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Project finance manager: ‘Who has the boring job here?’ | Joris Luyendijk

Financing construction and management projects is much more fulfilling than investment banking, claims this finance worker

• This monologue is part of a series in which people across the financial sector speak to Joris Luyendijk about their working lives

“The more traditional side of banking – making actual loans – is seriously under-represented on your blog,” she wrote to me,, and a few weeks later we’re meeting for brunch in a restaurant on the river Thames. It’s a few days before Christmas and the City feels weirdly empty, except for the brightly coloured tourists. She is a cheerful woman in her late 20s, a scientist by training. She orders French toast with strawberries, and she digs in with gusto.

“In my brain it’s almost as if there are two separate parts. One that I use to think about my salary and mortgage, the other for the deals I do at work. There I may be asking, ‘Wait, was that number? bn or bn?’ That’s how you lose all perspective, I mean, how am I supposed to really comprehend a number like ,000,000,000?

“As project or structured finance people, we are seen as boring by investment bankers (the traders and those in mergers and acquisitions). But traders sit in their glass buildings all day shouting into their phones and staring at a screen, turning one number into another. I help build schools, toll roads, bridges, oil rigs and power plants in faraway places. I travel all over Europe, to Russia, Asia and Saudi Arabia, on my own, to inaugurate a gas plant, open a solar park or inspect an oil refinery. Now, who has the boring job?

“While in university I interned at an investment bank, and hated it. I was in middle office for a derivatives trading desk, meaning I had to process the trades made by traders. I’d get shouted at all the time, often for things that they had done wrong, not me. A good trader needs to be very assertive, and to have a very quick response. Thing is, that attitude carries over into their interactions with other people. You’ll find them screaming at the sandwich lady in the canteen.

“Back at university after the internship, a recruiter approached me to ask if I was interested in project finance. I had no idea what it was at the time. I am loving it.

“Project finance starts with somebody wanting something built. If it’s a government, then this could be a school, a bridge, a power plant or an airport. So the government puts out a tender, meaning you can bid for the contract to build this thing. Different parties will come together as often no one company has all the required expertise. A construction company knows how to build a school, but not how to operate it, nor how to finance it. So different companies put together a bid for the contract, and create a special purpose vehicle (SPV); a separate company that will build and then run the school, airport or whatever.

“This is a big difference with corporate finance. There, established companies simply go out and ask a bank to borrow money for them, using the corporation’s balance sheet as collateral.

“In project finance that’s not possible, as the SPV is a separate new entity and not sitting on participating companies’ balance sheets. For the banks providing the loans this means that they have what’s called ‘non-recourse‘; if the SPV messes up, we cannot claim any money from the companies participating in it. Instead, we end up owning the ship, or school, or toll-road that we financed. Compare it to a mortgage; if you cannot pay for it any more, the bank can come take your house, but not your salary or other assets. Same for us.

“You really don’t want to own a ship or a school, being a bank, because that is not where your expertise is.

“There’s no typical working day for me, it all depends on where we are in the life cycle of the deal. I may be talking to the deal’s financial advisor about the deal’s structure, I may be reviewing legal documents, or technical reports about, say, gas pipelines. I may be on a site visit, on a conference call like everyone else in the City. I may be reading up on developments in the oil market, or talking to an independent consultant: You have consultants for the craziest things. They may count the number of cars on a toll road for you, sitting there for weeks making notes. Or they spend weeks interviewing travellers in a particular airport – it turns out a lot of airports make most of their revenue from duty free shopping, restaurants and parking.

“This is what makes project finance great. Most people in finance work on a bit of a deal, then passes it on to someone else, who again does a bit, then hands it over, and so on. We do the whole thing, and when I drive through the country, I think to myself, ‘Ha, that’s my toll road, that’s my school, that’s my police station’. This is so fulfilling.

“As I said, companies are created specifically for the purpose of building that one school, or airport, or whatever. So you have no history to base your projections on, as the company is brand new. We have to start from scratch, and this is a special skill, building a financial model with nothing to go on. That’s why we tend not to hire people from corporate finance; they determine the strength of a company in part by analysing its past operations. It’s very difficult to unlearn that; to analyse creditworthiness without a record of a company’s performance.

“We run lots and lots of ‘what-if’ scenarios. The biggest arguments can be about the most basic assumptions. The model may be based on a projected oil price of 0. Now, what happens to the project if oil goes to , or to 0? What if something like 9/11 happens again, or the ash cloud?

“Before the crisis banks would often sell part of the loans that constituted the deal on to the so-called secondary market. No more. Today banks only come in for what they’re hoping to hold on to. What this means is that you need more banks to do a deal, as each comes in for a smaller portion. This makes deals more complex.

“These days there are bargains out there, as weak and vulnerable banks sell off their participations in big deals. If we already have a stake in a project, buying some more can be profitable as we don’t need to do so much due diligence; we know what we’re buying. On the other hand, if you end up with a very huge stake in, say, a toll-road, your negotiating position with a local government could be undermined; as this government will know that you’re on the hook. It’s always better to be with six banks than with two.

“Project finance is a tightly knit community. We have divided up the world into sub sectors, like energy, transport, social infrastructure … In each of these, there are probably somewhere around a hundred people active, and they all know each other. In one deal you may be pitted against somebody, then the next day it’s you and that person pitted against yet someone else on another deal.

“You don’t really use emotions in negotiations. That’s seen as playing dirty. It makes no sense either, you can do the puppy dog eyes thing, but everyone at that negotiating table will have to get their deal approved by their own credit department back home; and these departments don’t go for emotional appeals, they want to see the right numbers.

“There are many non-numerical discussions though, with my credit department, it’s not just the numbers. Reputational issues can sway them, sometimes, to approve a deal – if you can make the case that not doing this deal would damage the bank’s standing.

“People’s baselines move in negotiations, within limits. It’s like negotiating your salary; you go in demanding 40% more, knowing you end up with 20%. I will have an idea of my opponent’s baseline from previous deals, and they will have an idea of mine. So I may argue that in this case the risk is slightly different than the previous deal, hence our need for slightly better terms.

“We don’t have individual budgets, meaning nobody in my bank has a number behind their name, saying: this person made ‘x’ million pounds for the bank. It’s all about the team, the number of deals they made, their size etcetera.

“People are nicer in structured or project finance than in investment banking. There is shouting, sure, and storming out of negotiations – that’s part of the process.

“Where things go wrong with SPVs is when people are not scrupulous. You can certainly do funny things with them, if only because SPVs do not go on a company’s balance sheet – so they don’t count towards the total maximum risk that can be taken on.

“It’s the case with many things in finance; products are very useful, but they can be abused. This is what has given project finance a bit of a bad name in the UK. But in and of itself it’s great for governments to be able to outsource the building and management of a school to the parties best able to carry it out. And it’s great not to have to pay for everything upfront, but in steady increments over many years, as long as the government gets its numbers right and does not, say, promise so many new schools that they end up spending a big chunk of their budget for the next twenty-five years without realising.

“For international deals we often work with so-called export credit agencies (ECAs). Many governments have these. They finance exports from their countries, for instance they might lend you part of the money required for a project involving their industries, and another agency might provide insurance for another part of the loan. This has a great impact on major deals about, say, gas fields or power stations. A Japanese company might build the best turbines while a Chinese company builds the cheapest. Now, if the Japanese ECAs offer financing facilities at really good prices, the Japanese turbines might end up being the cheaper option after all. The cheap Chinese turbines aren’t much good if the banks are going to charge a high price to finance them.

“An effect of the euro crisis is that some of the European ECAs cannot offer these facilities at good prices any more, as their governments are now a liability themselves. This is how the financial crisis trickles down into the real economy.

“I seem to be the only one around who has no problem in telling people what I make. With a little under 10 years in experience I make about £100k a year, plus bonuses. I could be making a lot more in investment banking, but I wouldn’t want to. Investment banks make money with money, they speculate. That creates an atmosphere that I don’t find pleasant at all. It’s a much nicer environment if you don’t even have to meet these people in the lift. I am very happy I work in a commercial bank instead.

“I wonder how many protesters in St Paul’s realise that it’s high earners like me whose tax money pays for their education, healthcare, benefits … People with my income don’t have the offshore vehicles to avoid taxes; we pay our share, and this makes us net contributors to society. This is fine, but I refuse to feel guilty about my salary. By the way, £100k plus bonus is still grossly overpaid, in the greater scheme of things, but I’m not complaining. If the bankers and City workers weren’t getting good salaries and bonuses, then who’d be paying into the tax system? I wish people at St Paul’s would do the sums and formulate achievable demands.”

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