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PIF Case Presentation - ALBA

Group 1 111 Rakshit Jhunjunwala 115 Ankitesh Mathur 211 Manu Shrivastava 301 Balagopal Padmakumar 402 Rishi Bajaj


Aluminium Bahrain (Alba), was planning to add a fifth pot line

Boost its aluminium production capacity to over 60% to more than 8,30,000 tons per year. Proposed $1.7 billion project External consultant named Taylor-Dejongh (TDJ) to act as the projects financial advisor. The consultant offered various financial options which included a structured corporate credit using as many as five options inclusive of both project and corporate finance. With the past experience of Pot 4, the company had plans to seek financing from multiple sources. The company initially worried about the economic situation at that time and they feared if the project would get tainted and hence a diminishing public sentiment.


as a country was not quite up to the standards in the oil and gas market as compared to other Middle Eastern countries
sector remained the largest contributor to the countrys GDP followed by financial services and Manufacturing ( Aluminium) at 25%, 19% and 12% respectively. of the main attractions the Bahrain Government posted was that they did not tax corporate income.




Alba was incorporated in 1968 as JV between the Government of Bahrain, with an original ownership interest of 18% and a consortium of aluminium users. It was the first aluminium smelter in the Middle East and it began production with two pot lines and a production capacity to over 500,000 tons Alba had a history of strong credit history, having operated for more than 30 years without default. The companys pot 4 project was huge success which added 235,000 tons of annual capacity at a cost of $1.5 billion. Alba over the years became the largest single-site smelters in the world but also one of the lowcost producers. The pot line 4 projects saw financing which included a combination of commercial bank loans and export credits plus a small amount of Islamic finance. It paid debt service out of revenue generated through a quota engagement with its shareholders. Before the pot line 5 projects were to be set up, the company had to analyse the economic feasibility (Phase 1) and assess their financing options (Phase 2).

ALBA - Phase 1

TDJ carrying out the economic feasibility study

review of the projects economic feasibility a recommendation on the optimal organizational structure an assessment of the markets overall ability to finance the project.

TDJ concluded cost of $1.7billion but only if the project was combined with Albas existing operations.

Project could not be financed on standalone basis without significant structural changes to the company and therefore the projects debt had to be paid by Albas total cash flow without recourse to the sponsors.
Hence it would be classified as a project finance deal. However Alba rejected the proposal citing the reason that the deal would be very expensive than a structured corporate credit. Also, it would have to undergo a major restructuring of Albas business model and assets as well as a much larger equity commitment from the sponsors of $500 million or more would be required.

Phase 2

With the Phase 1 completed, the team proceeded toward phase two for identifying the suitable sources of financing.
TDJ came up with eight viable sources of financing namely,

Commercial bank loans

Project Bonds( Local or International)

Islamic financial instruments ECA financing: direct loans or guaranteed/ insured loans Metals-linked facility: bank loan with repayment either in metal or linked to metal prices Subordinated debt Private Placement debt Loans from multilateral agencies such as development banks.

Rejection of Sources
Option International Bond Reason for Rejection Price quotes coming in from markets were high. Also Alba would have to have ratings from different agencies which meant more time is required

Private Placement Loans from Development Banks

Spreads were too expensive Alba would not qualify for a multilateral loan for pot 5 project considering the past experiences with the pot 4 project
Sponsors were not interested in putting more capital into the deal.

Subordinated Debt

Phase 2

Therefore after eliminating the above stated options, TDJ prepared a financing scenario that used up to five sources of debt:

Commercial Bank finance a local bond an Islamic tranche a metals linked facility possibly ECA loans or loan guarantees/ insurance.

The company went into paper works with a proposed financing from multisource financing, thus forming a strategy of creating a competitive bidding process that would give Alba the best deal possible.

+ Advantage of multi-source financing strategy

Participating several lenders stimulate competition

More power to negotiate for customer More safety:-Multi-source finance reduce the dependency of customer on any single lenders.

Low cost as compared to single

Multi-sourced benefits related to Alba

Local Bond Allow investors to participate in and benefit from the project. Develop the local Capital markets. Consistent with the government policy
Islamic financing Bahrain is an Islamic country and a regional center for Islamic finance

Multi-sourced benefits related to Alba

Metals-linked facility The hedging component allow to decrease cost of debt. Could be viewed as a competing source of Capital

ECA Availability: more easy to be obtained Hallo effect: help sponsors attract financing

Disadvantages of multi-sourced financing

Complexity: the more parties involved the more difficult the transaction
On going management complicated Difficult to manage a deal in the event default For Islamic tranche: the problem of asset ownership


Single source

Multiple source


Very huge

Preferred when relatively less amount is needed and in short time.

Used when huge amount is needed.

Single source
Less time consuming Preferred when need is urgent. Multiple source
Much time consuming Preferred when quantum and cost of funds are more important.

Single source

Loan spread
Multiple source

Rises sharply with loan amount

Dont increase much with amount.

Increases more in case of projects.

Complexity (for borrower)

Single source
Less complex Can be used when fast and hassle free but small amount of finance needed.

Multiple source
More complex Should be used when cost is of more important and when expertise is available

Expertise (in case of raising or borrowing company)

Single source

Multiple source

Less expertise needed

More expertise needed

Costs of expertise also to be beared.

Negotiating power (for borrowers)

Single source
Very less Can be used when project have a low risk rating . Multiple source
More Number of sources tends to create a competition among them benefiting the borrower

Negotiating power on price and terms (in case of lenders)

Single source High

Multiple source

Tends to increase the interest rates

Decisions of quantum
Single source
Only one source so only it should finance . Multiple source
Capacity- pricing tradeoffs for each source is to be determined and then the final decisions have to be taken.

Financing costs
Single source Usually the lender is in the dominating position. Usually higher than multiple source.

Multiple source
Overall usually lower than single source

Conflicts of interests and constraints

Single source
Low Multiple source High

Single source Low

Additional costs
Multiple source
High Example : Advisory fees Execution fees Legal fees

Only one source is there.

Structure, manage and restructure (in case needed).

Single source
Decisions in the hands of only one source.

Multiple source Many parties thus a bit complex

Source of financing
Commercial banks loans

Type of financing
Financing projects (covenants related to the financial and operating performance to control project cash flows) Financing corporations (Dividend paid over the firm cash flows) Financing projects (project assets ownership)

Local bond Islamic loan

Metals-linked facility
ECA loans

Financing corporations (transaction related to the output)

Financing projects

Source of financing
Local Bond

Allow investors to participate in and benefit from the project. Develop the local Capital markets. Consistent with the government policy. Bahrain is an Islamic country and a regional center for Islamic finance
The hedging component allow to decrease cost of debt. Could be viewed as a competing source of Capital Availability Halo effect

Islamic financing
Metals-linked facility


COST of EACH Approach

See Excel File

Thank You