Ben Arnott, Director, Standard Chartered, Singapore
Ben Arnott, Director of Oil & Gas Corporate Finance at Standard Chartered Singapore, discusses project financing in Singapore, the challenges of facing a lack of market liquidity, and the ways in which Singapore is attempting to position itself as a global financial center for the oil and gas sector.
Typically characterized by their long term financing needs, some projects have suffered from a liquidity crunch due to banks reluctance to provide long term financing. To what extent is this true in Singapore and Standard Chartered?
To some extent since regulatory pressures are encouraging a bias towards shorter-term horizons. That is, you could argue that pressures on revenues and profitability may cause financial institutions to lean towards the shorter term.
However, on the whole, people working on oil and gas or power projects, where lead times can be long, intuitively understand that this is not an overnight business. As such, we are selective in the projects that we seek, looking for high quality projects with excellent sponsors. If these criteria are satisfied, then we can certainly justify a longer term financing deal in accordance with the project requirements.
More specifically, working on the debt side, what are the core ingredients you look for in a successful financing project?
Naturally, ensuring that we are able to recoup our investment is at the core of any lending project. We therefore target clients with a strong asset base and a proven track record in terms of developing and operating oil and gas projects. Considering the unique challenges associated with the development phase, having the right organization and project management capabilities in place is critical. In addition to this, we place an emphasis on the client’s ability to complete projects in their respective country of activity. Given the diversity of the operating and regulatory environments across the region, it is important that the sponsor possess a solid reputation in their markets and a good relationship with the authorities.
Singapore has worked diligently towards shaping the city-state as the financial hub of the region and the SGX has recently communicated its intentions to become a regional center for oil and gas firms. However, how realistic is this ambition?
Singapore is undoubtedly becoming a financial hub for oil and gas companies. However, there are some challenges and limitations. Asia as a whole is not the most significant player on a global scale from a total reserves and production point of view. In that respect, Singapore needs to position itself appropriately as a key trading location and the gateway to the world’s fastest growing energy consumers. It needs to be able to facilitate the supply opportunities in Asia while serving the demand opportunities as well.
As it is, there are no big stable upstream oil and gas companies listed on the Singapore Exchange (SGX). Nevertheless, I am impressed with the SGX’s efforts so far, however, they do have to contend with competition from the likes of the Tokyo Stock Exchange (TSE), Hong Kong Stock Exchange (HKEx) or the Australian Securities Exchange (ASX), for instance.
The overall issue for Singapore probably relates to the absence of an oil and gas listing track record and the unfamiliarity of investors with the particularities of the upstream sector. On the other hand, I am confident there is a significant amount of liquidity in Singapore looking to be deployed in these sorts of opportunities, as they would be highly appropriate from a diversity perspective. The challenges however would be to build that scale in terms of the numbers of oil and gas companies listing on the SGX.
The listing of Pearl Energy in 2005, followed by the more recent listing of KrisEnergy in 2013, has certainly helped to put the SGX on the map in relation to the upstream oil and gas industry. Indeed, the listing of KrisEnergy was global news but although it is not expected to bring about a flood of companies to follow suit, it has set the stage and created more favorable conditions. People are now undoubtedly more likely to consider dual listings for instance and are more aware of Asia’s potential as a source of capital.
In terms of advantages, oil and gas companies looking to list on the SGX would be happy to find themselves in a less crowded marketplace. In comparison to the ASX, for instance, where a junior oil and gas company might find themselves over shadowed by the myriad of comparable companies trading there.
How would you describe Standard Chartered’s approach to the relationships you establish with your clients and how do you differentiate yourselves in a crowded market place?
Our client facing philosophy in Standard Chartered is based on maintaining relationships with clients, which are broad and deep and not only focused on being present as a capital provider. Matched with the sort of capabilities and services we have, such an approach is highly rewarding and allows us to build long-term relationships with our customers.
In terms of differentiation, Standard Chartered is among a small subset of what I would classify as dedicated oil and gas banks. As Brian Clough (football manager) famously said, I would not say we are the best, but we are in the top one! We have a deep understanding of the oil and gas industry, which is critical given the unique challenges and particularities of that business as a whole. It is that intimate knowledge of the industry and the large number of specialists dedicated to serving oil and gas clients that is a key differentiating factor.
Another major advantage for Standard Chartered is its focus on the emerging markets in Asia, Africa and the Middle East. Over the past few years, this has proved to be a very successful formula as is demonstrated by the banks strong performance over the last decade.
Standard Chartered first opened in India and China in 1858 and in Hong Kong and Singapore a year later. But can you tell us more about the evolution of your Oil & Gas corporate finance team?
Our team is an amalgamation of our oil and gas lending team and Harrison Lovegrove & Co. Limited, an oil and gas focused boutique M&A consultancy we acquired in 2007. As a result, we now have the capability of covering the M&A space for oil and gas, particularly in the upstream sector, as well as meeting the industry’s borrowing requirements.
In a broader context, Standard Chartered has a wide scope of offerings catering to the oil and gas industry. In addition to our specialist team, there are a larger number of people at Standard Chartered working in the client coverage area addressing the day to day requirements of the industry as well as specialists in the financing of refining, storage and infrastructure businesses.
Within that, what is the relative importance of the oil and gas team to the organizations regional growth potential?
It is a major component of the project finance team, which in itself is an integral part of our corporate finance domain. Coupled with our established track record in supporting the oil and gas industry, the fact that the transactions in our sector tend to be relatively large compared to other sectors gives us a very high visibility and impact within our bank.
How fine-tuned are Standard Chartered’s products to the oil and gas industry in comparison to the other regional and global hubs like HK or London?
Given our teams focus on specialized finance, we are always producing customized services for our clients and seldom take a standardized approach.
One thing you can say about the banking industry is that it is incredibly client focused. As such, we find that a wide range of financial services a client might want will be offered in a bank like Standard Chartered. The goal is to try and cover the whole range of client requirements rather than specializing in one particular area of service. Although some might follow that type of narrowly focused strategy, we aim to be a full service corporate bank.
Asia¹s oil and gas market is certainly buoyant with new bid rounds and open acreage in many countries and numerous emerging upstream opportunities. How does Standard Chartered intend to position itself to capture the opportunities in Asia’s oil and gas market?
Given the strong relationships we have with our clients, we are prepared to support them in their new business ventures. This might, for instance, be with shale in North America or coal bed methane in China. Similarly, we are excited to support our clients that are looking to expand their geographical footprint by entering new markets like Africa, for examaple.
As a bank that is at the forefront of what is possible in terms of oil and gas financing, we are constantly looking at new opportunities. However, one of the emerging features of the industry is its fast paced evolution in terms of technologies and type of opportunities available to respective industry players. The challenge for us is keeping up to speed with the vision of oil and gas companies.
What does it take to be able to say that we are performing the first shale oil or coal bed methane-lending project in Asia? To be that type of bank, we need to have a team that is well versed in the industry, an organization that is open to new ventures and credit officers that are able to assess the risks bottom-up. Performing these types of frontier transactions do have their rewards and help to position us ahead of the market. For example, in Malaysia we have financed two of the three Risk Service Contracts issued thus far. In that respect, we consider ourselves the absolute leaders in that area.