Financial Services Copyright © Siemens AG 2011. All rights reserved Financing Infrastructure - a Siemens Financial Services Perspective Johannes Schmidt

Financial ServicesCopyright © Siemens AG 2011. All rights reserved

Financing Infrastructure - a Siemens Financial Services PerspectiveJohannes Schmidt CEO Project and Structured Finance Infrastructure & Cities and Industry,Siemens Financial Services GmbH

Financial ServicesCopyright © Siemens AG 2011. All rights reservedPage 2

Contents

1 Cities and investment needs

2 Trends in infrastructure financing

3 Financial solutions of Siemens

4 Criteria for successful projects


Contents






50% of world GDPis produced in citieswith a populationover 750K.

75% of energy consumed in cities; 80% of CO2 emissions

are produced in cities.

Regional power-houses

“urban millenium"

In 2007 ~50% of the world's populationwas living in cities. An increase from3.5B to 4.7B is expected until 2030.

Population

Major energy and

climate factor

The dawn of the "urban millennium" has started


Sustainable

Competitive

Livable

Page 5

The basic needs of a city drive the marketfor intelligent infrastructure solutions

Intermodal mobility / efficient and effective mobility

Sustainable and decentralized energy supply

Efficient water supply and waste management

Security

Rigorous reduced carbon footprint of the entire city (e.g. smart buildings, transportation)

Financing

Requirements are drastically changing from closed island solutions /single products to interlinked intelligent infrastructure solutions


Increasing importance of financing in city-context

Budget constraints at cities with concurrently essential needs for action lead to high importance of private sector finance

Europe

Asia-Pacific

North and South America

Africa, Middle East, CIS

Source: SFS Paper, Sustainable Cities, 2011


Example rail transportationMarket growth worldwide divided by regions

Market size 2007/08/09 x%

Source: UNIFE World Rail Market Study – Status Quo and Outlook 2020

Rest of America

B€

3.1%

1.61.3

Africa / Middle East

2.21.5

B€

5.6%

Asia / Pacific

2.1%

23.020.0

B€

World

53.544.9

Western Europe

B€

1.7%

11.510.2

Eastern Europe

B€

4.9%

2.31.6

CIS

B€

7.2

3.8%

5.5

NAFTA

4.7 5.7

2.7%

B€

Market size 2015/16 CAGR 2007/08/09 - 2015/16

B€2.5%


Contents






Challenging financial environment

Greece

Italy

Portugal

Ireland

Spain

Germany

Euro area

Source: EU Commission, Autumn Prognosis 2010, effective November 2010

Debt level of selected European statesin percent of the GDP

Even if infrastructure improvements usually pay for themselves over a number of years, initially all have to be financed to start with.


Significant investment gap as a consequence

1) Funds that governments can allocate in the development of infrastructures2) Funds potentially required from the private sector, including equity and deptSource: BCG analysis

Investment gap2)

$20-25 trillion

Public funding1)

$15-20 trillion

Global infrastructure investment needs until 2030

$35-40 trillion

Including $7-8 trillion for transport infrastructure


Opportunity for private sector as intermediary

Positive demand outlook for Project Finance

1

Role of government/ development banks

2

Expected to increase in particular for power/ energy and infra-structure

Private equity seeking stable, inflation-linked investment opportunities

Budget constraint leading to higher need for private finance while policy objectives like climate leading to targeted support mechanisms

Opportunity to match private equity with rising financing demand

Investors seeking investment opportunities

3

Opportunity for private sector as intermediary


Challenge RZD wanted to modernize the existing fleet by state-of-the

art vehicles to connect St. Petersburg - Moskau - Nizhny Novgorod with a project value of €318 million

Solution Siemens offered an attractive and innovative technical

solution comprising the project planning, the delivery and 30 year maintenance of eight High Speed Trains thus enabling RZD to reduce substantially the overall life cycle costs of its fleet

Long term financing for the project planning and the delivery contract by means of Euler Hermes covered and uncovered loans achieving very attractive terms and conditions for RZD

Benefits Trade Finance Magazine award „Deal of the Year“ for the

financing of the trains

Page 12

Financing structure for Russian State Railways (RZD)

Russian State Railway (RZD)

• Passenger and freight service for national and international routes (100% state-owned)

• 85.500 km of track, 1.2 million employees, 1.3 billion passengers a year, 1.3 billion tons of freight per year


Evaluation of European PPPs

Source: European Investement Bank, Economic and Financial Report 2010/04, private Public Partnerships in Europe – Before and During the recent Financial Crisis, Kappeler/Nemoz, 2010.

Evolution of European PPPs per annum

Value of projects (in €millons) Total 253,744.9

Number of projects Total 1340


Challenge: Project finance in most regions have become more difficult after the financial crisis

Source: Dealogic Project Finance Review, first nine month 2011 final results, October 2011


Changes in the financial environment

Stringent Debt/Equity ratio (from 90/10 to 70/30); margins only decreased slightly

Clear focus on customer relationship / regions (bank/exporter and bank/importer)

Tenors shorter / Export Credit Agency (ECA) coverage helps to achieve longer tenors (power plants 12 years repayment, renewables up to 18 years)

Arranging / underwriting stopped, trend to club deals, smaller ticket sizes

Substantial coordination effort on Siemens’ side to pick and align the most suitable partners

Specifics of regional markets (Europe vs. US), margin differential / development more obvious

Significant reduction in on-balance sheet financing of renewable energies expected

Changes


Contents






Financial Services – the essence of what we do and who we are

1

2

3

4

SFS is a reliable financing and risk management partner for Siemens businesses and their customers in times when financing of investments becomes increasingly important.

Being part of the Siemens Group, SFS differentiates itself through superior marketknow-how and asset expertise in Siemens' domains.

Offering technological product and service know-how as well as financialexpertise provides an easier, more comprehensive customer interface.

SFS supports the Siemens growth initiatives by focusing on the same Sectors and key regions as the operating units – thereby building and enhancing customer relationships.


Under the roof of Financial Services we providean extensive portfolio of financial solutions

Asset Finance & Leasing Vendor Finance Supply Chain Finance Structured Finance (Debt & Equity) Project & Equity Participations Leveraged & Working Capital Finance Financial Advisory Asset-Based Lending Venture Capital Equity Investments Industrial Insurance Solutions Private Finance Solutions Asset Management Credit Warehouse Pension Management Treasury Tasks for Siemens Guarantees & Letters of Credit Trade Finance

Commercial Finance

Entities

Financial Services (SFS)

Financial SolutionsActivities

Project andStructured Finance

e.g. Siemens Bank GmbH Enlarge sales financing

options Investment loans Project finance loans

Venture Capital

Insurance

InvestmentManagement

e.g. Siemens FinancialServices GmbH

e.g. Siemens FinancialServices Inc.

…

Treasury


Project and Structured Finance Infrastructure & Cities and Industry

Primarily serving asSector liaison

Advisory services: advise on finance topics and offer trainings

If applicable, structuringof deals incl. analysisof asset to be financedand deal team mgmt. incase of SFS financing

Separate role:Market screeningfor placement for identification ofup-to-date standardsand pricing

Primarily originating 3rd party deals in close coordination with R&Sand equity team

Support of R&S in initial structuring of deals

Contribution of debt related expertise incl. structuring skills, e.g. covenants, collateral, payment schedules, default probability, amendments, debt service capabilities, market standards

If applicable, structuring of deals incl. analysis of asset to be financed and deal team mgmt. in case of SFS financing

Primarily originating 3rd party deals in close co-ordination with R&S and debt team

Support of R&S in initial structuring of deals

Contribution of equity related expertise, e.g. participation, control requirements, leverage assessment, details on vehicle, dividend streams

If applicable, structuring of deals incl. analysis of asset to be financed and deal team mgmt. in case of SFS financing

Credit decisions alongentire structuring process, incl. final approval

Monitoring of existing exposures

Continuous assessment of portfolio

Execution ofunderwriting process

Proactive identificationof portfolio de-risking measures

Relationship Mgmt.& Structuring (R&S) Debt Equity

Risk Mgmt.(incl. Portfolio Mgmt.)

PSF IC&I

EMEA

Asia, Australia (AA)

Americas


Financing for Thameslink Rolling Stock Project

Thameslink is an excellent example to demonstrate how SFS support could provide a unique advantage to the wider group to ensure it secures a significant contract. It shows how a financial partnership with our Sector can lead to overall success for Siemens

The total project will be worth more than ₤3 billion to Industry Mobility. SFS’ strong commitment to the project is reflected in their decision to invest equity, subordinated debt and provide a finance solution for the depot facilities

The Department for Transport (DfT) in UK established a major bid process to procure new rolling stock including the construction and operation of maintenance depots for 20 years. On 16th June 2011 the Minister of State for Transport announced that the preferred bidder for the supply and maintenance of the new Thameslink fleet will be Siemens Plc

Thameslink Rolling Stock Project

Equity & Debt Financing

Total project volume:

more than ₤3 billion


Contents






The goal: create win-win situations that produce stable earnings for public and private partners

From an unstable equilibrium…

Uncertainty-filled projects, e.g., because of: Untenable access

to risk sharing High bidding

costs Excessively long

contract terms Lack of

competition

…to stable earnings for the public and private sectors

Project quality criteria (example: UK): Determination of

service to be outsourced

Risk sharing Earnings

expectations Key conditions and

preconditions Bankability Binding schedule Self-commitment of

sponsors Statutory process

Win-winsituation

+5-10%

Error intolerance


Emphasis on financing the development, construction and operation of infrastructure projects

Capital requirements of the projects range from around €100 million to more than €1 billion

Mostly minority holdings of 10 to 40 percent

Specialization in energy, transportation, healthcare, airports

Company influence necessary (e.g. through representation in company bodies)

Exit prospects within five years

Insurance for country risks where possible and economically viable use of export insurance to improve risk-return profile

Strict adherence to market conditions when Siemens serves as a supplier

Example 1: Criteria for successful equity investments

Infrastructure projects


Example 2: key success factors for successful Public Private Partnerships

Identifiability The interfaces to the economic environment must be clearly identifiable and

definableExample: power plant vs. railroad network

Stable demand Due to the long service life, efficient risk sharing requires a reliable basis for

long-term planningExample: energy and water supplies, mobility

Low risk of substitution

Similarly, the risk related to the introduction of competing solutions and technology must be limited throughout the projectExample: bridges / tunnels in road construction

Flexiblecontract design

Sustainable solutions must be project focused, not based on standardized stipulationsTransportation sector example: Arlanda airport rail connection Stockholm

Low risk of“politicization”

It must not be possible to use the project for political purposesExample: administrative prices as an election campaign tool (local public transport, energy, water, disposal)


Outlook: How to finance infrastructure projects in today’s environment

Sound project economics

Robust contractual and legal framework – permits and government approvals

Low construction risk – including proven technology, cost and schedule control and contractor experience

Low political risks, especially in emerging markets

Extensive due diligence – technical, environmental, economic and legal factors

Credible partners and credit-worthy counterparties – including suppliers


Questions & Answers


Thank you for your attention.


Published by

Siemens Financial Services GmbH

Project and Structured Finance Infrastructure and Cities & Industry Johannes SchmidtWerner-von-Siemens-Str. 5091052 Erlangen, Germany

Phone +49 (0) 9131-7 37336 Fax +49 (0) 9131 7-37338E-Mail [email protected] www.siemens.com/finance

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Financial Services Copyright © Siemens AG 2011. All rights reserved Financing Infrastructure - a Siemens Financial Services Perspective Johannes Schmidt