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Tuesday, 23 January 2018

Asia-Pacific Awards

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This year, the lunar year of the rooster, could be the declared the year of China as Xi Jinping consolidates its power, China takes a larger role in the global community, and its Belt & Road Initiative (BRI) has gone into full gear. BRI is one arm of China that sees its influence growing, with a focus on energy and infrastructure in Asian countries that stretch from Singapore and Indonesia to the east and Pakistan and Kazakhstan to the west.

Asia-Pacific Bank of the Year – ICBC

This year, the lunar year of the rooster, could be the declared the year of China as Xi Jinping consolidates its power, China takes a larger role in the global community, and its Belt & Road Initiative (BRI) has gone into full gear. BRI is one arm of China that sees its influence growing, with a focus on energy and infrastructure in Asian countries that stretch from Singapore and Indonesia to the east and Pakistan and Kazakhstan to the west.

With the BRI, it will be the Chinese banks whose presence is essential in the financing of infrastructure projects. They are the biggest group of lenders that have emerged in the last two to three years, at the same time that Chinese companies have taken on bigger investment roles as sponsors and contractors. And they cannot be ignored. Among them is Industrial & Commercial Bank of China (ICBC), whose presence in the region and globally is now is palpable, and is PFI’s Asia-Pacific Bank of the Year.

The Chinese government retains a majority ownership in ICBC, but the bank has been privatised and has international investors holding minority equity stakes. It is one of the largest banks in the world by market capitalisation, and is at the top 10 of PFI’s league tables. The bank’s PF activities are largely managed from the Beijing head office, but it has a very newly set up Asia-Pacific business development team in Hong Kong that oversees the region. The Australian market has its own office in Melbourne as well. The bank has units in New York and London too.

The bank has been involved in projects in Pakistan, where the Chinese and Pakistani governments have set up an economic corridor – the China-Pakistan Economic Corridor. ICBC, together with China Export Import Bank (Chexim), led the US$1.45bn debt financing for the 870MW Suki Kinari hydropower project, which was sponsored by China Gezhouba Group, along with SK Hydro of South Korea, Aljomaih Holding Co of Saudi Arabia and Eden of Malaysia. ICBC also provided the debt financing for a US$134m 50MW wind project of Sachal Energy Development that has Hydro China and Arif Habib Corp as sponsors.

The bank has been present in some major transactions in Australia. It began its Australian operations in 2008 and the opening of that office was regarded as a vital step in the bank’s policy of internationalising its operations. Since that time ICBC has significantly increased its presence as a lender to infrastructure and PPP projects. This year alone it was one of the bigger lenders to the US$8bn debt for US$11bn Melbourne Metro Tunnel project, the US$1.4bn loan for the Western Roads upgrade in Melbourne, and the refinancing of the Total’s US$3bn LNG loan connected with the Ichthys project in Darwin.

ICBC was involved in the financing of the M4 widening and M4 East project that is part of the massive WestConnex project in Sydney and it will be no surprise that it will be a lender to acquisition finance required to buy the 51% stake of the WestConnex project that is currently in the market. Elsewhere, ICBC, together with Bank of China and Export-Import Bank of China, led the US$1.55bn loan facility for Eni’s Coral LNG project, which is one of Africa’s largest-ever project financings. The bank is active in Nigeria, Egypt, Jordan, Argentina, the UK and the United States.

Asia-Pacific Power Deal of the Year – Myingyan 

The Myingyan IPP is the first in Myanmar that has been tendered in a competitive market internationally and sets the template for other IPPs to follow in the country, a new frontier market. Crafting a bankable structure in a territory that did not have a comprehensive power framework is one of the toughest challenges investors can face and the sponsors and their advisers and lenders did just that.

The project is indeed groundbreaking and also sets the benchmark for future power projects. Besides being Myanmar’s first international, competitively tendered power project, its 15-year US dollar facility is first “multi-lender power financing” in the country. It is the first international-standard IPP tender in Myanmar, and the financing is the first long-term project financing in the country. The US$253m loan financing for Sembcorp Myingyan Power is PFI’s Asia-Pacific power deal of the year.

As in most projects, land acquisition is a key issue. In Myingyan IPP’s case, it was one of the factors that delayed the loan signing as determining land titles was not that straightforward in the country. The government, through Electric Power Generation Enterprise (EPGE) thus took on the task of securing the project site and relevant land lease agreement.

Sembcorp Industries won the deal with the lowest bid in 2014. It has set up Sembcorp Myingyan Power Co (SMPC) as the project company for the 225MW gas-fired power plant. It raised a US$253m loan that attracted multilateral involvement from Asian Development Bank, the International Finance Corporation, MIGA and AIIB, which is participating in its first PF loan. The commercial lenders were DBS Bank, DZ Bank, Clifford Capital and OCBC.

The law firms involved were Mayerbrown and DFDL as international and local lenders’ counsel respectively, Duane Morris Selvam and A&G Myanmar to Sembcorp and Allen & Overy to the government of Myanmar. The loan signing was held in May this year, following the signing of the 22-year power purchase agreement with Myanmar Electric Power Enterprise (MEPE), which is now called the EPGE, in March 2016; and the signing of the BOT agreement with the Ministry of Electricity and Energy (MOEE), formerly called the Ministry of Electric Power (MOEP), in January 2017. Construction, which is expected to take 24 months, has started and COD is expected in 2018.

Asia-Pacific Bond Deal of the Year Paiton 

What could be the surprise of the year was the strong reception investors gave to the project finance US$2bn bond offering and US$750m loan issued by Paiton Energy via SPV Minejesa Capital. This is the first investment-grade and the largest rated amortising international bond issue for an infrastructure project in Asia since 2000. The bond-loan refinancing for Paiton Energy is PFI’s Asia-Pacific Bond Deal of the Year.

The bonds received a well diversified order book of more than US$9bn, an indication that international investors have become receptive to Asian asset and to long-dated amortising structures, a feature that is usually seen in developed countries. Asian investors made up 43% of the buyers, with the US taking 34% and Europe 23%.

The bonds were offered in two tranches: a 13-year US$1.2bn 2030 notes tranche that matures on August 10 2030 and amortises from year seven (February 10 2024), giving it a weighted average life of 10 years; and a 20-year US$800m issue that matures on August 10 2037, amortising from year 15 (from February 10 2032) and giving it a 17-year WAL. The loan was a US$750m facility with a shorter tenor of six years.

The debt issue marks the return of Asian project bonds raised in offshore debt capital markets, after many years of absence. Paiton, which belongs to the first generation of Indonesian IPPs, has seen the rise and fall of IPPs in the country. It restructured its debt after the Asian currency crisis in 1997–98, and also redeemed its bonds in the 2000s.

The latest exercise was indeed with risk, but it paid well as the company boasts of stable income. It has a take-or-pay long-term PPA with PLN until 2042.

The proceeds will go into refinancing all existing senior and subordinated debt, as well as funding distributions to the sponsors for reinvestment back into new projects. It currently has a net installed capacity of 2,045MW, consisting of three coal-fired generating units that commenced operations in 1999 and 2012.

Paiton’s sponsors are Mitsui (45.5%), Nebras Power (35.5%), JERA (14%) and Batu Hitam Perkasa Indonesia (5%). Barclays and HSBC were joint global coordinators, as well as joint bookrunners with Citigroup, DBS and Deutsche Bank. The banks in the deal are Barclays, Citi, DBS, HSBC, Mizuho, Shinsei Bank, Standard Chartered and SMBC.

The legal advisers are Shearman & Sterling and Hiswara Bunjamin & Tandjung for the lenders, and the sponsors had Skadden Arps and Adnan Kelana Haryanto & Hermanto. The Dutch counsel was Nauta Dutih.

Asia-Pacific Renewables Deal of the Year Star Energy Chevron

The US$1.25bn loan that the Star Energy Geothermal (Salak-Darajat) consortium raised to finance the Indonesian geothermal assets and operations of Chevron Corp was one of the largest cross-border financings into Indonesia on a commercial basis. It also featured a mix of international and domestic banks, which is not so common in a country such as Indonesia. The US$1.25bn loan for the Star Energy consortium is PFI’s Asia-Pacific Renewables Deal of the Year.

Star Energy is a consortium put together by a number of leading players in three countries. It comprises Star Energy Group Holdings, Star Energy Geothermal of Indonesia, AC Energy of the Ayala Group of the Philippines and Electricity Generating (Egco) of Thailand.

The consortium won the bid for the assets in December 2016 in an auction. It outbid five other shortlisted companies out of the 44 interested parties that wanted to buy the assets. The Chevron assets and operations include the Salak (377MW) and Darajat (271MW) geothermal fields in West Java, Indonesia, with a combined capacity of 637MW of steam and power. They are the two biggest geothermal assets in Indonesia, making the debt package the largest renewable facility in Asia-Pacific for the year.

The consortium has raised a debt facility to finance the acquisition. A syndicate of eight banks – Bangkok Bank, DBS, BTMU, SMBC and Philippine banks BDO, BOC Philippines, BPI and RCBC – provided a five-year US$1.25bn loan and this was completed on a pure commercial basis with no ECAs or multilateral agencies, as the commercial banks are taking a long-term view on PLN. The legal advisers were Milbank Tweed for the lenders and Clifford Chance for the sponsors.

Asia-Pacific Petrochemicals Deal of the Year Pengerang Terminal 2

Pengerang Terminal 2 Sdn Bhd (PT2SB), a consortium comprising Petroliam Nasional (Petronas), Vopak, Dialog Group, and the Malaysian state of Johor (SSI), have raised a US$1.25bn senior financing facility for the development of an industrial terminal in Pengerang, Johor, the southernmost state of Malaysia. The project represents one of the biggest storage terminal facilities in the region, capable of handling both petroleum and petrochemical feedstock and products.

The loan facility is the first project financed facility under the PIC development to have achieved financial close successfully and it is PFI’s Asia-Pacific Petrochemicals Deal of the Year. The facility, which has a tenor of 15 years, is being provided by AmInvestment Bank, DBS, ING Bank, Maybank, MUFG, Natixis, OCBC, SMBC, and UOB.

SMBC acted as financial adviser and Allen & Overy as international legal adviser, with PNC Law as Malaysian counsel to PT2SB. The bank syndicate was advised by Norton Rose Fulbright as international counsel and ASL as Malaysian counsel.

PT2SB involves the development of a dedicated onshore handling and distribution terminal for petroleum and petrochemical feedstock and products for and from the Pengerang Integrated Complex (PIC) at Pengerang, Johor. The terminal will initially have a storage capacity of 1.65m cubic metres for crude, refined products, petrochemical products and liquefied petroleum gas (LPG). It will have 12 berths and a draft limit of 24 metres, able to accommodate very large crude carriers (VLCC).

The terminal will predominantly serve Petronas’s world-scale US$27bn Refinery and Petrochemicals Integrated Development project (RAPID) as its main customer. The terminal enjoys a long 25-year terminal usage agreement contract on a take-or-pay basis.

It will play a critical role in supporting Petronas’ operations in its refinery, steam cracker and petrochemical plants as the storage terminal facilities in the project are developed primarily to serve the needs of RAPID development. This is part of the PIC development that is Petronas’ largest downstream investment in the country. Construction of the US$1.6bn PT2SB started in early 2015 and is scheduled for commissioning in various phases during the first half of 2019.

Asia-Pacific M&A Deal of the Year Endeavour Energy

The sale by the NSW government this year of Endeavour Energy was the last of the trifecta of poles and wires companies that the government privatised. As with the previous sales, the auction was keenly contested, with Advance Energy comprising Macquarie’s infrastructure fund MIRA, AMP Capital on behalf of Rest Super (25%), Qatar Investment Authority (19.84%) and British Columbia Investment Management (25%) the successful bidder.

The A$5.9bn (US$4.5bn) facility to fund the acquisition included several large bridge loans, as well as term and revolving credit pieces at tenors of three and five years for acquisition, capital expenditure and working capital. The facility would also refinance Endeavour’s entire debt.

The lenders include ANZ, Westpac, CBA, SMBC, Bank of China, Bank of Communications, Industrial & Commercial Bank of China, China Construction Bank, Bank of Tokyo, Norinchukin Bank, Mizuho, CIBC, Bank of America Merrill Lynch, Bank of Nova Scotia, Societe Generale, Credit Agricole CIB, HSBC and United Overseas Bank.

Advance Energy is buying 50.4% of the company, which is valued at 1.6 times the regulated asset base. Macquarie Capital and Ashurst advised the winning bidder. UBS, Deutsche Bank and Allens advised the government.

Endeavour Energy operates an electricity distribution network service in New South Wales, with a service area that includes the western part of Sydney. Proceeds from the Endeavour Energy sale as well as the sale of TransGrid and AusGrid will be used by the NSW government to fund massive infrastructure projects, including a new crossing of Sydney Harbour and a new airport at Badgerys Creek.

Victoria is becoming the project finance place to be when it comes to rail projects, with the recent awarding of the PPP contract for the A$11bn (US8.7bn) Melbourne Metro Tunnel only the latest in the state’s metro rail projects.

Asia-Pacific Infrastructure Deal of the Year Melbourne Metro Tunnel

The State of Victoria has embarked on a massive rail programme that includes new rolling stock and in the latest project, the Melbourne Metro Tunnel. The Melbourne Metro Program, which includes the tunnel, will be one of the largest transport infrastructure projects ever undertaken in Australia.

It will transform Melbourne’s rail network into an international-style metro system, improving access to and connectivity with the central business district (CBD) and increasing the capacity, reliability and efficiency of train lines serving Melbourne’s growth areas in the north, west and south-east.

There is no doubt that this is a big project. It comprises two 9km rail tunnels from South Kensington to South Yarra as part of a new Sunshine to Dandenong Line, new underground stations at Arden, Parkville, CBD North, CBD South and Domain, and tunnel entrances in the vicinity of South Kensington and South Yarra; and wider network enhancements that are required across the wider existing above-ground rail network outside of the tunnel and beyond the tunnel portals, including track modifications and signalling system upgrades on lines other than the Sunshine to Dandenong Line.

The Cross Yarra Partnership, which won the PPP project to build the Melbourne Metro Tunnel project in Victoria, funded the project with a A$4bn (US$3bn) seven-year, senior project loan that was provided by ANZ, Bank of China, Canadian Imperial Bank of Commerce, Credit Industriel et Commercial, Credit Agricole CIB, DZ Bank, Industrial and Commercial Bank of China, KfW, Mizuho Bank, United Overseas Bank and Westpac Banking Corp. The Cross Yarra Partnership consortium, comprising Lendlease, John Holland, Bouygues Construction and Capella Capital, was named preferred bidder last July. The concession period for the PPP project is 35 years and the scheme will be backed by availability payments.

Asia-Pacific PPP Deal of the Year Grafton Prison

The new Grafton Correctional Centre in northern New South Wales will accommodate 1,700 inmates and the deal process of the project has now been included in new PPP guidelines issued by the government. Northern Pathways comprising Serco, John Laing, John Holland and Macquarie Capital won the bidding for the project in March.

Upon completion, which is expected in 2020, the new Grafton Correctional Centre will be the largest correctional facility in Australia – providing state-of-the-art security and rehabilitation services to help reduce the rate of reoffending without compromising on safety and security. Grafton Prison was one of the first projects to be part of the Better Prisons Program, which Corrective Services NSW has introduced to implement a number of activities to help correctional centres improve their operations.

The Northern Pathways consortium was supported by four MLAs – ANZ, CBA, Macquarie and Investec – and the initial syndication closed very shortly after financial close. The loan was principally sold down to banks that had been supporting other bidding consortia.

The loan was for A$730m and reached financial close on June 20 2017. The loan had a five-year tenor and was priced with a margin between 150bp and 200bp. The higher margin relative to other social infrastructure PPPs that have been financed in the market recently reflects the reduced financing market appetite for assets of this nature and perceived additional risk.

At the official launch of the new PPP guidelines, the NSW Treasury noted that 2017 would have the highest infrastructure spending on record for NSW, and that total sector investment for the state would be A$72.7bn over the next four years.

Officials also noted that the NGCC project documents reflected the template social infrastructure PPP contract documents developed by Treasury, consistent with the guidelines. As such, these would effectively provide the template for all NSW social infrastructure PPPs going forward. KWM advised the sponsor, Herbert Smith Freehills advised the lenders, while Macquarie acted as the financial adviser.

To see the digital version of this review, please click here.

To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com.

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