Fri, 24/02/2017 - 09:15
Current Issue 56
Cresco Project Finance is the boutique financial advisory firm providing specialist services to project promoters in Africa, moving projects up the value curve by applying project financing expertise.
Grow, Rise, Thrive
Writer: Phoebe Calver
Project Manager: Arron Rampling
Cresco Project Finance began 11 years ago with Conrad Hefer and Robert Futter taking the simple idea of enabling project promoters with the knowledge and industry expertise required to raise the finance needed for the successful development and implementation of projects in the mining and infrastructure domains.
During such a short amount of time since the Company’s inception, it now has two locations to work out of, in South Africa and Mauritius. And combined with the expansion of its workforce, Cresco has been able to expand its offering to provide a variety of complementary services to the core business of project finance advisory, including specialist financial modelling and commercial project management; highlighting the successful evolution that the business has enjoyed so far.
“Both Conrad and myself had worked on behalf of banks and development finance institutions in the past and had identified a gap in the market where solid projects were failing due to the promoters lacking understanding in terms of what makes a project bankable or fundable,” explains Robert Futter, Director at Cresco. “We saw it as an opportunity to move away from the specifics of the banking sector, and move into working with promoters to package their projects in the right manner for presentations to funders, thereby enhancing a project’s ability to entice and obtain the funding required.
“Within reason we can provide most financial and related services, and, although we have received some spin-off work in terms of other services, such as supporting the client with accounting and SPV administrative services, we predominantly continue to focus on project finance and transactional advisory work, where we endeavour to get involved even as early as concept stage.”
This aspect of the Company sets it apart from the competition, as Cresco quickly realised that in moving into the projects at earlier stages, it would be able to provide more assistance in the feasibility and finance structuring process to ensure that money is being spent in the right places and not wasted.
In short Cresco is striving to be a one-stop support shop for project promoters, guiding them through the process to raise the capital required to make their project a reality.
“From a non-technical and industry specific focus, we aim to be active in all sectors,” begins Conrad Hefer, Managing Director at Cresco. “We are fortunate to have been involved in capital projects in all industry sectors, aiming to raise the capital on the projected cash flows of projects, combined with an ability to generate revenue that will repay the capital investments made initially.”
In the past year there has been a lot more movement in the mining industry after a relatively stagnant few years. Subsequently, the main focus for the Company in recent months has been the expansion of existing operations; projects where mining operators are looking to gain funding and expand.
“In the industry there are an abundance of mining Greenfield projects, so the majority of operators are investing their time and money in getting these projects off the ground,” explains Hefer. “For these there is a lot of preparatory work, however, in terms of implementation it is relatively simple and we seem to have had an influx of these projects arriving in the market. We’re feeling quite positive about the industry and the uptake within the mining sector.”
In particular when looking at the Company’s involvement within the mining sector, Cresco realised that offering flexibility within its services was the way forward. However, it has continued on with the due diligence and feasibility studies it is so well known for.
“Although the feasibility studies may not be as ‘brand-boosting’ as other projects, it provides the consistent work that a Company needs,” adds Futter. “These jobs have weathered us against the ups and downs of mining and enabled us to take on long-term implementation projects.”
Cresco brings a flexible approach to the table for its clients, purely providing solutions when and where they are required. The typical mistake made by many advisors is found when they choose to provide a very specific service, as opposed to looking at the project as a whole.
Hefer affirms: “Due to our flexibility, we can step into any space or role that our client requires from us at any point during the project. Our philosophy is to partner with our clients and to provide solutions at any point along the line.”
The most important service for the Company is its ability to service the market by steadily growing its reliable team, having invested a lot of time and money in building the most experienced financial modelling team in the sector.
“We try to provide broad solutions for our projects, which has led to the development of creating a separate business purely focused on commercial project development,” Hefer describes. “In this new branch, we provide project management and support at a commercial level. We take charge of the key work streams and act as a transactional advisor while managing the process. That way we can ensure resolutions are provided at the exact point they are required, thereby ensuring financial close is reached in the most cost-effective and timely manner.”
Tackling potential risks
In order to demonstrate the fluidity of the mining industry, five years ago mining was responsible for 50 percent of the Company’s revenue; a figure now sitting at just 15 percent. Yet again this emphasises the need for Cresco to remain entrepreneurial and adaptable to offset such fluctuating trends.
Futter continues: “Of course we would love to see it back at 50 percent, but realistically we hope to achieve 30-40 percent and that would be a nice number to come back to.”
In order to achieve this goal, the Company is continuously on the lookout for opportunities that will contribute to improving the infrastructure which will inevitably breed success in the mining industry.
“Something that the industry is particularly active in at present is the wider infrastructure space in Africa, and within that we are focused on creating captive power solutions,” elaborates Hefer. “We appreciate that a large proportion of mining operations in Africa do not have easy access to electricity and water, so this is an aspect we are really making efforts to corner.
“One of the solutions we are seeing considered more and more often is to use an Independent Power Producer approach to provide a mine’s energy needs – let an IPP build, own, operate and maintain the power plant at the mine site, and sell energy ‘over the fence’ to the mine - effectively converting capital expenditure, which has to be funded, into operating expenditure.”
Of course as projects become more complex, there will be more issues for project promoters to combat. A prime example of this would be dealing with the political jurisdiction risks that come with mining project developments. Cresco, however, is again well-placed to assist projects, having been advising clients on the specialised insurance products in the local and the international insurance markets since its inception.
Both Futter and Hefer anticipate that the Cresco business model is flexible enough to negotiate new challenges as the business looks towards comprehensive growth in the years to come.
“We traditionally have had a very close working relationship and have worked as the agent for the World Bank’s political risk insurance arm, MIGA,” concludes Hefer. “Over the years that relationship has enabled us to make use of the most appropriate political risk insurance product which is pivotal to successful investment in projects.