Oil & Gas Project Finance in Singapore: All the Upside of Asia, with None of the Risk?
A power plant.
A toll road.
A new oil field that may or may not survive a military coup or a government collapse…
…and a bank contemplating which one it should lend to.
That’s a good way to describe Project Finance in Asia: lots of opportunity, if you don’t mind the occasional hiccup along the way.
We’ve covered Project Finance before, but it’s very different depending on the region you’re in, and our reader today has had unique experience in Oil & Gas and Project Finance in Singapore and mainland China.
He also broke into the finance industry coming from a consulting background – proving that even if you start out your career mining for gold in Saskatchewan, you can still end up in a much warmer place.
Here’s his story, and your crash course on Project Finance in Asia:
Q: Can you summarize your background and how you got into Project Finance?
A: Sure. I had always been interested in oil & gas because my uncle used to work for one of the biggest oil companies in China (think: CNPC, Sinopec, etc.).
So after I graduated from university (one of the top schools in China, followed by a Master’s program in the US), I joined a consulting firm and advised energy companies on compliance and regulations.
Then I did an MBA degree at a Top 20 school in the US and completed an internship at another oil & gas consulting firm, where I first got exposed to capital raising, cash flow projections, P&L forecasts for oil companies, and so on.
That type of work made me a lot more interested in investment banking. Afterward, I moved to Singapore because I thought Asia would be one of the highest-growth regions for oil & gas.
I took your online courses to learn more about valuation and modeling, then did a ton of networking and joined an oil & gas company in a business development role; eventually, I transitioned into Oil & Gas Project Finance at a large bank here.
Q: Previous interviewees and commenters have said that “networking doesn’t work” in Singapore – what was your secret?
A: With the recruiting process, you have to look at two things:
- The effort you’re putting in, i.e. how many professionals you’re contacting and staying in touch with; and
- Your unique background and how you can add more value than other people.
To give you numbers, I got to know over 60% of all oil & gas project finance bankers in Singapore – if you’ve spoken with that many people in one region, you’re bound to start getting interviews.
Then, I leveraged my background to stack the odds in my favor:
- Language – Most of the clients I deal with are Chinese and speak Mandarin. I knew that my Chinese background and language skills would be very useful in Singapore, whereas they wouldn’t help as much in the US or Europe. You really need to listen, speak, and write like a native mainland Chinese person to develop relationships with these clients, particularly the state-owned enterprises.
- Oil & Gas Knowledge – Since energy is so specialized, you really need to know the industry in and out and understand the key drivers, risks, and challenges. I learned some of this in consulting, and then I learned more on my own by reading industry publications and by networking with professionals.
- Modeling Knowledge – All employers, no matter how big or small, want someone who can hit the ground running; they don’t have the time or money to train you. So if you don’t already have these skills, get them!
- Exposure to Both Renewable and Conventional Energy – I’ve had a lot of O&G-related work experience, but my undergraduate degree was in environmental science, and some of my consulting projects were renewable energy-related. This unique combination of “tree hugger” and “oil man” also made me stand out against candidates that had a narrower sector focus.
Q: Logistically, how did you get the interviews that led to this role?
Did you ask about working there, or did they come to you?
A: I had met with bankers at my current firm before and expressed interest in roles here, but nothing came of those initial conversations.
But then late last year, someone on their team left and they needed a replacement ASAP.
I was referred to the Group Head of China at this firm, and I went through a few interviews there with people at all levels. During the interview with the Group Head, they also gave me an oral and written language test to see if I really understood how to communicate with Chinese clients.
I didn’t hear anything for a while, but then suddenly they emailed me on Friday night, sent me a case study, and asked me to submit my response within 10 hours (i.e. by early Saturday morning).
It wasn’t that complicated – an analysis of a company’s cash flows, a build-up of the three financial statements, and a recommendation of the amount of debt to raise – but if I hadn’t completed your online courses or networked with professionals in the industry, I couldn’t have finished it in less than a day.
Q: Yet another reason why you should be careful with the bottles when you’re in the midst of recruiting…
A: I actually had to cancel a session of bottles that night and switch to “Red Bull mode.”
The Asian Landscape
So what does Project Finance in Asia (ex-Japan) look like, and how is it different from other regions?
Most Project Finance teams in Asia are actually headquartered in Singapore, with team sizes ranging from single digits to dozens (our team is one of the largest).
If you look at the league tables in Asia Pacific, the top 10 Project Finance banks tend to be Japanese, Australian, or European names. You won’t see the usual bulge bracket banks as much.
Among European banks, you’ll see BNP Paribas, Crédit Agricole, ING, HSBC, Standard Chartered, SocGen, and Natixis quite a bit.
Regional banks are also expanding their presence in Project Finance, especially firms like DBS and OCBC, along with UOB.
Q: And is everyone from Asia?
Or do you see people from Europe / the US / other parts of the world?
A: It depends on the bank and the size of the team – we have bankers from more than 6 countries, but other teams might only have professionals from one or two countries such as Japan or Singapore.
You’ll tend to see more Europeans and non-Asians at banks such as HSBC, Standard Chartered, and the French firms.
I don’t know why the French are so active in Project Finance, but you run into them everywhere.
Q: Great. And how is the overall deal market different?
A: The main differences:
- Deal Size – The average upstream oil & gas deal in Asia is much smaller than the average deal in the US. The total value might be approximately $200 – $300 million USD, and $1 billion+ deals are rare.
- Liquidity and Pricing – The US market is dominated by a handful of US and European banks, and possibly a few Japanese banks. But there are fewer prominent clients in Asia, so you’ll see everyone imaginable “chasing after” the top names such as Petronas and Sinopec. As a result, those few companies often get better terms and cheaper financing.
This also explains why firms with large Balance Sheets, such as the Japanese banks, dominate Project Finance in Asia: deal volume has to compensate for lower fees.
- Competitors – You won’t see many foreign banks doing Project Finance deals in the US, partially because it is a developed market – but in Asia there’s a much more diverse group of banks competing for deals.
The bond market here is also less developed, and the country-specific risk in Asia-Pac tends to be a lot higher (except for places like Australia and Singapore).
Deals can get scrapped or infinitely delayed because of legal or political issues in these countries.
Q: So within oil & gas, do you see more asset-level deals (Project Finance), or corporate-level deals (normal loans and bonds)?
A: They’re not mutually exclusive, so it really depends on the client’s financial strength.
If the client is very strong (think: Petronas or Sinopec), then it can raise significant capital via corporate loans or bonds at a lower cost than with Project Finance loans.
It’s also faster to close those types of deals (1-7 months from start to end).
But if the client’s track record and credit rating history aren’t quite as strong, or if the company and/or its project partners don’t have as much liquidity, Project Finance is often the better route.
For instance, if a company does not have much cash and it needs to build a CapEx-intensive project, PF provides a good structure because deals often use 60% to 80% debt, which is more like a Leveraged Finance deal.
The downside is that it takes much longer to conduct due diligence and close Project Finance deals (~18 months on average). If you get hit with land acquisition “hiccups,” deals can even drag on for 5 or more years.
A lot of emerging markets are ramping up their infrastructure spending on assets like power plants and toll roads, so you’ll see more Project Finance activities there as well.
On the Job as a Senior Associate
Q: So let’s move from the industry landscape to the job itself.
What’s an average day in your life as a Senior Associate like?
A: There is no “typical day” in Project Finance, as our work is driven by client needs and the corresponding compliance requirements.
But here’s an example of how we are paid to be “abused” by clients in a single day:
I get in at around 9:00 – 9:30 AM, and I usually check emails and news in the first hour.
Between 9:30 AM and mid-day, I respond to clients’ requests and work on deal-related or compliance-related tasks such as “getting to know our customers” (not the most exciting part of the job, but you do get to know the residential address of your clients’ senior directors).
Each bank has internal compliance policies and protocols you have to follow; no one wants to lend to a client with a track record of sanctions, scandals, or broken covenants. This takes up around 20% of my time.
In the afternoon, I spend my time on conference calls with clients and other lenders, and also work on models and written deal documents. This takes around 30% of my time.
Then at night, I spend my time working on presentations and pitch books for clients in order to present our financing recommendations to them. This takes up around 20-30% of my time.
Then there are internal credit applications we have to complete in order to win firm-wide approval to lend money – this involves filling out the application, communicating with internal and external parties, and answering follow-up questions. It takes up around 20-30% of my time.
Most people here leave around 7 – 8 PM (maybe a 55-hour workweek on average), but I’ve been leaving more like 10 PM to midnight because I joined the bank more recently and want to take the time to learn everything in-depth.
Q: Great – and what about the technical work itself?
How is it different from what you do in other groups?
A: It’s similar to what your previous Project Finance interviewee described: everything is cash flow-based, and the models are much more detailed and granular.
Keep in mind that valuation multiples are not really “valuation” – they’re shorthand for valuation.
If you know the discount rate, a multiple always implies a specific long-term free cash flow growth rate.
So we avoid multiples-based valuation altogether and focus strictly on cash flows.
The concept of “Terminal Value” doesn’t exist because we project cash flows for decades into the future – until the resource itself runs out or the asset stops operating.
You’ll see spreadsheets here with 2,000+ rows, and you might go as granular as modeling the revenue and cash flows from thousands of separate customer contracts or oil wells. And then you need to call in consultants to verify each line once you have the initial numbers.
That level of detail is rare in M&A models because you don’t have the time or the motivation: a lot of analysis is done at the last-minute and the bank is not risking its own capital, so bankers don’t care as much about footing all the numbers.
In Project Finance, there’s also a lot more focus on downside scenarios: even if the asset collapses or has to be shut down, can we still get our money back?
If not, how can we mitigate risk and make the deal more appealing? You need to explain these mitigants clearly in your credit application, or you’ll be grilled by the credit team.
So you’ll see models with 10-15 different scenarios that take into account factors like cost inflation, project delay, volume and pricing changes, and so on.
It’s rare to show that many different scenarios in IB models and presentations, partially for time/motivation reasons, and also because it doesn’t exactly look good to march in and show a client all your “Downside” cases.
Q: Yup, very true. Any other differences to note?
A: There’s also a difference between being the Financial Advisor (FA) and Mandated Lead Arranger (MLA).
FAs act on behalf of the sponsors / borrowers to structure financing schemes, and they help raise capital from different sources at the optimal terms.
MLAs act as lenders to review project structures, obtain internal credit approvals, and enter into loan documentation to finance the project with loans.
Typically, the bank acting as FA will also participate as the leading MLA.
The client mostly cares about how much capital you can commit to the project, and at what cost.
Q: Great, thanks for sharing all that. What about advancing on the job?
Is it any different if you’re working at a Japanese bank in Singapore?
A: At the junior level (below VP), financial modeling and documentation skills are critical for your professional growth.
At the VP-level and above, skills such as deal origination and client relationship cultivation become more important.
And just like in other finance roles, you also tend to get promoted every 2-3 years here.
One difference is that there’s more hierarchy at Japanese banks. If you know anything about their culture, this shouldn’t surprise you.
- Senior Associate
- AVP (Assistant Vice President)
- VP (Vice President)
- FVP (First Vice President)
- SVP (Senior Vice President)
- Deputy Manager
- General Manager
So you may get promoted more slowly due to the additional levels.
On the other hand, there’s also more job stability in Project Finance and at Japanese banks in general.
Your chances of suddenly being fired, downsized, or “restructured” are lower than in traditional IB roles – certain Japanese banks didn’t even cut their Project Finance teams during the last financial crisis.
Q: Interesting points there.
Do you have a sense for how the European banks differ?
A: I can’t speak to the cultural / work hierarchy differences, but here are a few observations on typical clients and regional / industry strengths:
- Japanese Banks: They are most comfortable with big-name clients, and tend to offer debt with lower pricing and longer tenor.
- HSBC and Standard Chartered: They target clients with weaker financial profiles, and charge higher fees for the greater risk they take on.
- French Banks: BNP Paribas and Crédit Agricole are very strong in upstream oil & gas financing; BNP even has a dedicated Reserve-Based Lending (RBL) team to cover that segment. Crédit Agricole is more active in the EMEA region. SocGen has a solid track record on financial advisory to liquefied natural gas (LNG) projects.
Moving Up, Moving Out, and Moving On
Q: Since you’ve worked in a few different oil & gas and advisory-related roles, it might be interesting to compare them.
What was it like doing business development at the oil & gas firm vs. doing Project Finance for oil & gas companies at a bank?
A: I wouldn’t say one was “better” or “worse” – it comes down to what you’re looking for:
Work-Life Balance: On the corporate side, you have a much better work-life balance. Hours are not much longer than a standard workweek, and you’ll almost never be in the office until midnight, let alone 2 AM.
Pace: At a corporate, you’ll only work on 1 or 2 deals at a time over the course of 1 or 2 years. You won’t even work on other transactions until you close the deal you’re working on.
At a bank, it’s much faster-paced and you’ll end up switching deals, dropping clients or potential financings, or suddenly having to create a pitch at the last-minute.
Personality: At a corporate, you won’t meet as many “alpha”-type people who are driven to close deals as soon as possible.
In banking, well, you know that classic M&I story about the VP who punched through his car door window, right?
Nature of the Work: The analysis tends to be simpler at a corporate because you focus on simpler metrics like the IRR or NPV of projects. If they pass your threshold, you’ll move forward.
But at a bank, you look at credit ratios like the DSCR – Debt Service Coverage Ratio (unfortunately, not the “Drink Service Coverage Ratio”) – and the LLCR (Loan Life Coverage Ratio), to make sure that projects generate enough cash flow to repay debt.
You also get exposed to a variety of deals, and you need to evaluate everything from the economics to the legal side. You also have to deal with compliance and internal procedures.
You put a lot more work into each deal since you have to figure out how it fits in with the rest of your portfolio – and you need to complete more tasks and coordinate with other parties/lenders to close the deal.
Q: Great, thanks for that comparison and for the reference to that classic story.
Any thoughts on how Project Finance compares to traditional investment banking roles?
A: In short:
- Pay: The base salary is about 10-20% lower than IBD base salaries, and junior-level bonuses represent about 6-10 months of your salary.
- Hours: They’re much better than in IB. Weekend work is pretty rare, and you even get to go home before you want to pass out.
- Skill Set: PF is way more technical as you need to drill down to every last detail of models, contracts, and documents. IBD is more of a sales-driven business so sales acumen is critical for senior bankers, although financial modeling is still important for junior roles.
Q: Sounds good!
Finally, what are your exit opportunities like if you work in oil & gas project finance in Asia?
A: Most people tend to stay in oil & gas project finance; sometimes they move to Hong Kong because the taxes are also low and because there are more generalist groups there (in case they want to move to another industry).
Moving to traditional buy-side roles is difficult because there aren’t too many energy-focused buy-side funds, or even credit-focused buy-side funds, in Singapore.
Q: And what are your own future plans?
A: I’m planning to stay for at least another 3 to 4 years to gain more deal exposure and experience working on bigger projects.
But eventually, I want to move into oil & gas advisory at a bank or go to the buy-side.
Q: Great, thanks for your time.
A: My pleasure.
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