The Theun Hinboun project may have survived the Asian financial crisis intact, but little could have prepared project sponsors Electricite de Laos (EdL), GMS Power (formerly MDX Lao Co) and Norway's Statkraft for the events of September 2008.
As the international debt markets ground to a halt in October in the wake of Lehman Brothers' record bankruptcy filing, Theun Hinboun was racing against time to seal financing that would allow it to start work on a major expansion at the beginning of the dry season.

Set in landlocked Laos across two tributaries of the Mekong river, the hydroelectric power facility was on track to raise almost $600 million to expand its generating capacity from 210MW to 500MW when the funding crisis reached its peak.

Choked by spiralling funding costs, a group of international lenders withdrew, leaving the US dollar portion of the deal short and throwing the financing in doubt at the eleventh hour. Hasty negotiations followed before the deal was eventually signed on October 8 in the ballroom of the Conrad Hotel in Bangkok, with an enlarged Thai baht facility making up the shortfall.

"By the time we had negotiated a satisfactory construction contract, the excellent financing package we were working on began slipping through our fingers," said David Michaels, managing director of co-sponsor GMS Power. "The approvals disappeared in September as the market went into complete panic, and we had to re-price the loan dramatically."

Having originally planned to split the debt 50:50 between dollars and Thai baht, the withdrawal of several dollar lenders – Calyon, ING, Fortis and BTMU – left the project more heavily skewed towards local currency.

The bulk of the debt is denominated in Thai baht, in the form of a Bt13.9 billion ($405 million) 16 year term loan provided by Bank of Ayudhya, Export-Import Bank of Thailand, Kasikorn Bank, Siam City Bank and Thanachart Bank, after those banks increased their commitments to make up the shortfall.

The entire baht facility is committed for 16 years, but the sponsors intend to replace a portion of that with dollar loans when market conditions stabilise, returning to their original goal of a 50:50 split.

The remaining $187.5 million comes in the form of a dollar loan provided by ANZ, BNP Paribas, KBC and Thai Exim, with proceeds to fund construction costs and equipment imports. Laotian society relies heavily on the dollar rather than the country's own, less liquid kip, and the power purchase agreement requires EGAT to pay for the project's output in a combination of dollars and baht, providing a natural hedge against currency fluctuations.

The dollar loan is priced at 300bp over Libor for years one to four, with the margin dropping to 275bp thereafter and fees ranging from 100bp to 200bp. Pricing had to be flexed since the deal first came to market in March 2008, when margins averaged 155bp over Libor.

In addition to financing the expansion, the new debt replaces the outstanding debt from the project's two previous financings in 2002 and 1996, worth around $50 million.

That outstanding debt was repaid on November 7, removing any conflict over lenders' security interests. "The existing lenders had first rights of security over the assets, so the first thing we had to do was to pay off the existing loans," says Michaels. "We now have an operating asset and a piece under construction, but the facilities will be integrated under the same power purchase agreement and the same concession."

Around 440MW of the enlarged Theun Hinboun's capacity is destined for Thailand, under a 25-year power purchase agreement signed with the Electricity Generating Authority of Thailand (EGAT), which runs until 2024. The remaining output goes to EdL.
Theun Hinboun Power Company completed the first non-recourse project financing in Laos in 1995, paving the way for bigger deals such as Nam Theun 2, situated just 50km away on the same river. Though a modest size at 210MW, the project has proven a big source of income for poor Laos, with electricity exports boosting GDP by an estimated 7% when it came on line in 1998.

The original $280 million project was financed through $160 million of bank debt, split evenly between dollars and Thai baht and backed by export credit agencies and political risk insurers. Credit Agricole and Bangkok Bank led the dollar and baht facilities. The financing also included a $60 million loan from the Asian Development Bank to cover EdL's equity stake in the project.

The project was refinanced in 2002 after some of the baht loans were hit by the Asian financial crisis, and Theun Hinboun put in place a subordinated US dollar portion to replace part of the Thai loan. All of the debt agreed in 1996 and 2002 has now been taken out by the 2008 facility, and the sponsors were able to use cashflow generated by the existing assets to top up their equity contributions.

Theun Hinboun takes water from the Theun river and diverts it down a so-called headrace tunnel to a hydroelectric power plant, before releasing it into the Nam Hai, a tributary of the Hinboun river. The two rivers are divided by a narrow ridge, while the Theun river sits more than 200m higher, making the site ideal for hydro power. The 2008 expansion involves the construction and installation of a dam and reservoir on the nearby Gnouang River, a new tunnel to divert water to the power plant, and additional turbines to increase the existing generating capacity. The expansion comes at a cost of $665 million and construction, which began in 2008, will take four years to complete.

Another refinancing may be on the horizon for Theun Hinboun, which is receiving interest from several dollar lenders who are interested in joining the deal. "It's an excellent asset that has a solid track record, and we are very confident we will be able to take out some of the baht loans once the dollar market recovers," says Michaels. "The margin makes it a very attractive target for any bank that wants to be in this sector."

Theun Hinboun Power Company
Status: Financial close 8 October
Description: 210MW to 500MW expansion of hydro power plant
Size: $665 million
Debt: $592 million
Maturity: 16 years
Financial advisers and lead banks: BNP Paribas, Kasikorn Bank
Mandated lead arrangers: ANZ, BNP Paribas, KBC, Thai Exim
Sponsors: Electricite de Laos 60%, GMS Power 20%, Statkraft 20%
EPC ontractors: CMC (civil); VA Tech (electrical); Loxley, RCR (transmission)
Lender legal counsel: Allen & Overy
Sponsor legal counsel: Latham & Watkins