Africa Rail 2009 Workshop

1. Africa Rail 2009 Workshop Different Types of Financing for Mobile Equipment 23 June 2009 Greg McKenzie Head of Asset Finance, Investment Banking Division, Rand Merchant Bank

2. Introduction Conventional Debt Funding Alternatives to Debt Funding Financing Mechanisms Export Credit Finance Conclusion

3. Asset Knowledge and Expertise • how you want to finance • understand the risks and rewards • impact on your business and strategy Know your environment, the market and trends • unprecedented leverage • Complex financial structures • Know what is happening to asset prices Understand your business and financial strategy • Diversification was a previous corporate strategy • de-leveraging Introduction

4. Conventional Debt Funding Introduction Alternatives to Debt Funding Financing Mechanisms Export Credit Finance Conclusion

5. What is it? • Raising finance,pay back the principal, interest as a return. Where can you raise it? • shareholder loans • Banks • Capital Markets • Investors • Third Party Funds Characteristics • Fixed or Floating • Term • Cash flow profile • Covenants • Convertibility • Senior, Junior, Mezzanine • Security Conventional Debt Funding

6. Alternatives to Debt Funding Introduction Conventional Debt Funding Financing Mechanisms Export Credit Finance Conclusion

7. Equity Financing • share capital in a company, riskiest element of finance used to finance an asset • Equity in assets has previously been very low (aggressive) Mezzanine financing • unsecured debt, can also be convertibleinto equity • Interest serviced,capital being repaideither out of the sale of the asset Hybrid financing • combination of both debt and equity. • complex financing structures • inflation linked instruments, derivatives, convertible instruments, perpetual instruments Alternatives to Debt Financing

8. Financing Mechanisms Introduction Conventional Debt Funding Alternatives to Debt Funding Export Credit Finance Conclusion

9. Single Bank • transaction is small in value • Not necessarily the norm for large exposures Multi-Bank • funding of larger projects • compromise on onerous requirements • engage parties with small contributions • appoint a lead arranger Underwriting / Syndication • norm in the “previous” financial markets • provide underwriting position but already have commitments • secure large funding requirements with one party. Club Loans and Third Party Funds • group of financing parties get together • Future funding can also be secured through same parties. Financing Mechanisms

10. Instalment sales • Financing is arranged for an underlying asset • Similar to a loan profile Recourse and Non-recourse financing • asset funding can be arranged on a with recourse or without recourse • financier / supplier with have further recourse to a company (borrower) • financiers claim is limited to the asset Sale and Leaseback • popular mechanism to raise further funding • sell a locomotive to a financier and thenlease it back to you • Funding is typically linked to the useful life of the asset Cash flow flexibility • negotiate realistic flexibility in your cash flows • dependent on interest rates, business cash flows, asset values Financing Mechanisms

11. Finance Leases • repay the full capital cost • Risks and rewards • Accounted for on Balance Sheet of Lessee • Rentals normally include a tax benefit • assessed from a pre and post taxposition. • structured on atriple-net basis • Ownership Operating Leases • not a finance lease, then it is classified as an operating lease. • off balance sheet • do not repay in excess of 85% of the capital • required to insure, repair and maintain. • significant cash flow benefits. • third parties are assuming asset risk • acquire ownership by paying market value. Financing Mechanisms

12. Export Credit Finance Introduction Conventional Debt Funding Alternatives to Debt Funding Financing Mechanisms Conclusion

13. Objective • facilitate and encourage exports from South Africa How does it achieve this • Political and Commercial risk cover • long tenor cover • Interest subsidy • Attractive / comparable pricing. Requirements • commercially viable. • minimum of 50% SA content, scores at least 30 on the BEE score card. • ECIC charges a premium on its facilities • 15% equity requirement. Conclusion • engage with ECIC Export Credit Financing – Export Credit Insurance Corporation (ECIC)

14. Conclusion Introduction Conventional Debt Funding Alternatives to Debt Funding Financing Mechanisms Export Credit Finance

15. circumstances and strategy • effects of the various funding options • Complexity • interest and available liquidity • informed decision Conclusion