A succession of new build projects will reach financial closure in the coming years. Image credit: patpitchaya

At a nuclear new build forum held by the Nuclear Industry Association, top executives from the recently-created British Business Bank (BBB), as well as UKEF (UK export Finance) and Barclays, asked companies in the country’s nuclear supply chain to step forward and pitch for new loans.

The call for more financing activity comes ahead of EDF’s Final Investment Decision on the 3.2 GW Hinkley Point C plant, expected later this year, which will reignite new build optimism and be followed with investment decisions in around 2018 on separate UK plants being developed by the Japanese Horizon and Franco-Japanese Nugen companies.

While banks are offering up more financing options, firms in the UK nuclear supply chain need to adapt to the latest trends in nuclear finance and become more comfortable with up-to-date language and procedures.

Fresh SME Finance

In 2014, the government created the British Business Bank (BBB) to provide loans to small and medium size enterprises to supplement those offered by the private banking sector.

Until its creation, the UK was the only G7 country which did not have a funding body with a strong focus on SMEs.

According to Stefanie Rupp, the bank’s strategic and business director, the BBB is now trying to engage with nuclear SMEs as they are expected to become a crucial part of the nuclear supply chain over the next 10 years.

The bank started with GBP3 billion of lending resources and is projected to be able to operate with GBP10 billion over the next ten years, matching the projected growth curve for SMEs in the nuclear power supply chain.

“These funds cover risk in areas where private banks will not, thus making them suitable for the nuclear industry,” Rupp said.

The bank uses the existing financial instruments and conditions of partners which include Bank of Scotland, Lloyds and Barclays. The current goal of the bank is to give better information to SMEs to start up and then scale up.

To date, the bank has lent GBP1.8 billion to medium size businesses with 40,000 firms benefiting from this support. The bank is looking for firms in the nuclear supply chain to participate, but according to Rupp, there are as many as 1.2 million SMEs from all business sectors which could yet apply for funds.

In addition, the Bank offers credit guarantee to companies with insufficient collateral and close to GBP1.8 billion remains available for new applications. Companies can refer to the BBB’s Business Finance Guide to check if they qualify.

Private banking terms favorable

Historically, commercial banks such as Barclays have financed many major transport and logistics projects, including the first UK steam railway, but borrowing demand in the current market remains at a low-level, Ross Taylor, Industrial Director at Barclays Corporate Banking, said.

The current market rates provide fertile ground for higher activity, Taylor said.
“Borrowing has never been cheaper for so long and the business activity in the South East and the North West is robust, so the industry can once again afford to be brave,” he said.

Barclays is often keen to invest in manufacturing as the default rate is low and it offers high value investment which increases the banks productivity.

The bank is assessing loan candidates on the CAMPARI criteria, namely Character, Ability, Margins, Purpose, Amount, Repayment and Insurance.

Export finance ready to provide boost

David Craig, a UK export finance underwriting manager at UKEF, said that the institution has a “long track with financing big projects, but not in the nuclear sector.”

The UKEF’s funding mechanism has evolved into two categories, products and services for overseas buyers and products and services for UK exporters.

The strong international ownership of UK’s new nuclear projects includes major French, Chinese and Japanese companies, providing strong potential for UK firms to expand their customer base abroad.

UKEF services for the overseas buyers’ category include the provision of guarantees to the banks on the loans they give to overseas buyers so these firms can purchase UK goods and services, as well as buyer credit (direct lending) and supplier credit finance facilities.

UKEF also supports British exporters, by broadly providing protection against the risk of non-payment by overseas buyers, providing help in issuing bonds required under export contracts, and assistance with working capital requirements.

Under a Direct Lending Facility (direct lending), UKEF will work with a partner bank in the market to deliver funding from a reserve of GBP 3 billion, by using an approved bank to disburse and manage the loan on behalf of UKEF.

The interest rate payable by the buyer is calculated on a fixed rate basis and for nuclear build the financing term can be build period plus 18 years. The rate is set at the Commercial Interest Reference Rate (CIRR) set under OECD arrangements, which are based on Government bond yields for the currency concerned.

UKEF can also finance from 20% to 85% of the project value and can offer finance in EUR, USD, GBP and Yen, according to Craig.

Hitachi: wide opportunities for UK supply chain

Tom Davies, Head of UK supply chain at Hitachi Europe, nuclear power projects, gave some examples of where such funding may go in the UK nuclear supply chain.
Hitachi has analyzed which products and services can be bought in the UK and they include major components such as back-up diesel generators, civil and building activities with construction partners, as well as installation work.

Hitachi, which owns the 5.4 GW Horizon nuclear plant project, has so far invested directly and indirectly GBP 20 million to establish a UK presence and contacts with the UK’s supply chain. In addition, it has invited suppliers to register at www.horizonnuclearpower.com/suppliers.

Understanding nuclear finance

In preparation for a renaissance in UK nuclear power, US law firm Sherman and Sterling has looked at the nuclear industry’s ability to attract new sources of finance globally.
The industry should learn the latest financing mechanisms available and understand the language used by bankers and credit agencies.

The law firm has created a compact dictionary which explains technical and finance terms used by banking and industrial parties industries and defines major trends in nuclear finance.

George Borovas, Head of Shearman & Sterling’s Global Nuclear Group, said the industry is stifled with misconceptions over nuclear finance.

“Engagement with banks must occur at the early stage of a project’s development, in order to adequately address the risks of a project, to demystify any potential issues and to ensure that project developers and banks develop common understandings and workable risk-mitigation solutions,” Borovas said.

Rumyana Vakarelska