PFX Bonds FAQ's
Welcome to the PFX Bonds FAQ zone.
Presented here are FAQ’s so far. If you have any further please send them to info@pfx.exchange and we will respond as quickly as possible. If appropriate, they will be added to the list below.
What’s so special about ‘project finance’ that it needs its own bond market?
There are thousands of projects at any one time across all sectors including infrastructure, housing, energy, hospitality, healthcare etc, worldwide. At the same time there are hundreds of thousands of investors across the institutional and private markets who wish to invest in these projects. Unfortunately, the huge buy- and sell-side populations involved have made for a fragmented and opaque market where increasingly more investors and projects have failed to identify, connect and engage with each other than succeed.
Also, each investor has their own unique structure, methods and protocols making it an almost insurmountable challenge for projects to fit themselves into the different due diligence, debt/equity and other structures of different investors.
From the outset, PFX has been developed to consolidate this $multi-trillion market so that buy- and sell-sides can now seamlessly move forward together. Only a specialist major project finance bond market, built around long established market protocols, can achieve this goal.
What exactly is project finance?
Project Finance is unique amongst all investment structures because: investment is predicated on the track record and financial stability of whoever is contracted to buy the output from the built project, and not the assets or balance sheet of the borrower. These same track record and financial stability (underwrite-able) criteria apply to all the project’s contractors and other counterparties.
In cases where no contracted buyer can be shown but a feasibility study clearly demonstrates the viability of the project (in that there is absolute/underwrite-able assurance that any loan will be repaid) it needs to be credible and backed with sound and qualified research.
Also, a project can qualify if the applicants can show a track record of success in operating the built project. This usually applies to hospitality, energy and similar sectors where specialist operating knowledge is required.
We want to register as PFX Bond Issuing Agents, but we already have a very large network of investors. Is there any way we can prioritise our own investors?
Yes, you can select a ‘private placement’ option when you register which will enable you to alert your own investors to an upcoming bond issue for a period of five working days prior to it being available to other subscribers. Your investors will need to register as subscribers for issuance and settlements purposes.
What is my tax situation as a subscriber?
PFX is registered in the regulation and tariff ‘neutral’ domicile of Gibraltar. All bonds will be issued by project SPV’s (special purpose vehicles) registered in Gibraltar. Your coupon and maturity payments will be made to banking coordinates provided by you direct from our settlements bank. You are responsible for your own tax affairs.
Is it safe to buy Bonds from companies that will sometimes have no financial track record?
As has been the case for decades, some projects are led by long-established public or private sector entities, and others by teams and companies set up for one, specific project. In both instances, it is the financial stability and track record of whoever is contracted to buy the output from the built project, along with its contractors and other counterparties, that override the assets or balance sheet of the borrower. Naturally, the Issuer’s management team must be able to demonstrate experience and competence in their relevant market. This is subject to as much underwriting due diligence as all other aspects of the project.
Also, corporate bond issues are overwhelmingly dependent on worst-/best-case forecasts. PFX Bond security is based on deep and granular due diligence by the insurance Wrap’s ‘A’-or better rated underwriters. They conduct full due diligence on all contracts, agreements and other essential components of the project, with policies issued on the contractual certainties on which project financing is built.
What is the ‘Insurance Wrap’?
This is a series of overlapping or interlinked policies covering as many as thirty risk ‘towers’ unique to project finance, each with their own sub-contingencies, risks and events. When the Wrap is fully assembled, all the policies are integrated through a Single Group Policy, underwritten through Lloyds-of-London. For ease of administration any pay-out by the Wrap is made to the agent for allocation into the project or directly in support of coupon payments.
We wish to register as a PFX Bond Issuing Agent but have been involved in project financings for many years and developed our own insurance structures. Can we use these instead of the Wrap?
Unfortunately not. The almost infinite variety of insurance/financing structures is symptomatic of the fragmentation that currently impedes the market. The PFX Wrap was developed in co-ordination with the multi-award winning UK-based risk consultancy that developed the original Wrap. It has been in use across institutional and private markets over more than a decade.
Is Gibraltar a safe jurisdiction for me to buy bonds from?
Gibraltar is a British protectorate. PFX is regulated by the Gibraltar Financial Services Commission (GFSC) which bases its regulations largely on those of the UK. Gibraltar also takes the UK’s credit agency rating which is currently Moody’s AA-.
As an Issuing Agent and an investor ourselves, is there anything to stop us from arranging or taking an equity stake in the project prior to Issuing the Bond?
Not at all. You can now agree your equity position and then, rather going out to all your investors to structure the balance you can simply issue PFX Bonds. You can explain your equity position in the ‘Introduction’ section of the Prospectus.
As a subscriber, what can I expect to see on the Prospectus?
Your prospectus will be far removed from traditional corporate bond issues. You will be presented with all details necessary for the project’s viability. This includes land/site ownership/acquisition; Details of EPC (engineering procurement & construction) contractors; Off-take and/or power purchase agreement (PPA); The leadership team; Specialist contractors for hospitality, energy, healthcare and other specific sectors; Details of the tranche payments to be made to the project covering the various pre-stabilisation (construction) stages; Details of which underwriter is covering which risk, contingency or event throughout the pre- and post-stabilisation (construction and revenue generating and operating) stages of the project.
These are all reviewed in deep, granular due diligence detail before the policies covering each area is issued by the underwriters. The underwriters covering relevant risks on each stage of the project are shown on the prospectus guaranteeing performance of all relevant counterparty commitments with their own ‘A’ or better rated reserves.
We are a stable country in Africa. Will we need a sovereign or other guarantee?
No. The underwriting decision will be made on your project’s own merits. In effect, the global insurance markets, through the insurance Wrap, replace any sovereign guarantee investors may have required. Provided you and your project meet the stringent IDV, prospectus, data-room and other underwriting and subscriber requirements there is no reason why your project will not have a successful PFX Bond listing.
However, PFX and wider market experience is that projects from Africa and other developing world regions fall far short of the disclosure, content and transparency standards the market demands. We recommend you work with seasoned and proven advisors such as a major consulting accountancy firm, investment bank or similar when preparing your project plan.
As a subscriber, will I be able to view the financials?
The underwriters will have full access to the financials but they are presented on the prospectus as quarterly balance sheets with the point of transition (from construction expenditures to operating revenues) clearly shown. All verified and underwritten by the underwriters.
Their review will include Breach of Contract and Contract Performance Bond(s) and Unfair Calling of Bond(s); Advanced loss of Profit (ALOP), Business Interruption (BI) and Delay in Start Up (DSU);
Account Receivable/Trade Credit Insurance and Contract Frustration and Sovereign/Political Risk/CEND (Confiscation, Expropriation, Nationalization, and Deprivation of assets).
Why are you only using EUR and USD as currencies? We are in the UK and would much prefer to use GBP.
PFX Bonds is a global market and it was important to decide on which currencies to use at the outset. USD is an established global reserve currency and EUR has become a leading trading currency. Also, EUR is already used as the project financing currency across many regions, particularly Australasia and EMEA, Africa and elsewhere. We appreciate that GBP, CAD, AUD and other currencies may be preferred for use by some projects, but issuing bonds in your local currency exacerbates FX risk for Subscribers, and would severely inhibit your Bond’s ability to raise your full capital requirement.
It will be up to you and your Issuing Agent to decide which currency to use. Also, please remember, all your financials need to be in USD or EUR and not your local currency.
If we want to raise our project finance with a PFX Bond, what sort of timeline can we expect?
It is really dependent on you. If you have every piece of information ready to present in your Prospectus and data-room, as required by the insurance Wrap underwriters, expect four months from initial application to Subscription. If you have no experience of raising project finance and your Issuing Agent has to spend time guiding you throughout the Prospectus build and data-room process, anywhere from six to 12 months.
What is a data room?
This is where you present all your documentation for access by the Wrap underwriters. You will need to include Gibraltar SPV Company registration (automatically provided by PFX system), tax and other compliance documents; Past three years balance sheets (if available); IDV and AML information etc for your company and its key personnel; All permits and permissions; Off-take and/or PPA contracts; EPC and other contractor agreements; Operating and management agreement (for hospitality, health and similar sectors); Feasibility study (where required); Key personnel CV’s; Land ownership documents. Everything with nothing excluded.
Do I have to pay full interest through the build stage of my project?
Unlike traditional project financing, where interest was charged and rolled-up as tranches paid over the construction (pre-stabilisation) period, the rolled-up interest through this ‘grace’ period is now added in full to the principal amount of your Bond. It is simply impossible to use the traditional structure, with principal ‘advancing’ with each tranche payment, when your Bonds have, perhaps, hundreds or thousands of subscribers, all expecting their coupons to be paid from day one.
This will affect the principal amount and term of your Bond, which you will be able to discuss and finalise with your PFX Bond Issuing Agent.
Do you operate worldwide?
Yes, with the exception of Russia, China, Iran, N. Korea and other jurisdictions where CEND (Confiscation, Expropriation, Nationalisation and Deprivation of assets) risks preclude the use of the insurance Wrap. All bond issuance applications are subject to deep due diligence to ensure the ultimate beneficiary is not in any of these jurisdictions.
What is the minimum and maximum value for PFX Bonds?
The minimum project value is $/€50m and the maximum, through the launch period, is $/€500m. This is to ensure that all systems are properly tested, stressed and bedded in before going to the ‘No upper limit’ ceiling. We expect to be able to publicise ‘No upper limit’ within three months of full launch.
Experience shows that deals below $/€50m carry far more risk than can be justified either for PFX Issuing Agents or Subscribers.