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Smart financing for sustainable development

Realising complex projects that matter

What are the building blocks of smart financing? Discover how risk management, insurance and innovative financial-structuring models enable impactful technology projects worldwide. 

Behind sustainable development

The sprawling challenge of financial structuring

Against the backdrop of the UN’s sustainable development goals, meeting the world’s biggest infrastructural challenges is prompting increasingly sophisticated combinations of technology and finance as well as the expertise to make it all happen. 

In 2015, Egypt began work on a project that would boost the country’s power output by 50%. Constructing this energy “megaproject” would require transporting 24 H-class gas turbines, each weighing more than an Airbus 380. The result? By early 2017, when its first stage was complete, the project had beaten its own target, bringing 4.8 gigawatts of power online in a record-breaking 18 months. 

 

But the technological achievements were only part of the story. Underpinning the megaproject was the no less sprawling issue of securing finance, a task that involved governments, export credit agencies and 17 leading banks. 

 

“One of the reasons we were able to manage the Egypt project was the way that Siemens’ industrial and financing units collaborated,” says Tobias Behringer, head of project and export finance, power and gas at Siemens Financial Services. “SFS’s insurance unit dealt with project insurance, our trade finance team arranged for local banks to provide contractual guarantees, while we on the advisory side met the challenge of structuring a high volume of financing.”

Financing is increasingly tailored to the customers’ individual needs – and is also increasingly reflecting risk management need.

Dr. Alexander Mahnke, CEO of Insurance, Siemens Financial Services
Dr. Alexander Mahnke
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What you should know

  • Our involvement provides additional confidence that we will deliver on our promises. 

  • It is the way SFS delivers our services and structure deals – how we fit the puzzle pieces together – where the real innovation happens. 

  • Our customers know SFS possesses deep expertise in all the relevant financing and risk areas, has a holistic picture and can interact effectively and pro-actively. This helps them structure and close a project efficiently.
     

Video interview: Alexander Mahnke on the importance of insurance to realize complex projects

Siemens - Smart Financing Standalone applet
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    Equity

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    Debt

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    Insurance against physical damage

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    Pay-per-use

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    Performance contracting

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    Operating lease

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    Business interruption insurance

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    Customized financial structuring

Illustrating the intricate relationships between innovation and financial models, this graphic shows three hypothetical technology projects and the potential combination of finance instruments needed to fund them.

Complex factors,
tailored answers

Most large-scale development or modernization projects require a highly tailored financing solution.

Here are three highly diverse projects and the potential combinations of financing instruments that can get them off the ground.

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each scenario

Situation one

Energizing Lives

A national government is looking to build a major energy project, of a scale that promises to transform the life and economic prospects of the city it will serve. The project will involve building entirely new facilities on a previously unused — or “greenfield” — site, and the facilities themselves will be costly and complex to build.

As a result, though the country is stable, the project itself is risky, time-consuming and expensive.

Situation two

Digital Dilemma

Faced with intensifying competition, a manufacturer wants to implement sweeping digital changes to its business. The new technology promises to bring major costs savings through the efficient use of energy, while improved forecasting will enable more intensive use of the machinery.

Additionally, product testing will be possible using virtual models, saving huge amounts of time and resources. Unfortunately, this shiny new technology is both complex and subject to rapid change. And it doesn’t come cheap, either.

Situation three

Sum of Its Parts

A city government is looking to add a new line to its metro system, helping ease the pressure on what is one of the region’s busiest transportation networks. The new development stands both to improve the daily commute for millions of passengers and to unlock further investment in the surrounding areas.

However, building the line presents major technical and logistical challenges that require a wide array of suppliers to deliver according to a very specific timeline. The failure of any to stick to their schedule could result in severe bottlenecks and delays — and spiraling costs.

Complex factors, tailored answers

Most large-scale development or modernization projects require a highly tailored financing solution.

Here are three highly diverse projects and the potential combinations of financing instruments that can get them off the ground.

  • Usually the earliest investors and the key to bringing other investors on board, equity “sponsors” require high levels of specialist knowledge in the project. The government itself will likely be an equity investor in the energy project, as will the construction company.

  • Another source of capital could be debt financing, ranging from bonds to hybrid (or mezzanine) finance. The most likely debt instrument for our energy project is syndicated loans, in which several banks join forces to issue a big loan, making it less risky for each of them.

  • As the government or the construction company building the power plant can’t control for the vagaries of nature, this risk can be passed on to insurers who would cover losses caused by, for instance, fires or earthquakes.

  • Rather than paying up front, the manufacturer can access the technology through an arrangement that spreads payments across time, broadly in line with the benefits the equipment will generate. Key examples of this are tech-refresh arrangements or retrofit packages, which allow regular.

  • Backed by rigorous, precision data, the manufacturer can be certain it will make major savings once the new technology has been in place for a while. Consequently, companies like Siemens can, in place of up-front fees, agree to take payments only once those savings are realized.

  • Should the equipment be too expensive for the manufacturer to buy outright, SFS could retain ownership of the technology (or part of it) and lease it “off balance sheet” to the manufacturer. This option allows the manufacturer’s cash flows to be preserved, with flexible options available at the end of the contract.

  • Designed specifically to cover such risks, business interruption insurance can cover losses that might arise should the new line not operate as intended, for reasons such as physical damage or disruptions to the supply chain leading to a shortage of raw materials.

  • To deal with the highly specific time demands of the metro project, SFS can offer tailored financing, ranging from delayed credit lines to flexibility around when and how credit is repaid. With delayed credit lines, funds for the project are released as they are needed, thereby incurring smaller interest payments than a single lump-sum loan would.

The benefits of foresight

Turning risks into opportunities

Faced with an interdependent global economy and a growing diversity of investors, key actors in projects are increasingly adopting a “life-cycle” approach, which uses vast tranches of data to consider risk across a project – from its outset, throughout the construction stages and on to the full lifespan of returns to investors. 

 

Central to this holistic approach is an acknowledgement that some risks should be passed on to bodies better equipped to cope with them. 

 

"To deliver a fair assessment, our ratings analysts need to have in-depth knowledge – not just of the industry but of the technology involved and the potentially competitive position of the project", Dr. Peter Rathgeb, CFO of Siemens Bank. 

 

From foundations to funding

Innovation for insurance solutions

Just as homeowners wouldn’t ordinarily assume the full financial risk of earthquake damage, nor would the builders of a toll bridge. In both cases, a crucial part of the equation is insurance.

 

In the Dominican Republic, to finance the design and construction of new lines in the capital’s metro system, SFS devised a multisource financing package, backed by export credit agencies, that essentially guaranteed payments for all suppliers’ parts. 

 

Siemens Financial Services also offers a suite of general insurance programs, including property, transport, construction or liability, to efficiently cover most insurance needs.

Find out more about the role of financing for sustainable development

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Financial solutions in action

Siemens leverages the technological expertise needed to understand your individual vision and the financial know-how required to bring it to life – anywhere in the world. Learn more about how we’re helping businesses today.

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Financing that fits

Effective financing lays the groundwork for market success. Siemens can design a financial solution with the exact needs of your market and project in mind, letting you account for risk and take advantage of growth opportunities as they arise.