt hybrids – convertibles, subordinated loans, 'mezzanine'
New ownership instruments – Unit Trusts, Real Estate Investment
Trusts (REITs), Exchange Traded Funds ('ETFs'), Master Limited
Partnerships, Income Trusts etc etc
Complex, and some conflict always remains
6 13/06/10
7. Capital Partnership Origins – Hilton Deal 2002
Gross Revenues
Capital Partnership LLP
10 UK Hotels
% %
Hilton Group Consortium LLP
Capital User Capital Provider
% % %
Property Hotel
Bank Developer Specialist
8. UK Limited Liability Partnership (LLP)
An “Open” legal vehicle – no need even for a written agreement
Enables infinitely flexible structures
There are many 'Public/Private' LLPs
City of Glasgow now has five
These municipal LLPs are public/private organisations which borrow
from banks and employ staff and managers in the conventional way
Capital Partnership can bring finance and management inside LLP
8 13/06/10
13. How it Works
Problem: if the refinery sells products forward by issuing
'stock' it is exposed to a rise in costs eg crude oil and labour
Solution: for as long as the Manager provides services, or the
Supplier provides oil, they are entitled to a % of product flow
There is no purchase and sale of crude oil
Oil supplier and manager receive product 'stock' which will be
widely acceptable in exchange
14. Gas Partnership – Flared Gas
Gas Pool
(Public Sector)
Units
% of Units
Liquefaction Plant
(Held by Custodian)
Money Units Services % of Units
Investors Managers
15. Refinancing Existing Loans
Existing interest-bearing loans may be replaced with energy
loans eg 'stock' returnable in payment for gas
Outcomes
– Cost of funding reduced because no money is paid for the
use of money
– New asset class for investors with a return in energy
15 8 Nov 2011
16. Example – Qatar Gas Loan
Qatar requires $2bn to repay existing loan for LNG train
Qatar issues and sells 400 million Gas Units each redeemable in
payment for 1 MMbtu at $5.00 per Unit
Chinese and Japanese participants each buy 200 million Units
Outcome: a Gas Loan
Qatar – interest-free funding and a a forward 'hedged' sale of
400MMbtu of future gas production
China and Japan – an 'inflation hedge' investment in natural gas as an
alternative to acquiring $ denominated 0% Treasury Bills giving
negative real returns
16 8 Nov 2011
