Logie Group offers the wisdom of
Andrew Kinloch
Government policy, corporate strategy and business plan advisory
Andrew Kinloch
As Head of Public Private Partnerships (PPP) Advisory Services at the Asian Development Bank, Andrew advised a number of Developing Member Country governments on how to set up an appropriate enabling environment in terms of relevant legislation and regulation; on the choices for government support for industry sectors and individual projects; on selection of pathfinder projects in each sector; and on likely financing appetite from domestic and offshore investors and lenders. He advised the ADB on what measures it should include in its terms and conditions when lending to governments so as to promote development of infrastructure featuring private sector participation. And he co - authored the bank's blueprint for promoting its PPP business across all infrastructure sectors including power.
In 2009 - 10, Andrew acted, in joint venture with a Singapore - based financial advisory boutique, an Australian legal practice and a global engineering firm, to advise Bappenas, the planning ministry, and the Ministry of Public Works on a $235 million fresh water pipeline project in Indonesia. Issues included what risks could be sensibly transferred to the private sector, what government support would be required and how the central government should best support obligations of the province and municipalities' water distribution companies.The project is one of several being used to establish best practice which subsequent projects can then replicate as the government takes the often difficult decisions necessary to establish its policy in the sector.
In 2006 - 7, Andrew advised the Indonesian Ministry of Finance on that country's various infrastructure plans which call for an ambitious $25 billion to be invested over the next several years. These include $12 billion to be spent on 10GW of coal fired power plant and associated transmission to be built for PLN (the state owned electricity utility) under its first Fast Track programme; and up to $3 billion of capacity to be provided by Independent Power Producers. The MOF supports all of PLN's business via the Public Service Obligation (PSO) subsidy; and guarantees the Fast Track programme. Other infrastructure includes toll roads and urban mass transit. Andrew's role was to assess the nature and extent of government support for each such project and advise on the suitability of the terms and conditions proposed for each financing. This included consideration of how much risk should be transferred to the private sector and whether the government was prepared to pay for this. On the power programmes alone, issues included fuel supply arrangements, fuel mix policy, equipment procurement mechanisms, cost of the the PSO subsidy, assessment of value for money and how best to sell the story of Indonesia's new found pragmatism to an investor and financier community which is still cautious on its ability to deliver such projects on a sustainable basis.
Establishing policy for a government or strategy for a corporate involves asking hard questions of what activities / businesses are already there; identifying what activities / businesses should be there but are not; collecting alot of information not readily available through conventional channels; and resolving internal ownerships and conflicts. This takes judgment, tact and a lot of time so is often best conducted by a third party who knows the business. Andrew is able to do the research, lead the discussions, facilitate a consensus and review implementation - and do so on a more discreet and cost effective basis than could a bank, for example.
In terms of government policy, Andrew helped develop early Public Private Partnership structures in the U.K. in the early 1990s. In terms of corporate strategy, he has first hand experience at WestLB where he arrived to run Global Structured Finance for Asia Pacific at a time when the bank was starting strategic reviews of both Structured Finance worldwide and its bankwide business in Asia Pacific. These two initiatives intersected at him and lasted a solid three months. Key to the planning was to identify how his three teams could distinguish themselves from the competition so as to appeal to clients; what could be earned therefrom; and what resources would be necessary to achieve this. He subsequently implemented the three quite distinct plans, substantially enhancing all three teams’ earnings, risk profile and client awareness.
Fundraising for new projects
There are three ways in which Andrew can advise private sector sponsors / bidders on new projects needing to raise finance.
Acting as Preliminary Financial Advisor (PFA) ahead of the appointment of a bank as the Financial Advisor. Andrew can structure a financing on a basis that will be acceptable to the appropriate debt and equity markets then conduct the often considerable preparatory work required which is likely to be spread out over time. He can do so more cost effectively, more flexibly and more discreetly (in that the investment story does not leak out too early then go "stale") than could a bank. Crucially, by working with a client's existing staff, more of the learning benefits are retained in the company. Once the prospect is properly prepared, the bank can then be appointed and the funds raised more quickly and successfully.
Acting in the full Financial Advisor role to smaller clients when funds to be raised are less than, say, $50 million, led by Andrew and bringing on board other disciplines / resources as required sourced from his extensive network around the region.
Introducing investors to investment opportunities, for example in the mining sector.
Manila airport terminal 3, Philippines
Distressed situations
In distressed situations, Andrew can act as an expert witness, review loan books and lead work outs.
In 2004 - 5, Andrew acted as an expert witness for Fraport, operator of Frankfurt airport, on its $500 million arbitration case with the Philippines government re Manila airport under the World Bank’s ICSID convention. In that time, he submitted four reports totalling 20,000+ words. He examined how the concession was originally let then how it was subsequently amended. He compared its terms to both other infrastructure financed in the Philippines and to other airport terminals elsewhere. A robust exchange of views with the other side's expert led to the replacement of that expert and the government's acceptance of all his opinion.The panel's initial decision was annulled in December 2010 and the case will now be resubmitted for resolution.
In times of stress, the quality of banks' loan books needs to be revisited. This is an exercise which is time consuming yet needs to be rigorous, independent and consistent. Andrew offers unusually broad experience in sophisticated risk evaluation, experience gained at advisor and Lead Arranger level where issues are both identified and solved. This has been in:
- both developed and emerging markets;
- most structured / project / export finance sectors, i.e. energy = power generation, transmission and distribution, oil and gas and petrochemicals; telecoms = fixed, mobile and cable networks; infrastructure = roads, rail, water, ports, airports, logistics and hotels; metals and mining;
- equity and debt for aircraft leasing;
- leveraged finance, i.e. LBO / MBO in various industries.
At WestLB, he had responsibility for a loan book of €2.5 billion and his teams looked at practically every such deal in the region.
Andrew is able to lead work outs. This requires running / organising a negotiation process, one which is contentious and time consuming and which requires consensus / compromise in changed circumstances. His experience includes the workout of an early hotel deal in Australia; and various legacy loans inherited from the Asian crisis of 1997 / 98 which led to the eventual writing back of all provisions and many lessons learned. He also brings to bear his experience as an expert witness on complex arbitrations.
As an independent advisor, he has no conflicts of interest with any parties involved in such cases.
Independent non – executive directorships ("INEDs")
The flood of recent developments in corporate governance worldwide points to an increased need for independent non – executive directors who can contribute meaningfully to the business; and represent all shareholders’ interests impartially. At the same time, especially in Asia, there is a shortage of experienced, independent personnel qualified to act in such a capacity.
Boeing 737–800 in S.A.L.E. (now Bank of China Aviation) colours
Whilst at WestLB, Andrew was instrumental in the purchase of a significant stake in Singapore Aircraft Leasing Enterprise ("SALE") (now Bank of China Aviation), the only Asia – based aircraft lessor. This involved identification of target, price negotiation / justification and due diligence. Fellow shareholders were Singapore Airlines and the Singapore government’s investment vehicles, GIC and Temasek. Andrew sat on the board of SALE as an Alternate Director. This business duly delivered the synergies envisaged between it and the bank; grew substantially both in scale and earnings; and justified the purchase decision. It was subsequently sold in 2006 to Bank of China at a considerable profit.
Andrew is able to play a number of the roles identified by the Hong Kong Institute of Directors for INEDs, namely the Wise Man, Specialist, Judge and Watchdog roles. He is a Chartered Accountant by training, having worked for KPMG then PWC in London, Hong Kong and Sydney so is particularly suited to audit committees.
As an independent advisor, he offers complete impartiality when sitting on such boards.
Interim management roles
Telecom Asia Refinancing, Thailand
In 2005 / 6, Andrew acted as interim CEO of a company looking to raise $40 million for investment in projects to reduce greenhouse gas emissions and thus earn carbon credits under the U.N.'s Kyoto protocol. Priority technologies were methane from landfill and PFCs from aluminium smelters. Target countries were China, the Philippines, Malaysia and Thailand.
CEOs, CFOs and other senior management in banks and corporates will from time to time be faced with ad hoc projects lasting several months which require senior judgment but which are so demanding or time-consuming that they prevent management from fulfilling their normal role. Examples include negotiation of complex financings, purchase due diligence or filling in between permanent appointments. Andrew is able to play each of these roles:
- Andrew has led many negotiations of complex financings in a variety of jurisdictions and with quite different risk profiles. He therefore understands that different parties have different agendas, how to harmonise these agendas so as to sign a lasting agreement; and that there is a critical path with time constraints to doing so.
- He was instrumental in WestLB purchasing a significant stake in a Singapore – based aircraft lessor and led the necessary due diligence thereon.
- His time at WestLB involved addressing almost every aspect of managing a business. This included setting strategy, leading marketing and execution, significant staffing initiatives and establishing information flows.
Such interim management roles can offer users (i.e. banks and corporates) much more flexibility and cost saving when compared to employing either too many or too few permanent personnel. In Europe and the U.S., the interim management model is well established in that short term placements represent typically 30 – 40% of intermediaries’ (i.e. headhunters’) income. In Asia, the model is currently less well established but its attractions are fast becoming recognized.
Training in project finance, advanced credit evaluation and negotiation skills
Any business’s principal investment will be in its people. At a technical level, those people need to benefit from current best thinking derived from a wide variety of markets as applied to their own. But the skills are not just technical. In any negotiation, one aims to optimize one’s own agenda and satisfice others’ if the transaction is to endure. Drawing on his many years’ experience in Asia, Europe and Australia, Andrew is able to design and present both public and bespoke courses.
From 2007 - 10, Andrew wrote and ran the semi-annual Asia Project Finance workshop for Euromoney. He also wrote and ran (in conjunction with Lovells, the leading international legal practice) three training programmes on Project Finance for the Asian Development Bank in furtherance of its Strategy 2020 which called for a significant shift in emphasis towards private sector lending and investing.
In – bound investment advice and local representation
The term "Asia" is a geographical convenience only. The region consists of a large number of economies which vary hugely in terms of size, sophistication and culture. Aspects such as religion and ethnicity cut across national boundaries. How to do business and with whom require local knowledge and Andrew can assist in this.
Industry specializations
These include:
- Energy = power generation, transmission and distribution; oil and gas; petrochemicals;
- Telecoms = fixed line, cables, 2G and 3G mobile
- Infrastructure = roads, rail, water, ports, airports, logistics, hotels
- Public Private Partnerships (PPP), i.e. schools, hospitals and other social infrastructure made available to Governments
- Metals and mining
Financing methods
These include corporate debt, structured finance, project finance, export finance, leveraged finance for private equity into LBO / MBO, privatisations, Public / Private Partnerships (PPP), mezzanine / subordinated debt and equity.
