The ongoing boom in energy and industry infrastructure around the world, and the high price tags of many of these projects, have created a niche for entities like Siemens Financial Services, which can serve as a specialized financial intermediary for getting projects funded and built.
Siemens Financial Services is the finance arm of technology and engineering giant Siemens. It focuses on projects in its parent company’s four areas – energy, industry infrastructure, natural resources and health care.
“Right now in the world of energy and in finance, there’s a fair amount of activity, a fair amount of investors and lenders, a fairly robust market,” said Kirk Edelman, Chief Executive of SFS Project & Structured Finance-Energy.
And many of the transactions in which Siemens participates can benefit from in-house financing options, Edelman said.
“Nowadays, if you’re going to sell equipment and services to someone, the developers of those enterprises and projects will typically ask the key stakeholders – like EPC contractors and equipment and service providers – to have skin in the game,” Edelman said.
“Developers want key stakeholders to put some money in the deal,” said Edelman. “Companies like Siemens, to do that effectively, have developed financial services businesses so that they can make these investments on a prudent and commercial basis.”
Siemens, as an equipment manufacturer, sometimes simply sells equipment outright to project developers. But in many cases, the company acts as an EPC (engineering, procurement and construction) contractor, “and there you’re not only bringing equipment, you’re actually building the project”, Edelman said.
“These are big projects with big price tags. They’re very sophisticated. If you’re putting turbines well offshore, it’s not straightforward, it takes specific capabilities,” Edelman said.
That willingness to invest over the longer term sends a signal to the market that both the project developer and the EPC contractor see the venture as prospective. “The costs are very high, and we want to make sure we can attract other investors and lenders,” Edelman said.
Benefits to Developers
SFS has the capacity, as part of Siemens, to tap its company’s technical expertise in assessing technological risk. “We have access to resources that the average bank or investor doesn’t have in-house,” said Edelman.
Being part of a larger organization allows SFS to offer a wider array of financing products for energy and other types of projects than many traditional lenders can.
“We offer a very broad breadth of financial solutions – everything from working capital finance and small-ticket leasing to equity investment, and everything in-between,” Edelman said. This includes various forms of debt, such as senior subordinated, mezzanine, preferred and common equity and venture capital.
Securing VC funding might require going directly to a VC fund, whereas a financial sponsor or private equity group might be a project’s source of equity financing. “There’s almost no product that we can’t offer, and there aren’t too many financial services firms like that,’ Edelman said.
This allows SFS to serve in a pre-financing advisory capacity, as well. Edelman noted that while project developers may have a very clear picture of the project itself, “they don’t necessarily know if they need debt, equity or something in between”, Edelman said, adding that there is value in being able to explore all options in one place.
Pure Financial Play
But SFS’ investments are not limited to projects in which Siemens is a stakeholder. “Ourselves, GE and others – not only do we make investments in a captive way, we also have a business of simply ivnesting capital in what we consider to be good investment opportunities,” Edelman said.
And many of the opportunities in energy and infrastructure qualify. “There’s a lot of money looking for opportunities that offer higher returns, and energy and infrastructure tend to offer that.”
“A lot of people are turning to energy and infrastructure that never would have looked at it before,” Edelman said. “The deals offer yields that you can’t often find in other markets.”