Crimson Power: Manila bolder

Marubeni and Tokyo Electric Power's acquisition of Mirant's Philippines generation fleet was the largest acquisition of power assets in the Asia-Pacific region in 2007, and the largest ever acquisition in the Philippines. It was also the first use of the portfolio financing facility from the Japan Bank for International Cooperation. The deal highlights the advantage that Japanese firms enjoy in bidding for assets in emerging markets on the back of JBIC's financing support.

JBIC support was almost a prerequisite for bidding on the Mirant portfolio. Mirant announced its intention to divest its profitable Philippines generating portfolio and focus exclusively on the US market in July 2006. Both the US firms with a residual interest in the country and domestic players were compelled to team up with a Japanese trading company or utility.

JBIC's portfolio facility had been under development for almost two years, part of a concerted effort from JBIC to make Japan's conservative utilities and trading companies more comfortable operating in emerging markets. The facility, part of its overseas investment loan programme, consists of a combination of direct financing and co-financing covered by political risk insurance.

Nevertheless, Japanese firms were engaged participants in the bidding process. TEPCO, for one, had long been interested in the assets, and moved to line up funding almost as soon as Mirant decided to sell. It formally appointed Sumitomo Mitsui Banking Corporation and ING as financial advisers shortly before it won the auction.

Credit Suisse ran the auction, which also attracted Mitsui/ International Power, KEPCO/Chubu/Suez, and CLP/Mitsubishi groupings, as well as several US financial and strategic equity investors that ultimately withdrew. The inexpensive JBIC financing package levelled the playing field to such an extent that bidders were essentially competing for how low a return they would accept for a foothold in one of Asia's last wide-open independent power project markets.

The total purchase price of $3.43 billion comfortably exceeded the market's consensus of $2-3 billion, and allowed Mirant some financial breathing room after several torrid years. The sponsors raised a $2.8 billion one-year bridge loan from Calyon (insurance), ING (technical), Mizuho (documentation), SMBC (modelling) to support a bridge. That loan, which was non-recourse and uncovered, would itself have been the largest of its type in the country, was not used.

The assets consist of Pagbilao, a 735MW coal-fired plant located in Quezon, of which Crimson now owns 100%, Sual, a 1,218MW coal project located in Pangasinan, of which Crimson also owns 100%, and 20% of Ilijan, a 1,250MW gas-fired plant located in Batangas. The plants account for 20% of all capacity on Quezon, and 405 of the country's IPP capacity.

The buyers and sellers signed a sales agreement on 11 December 2006, but the sale of the plant was subject to several conditions precedent, including the repair of half of the portfolio's capacity, which was offline at the time of the sale, and the approval of the Philippine government. The government-owned National Power Corporation buys electricity from the portfolio, and has been assiduous in honouring its obligations under the agreements in the past.

But the sponsors were able to close the long-term financing for the assets without drawing on the bridge, since the long-term financing was completed in time for the repair of the assets and the closing of the sale. Co-ordinating commercial lenders, JBIC, a mezzanine lender, seller and government within the six-month period was an impressive feat.

The long-term operating company debt, for borrower TeaM Energy Corporation (the renamed Crimson Power), consists of a $1.62 billion 17-year direct loan from JBIC and a 15-year, $1.08 billion commercial loan with political risk insurance from JBIC. The four bridge lenders brought in ANZ Investment Bank as a lead arranger, and the final lender group was Calyon, ANZ, ING, Mizuho (security agent), SMBC (facility agent), Shinsei Bank, Sumitomo Trust & Banking, Shinkin Central Bank, RBS, Aozora Bank, Mitsubishi UFJ Trust & Banking, Chuo Mitsui Trust & Banking, and Mizuho Trust & Banking.

The substantial presence of regional Japanese banks, particularly at pricing that hovered around 100bp over Libor, is a sign that the sponsors could exercise significant relationship pull on their domestic supporters. The financing also included a $230 million subordinated loan at the holding company level from Nomura. The long-term financing refinanced the construction debt on the assets, but even with this greater access to the projects' cashflows, the leverage and pricing set a benchmark for Philippines assets lenders will not like to repeat.

Japanese buyers have not been successful enough in the subsequent months to spark a repeat of the Crimson financing. Marubeni was the successful bidder for Mirant's Caribbean portfolio, and has signed a bridge financing with a Mizuho-led group, with the intention of using the portfolio financing at a later date. But in Mexico, Japanese bidders lost out to Gas Natural on EDF's power portfolio. IP and Mitsui, which were in line to use a portfolio loan for Edison Mission's Asia assets long before Crimson, decided against it.

But within the Asia market, JBIC's influence is still strong. The Philippines is urgently in need of additional capacity additions, and Japanese sponsors have substantial appetite for new projects. In Indonesia, Japanese sponsors have been calling on JBIC untied facilities to support the installation of Chinese-made coal boilers. But in Vietnam and elsewhere in the region, lingering political risk concerns mean that the Crimson combination of direct and PRI-covered loans will retain a substantial allure.

TeaM Energy Corporation
Status: Closed 22 June
Size: $3.43 billion
Location: Luzon, Philippines
Description: 2,203MW (net) contracted power portfolio
Sponsors: Marubeni (50%), Tokyo Electric Power Corporation (50%)
Equity: $750 million
Subordinated debt: $230 million
Senior debt: $2.9 billion in direct and covered loans
Arrangers: ANZ, Calyon, ING, Mizuho, and SMBC
Sub-debt provider: Nomura
Financial advisers: ING, SMBC
Sponsor legal adviser: Latham & Watkins
Senior lender and JBIC legal: Allen & Overy
Sub-debt legal: Baker & McKenzie
Sponsor technical adviser: Mott MacDonald
Lender technical adviser: RW Beck