Gulf Cogeneration: Bond booster

Gulf Cogeneration successfully refinanced three of its small power providers (SPPs) on 27 April 2006. The Baht5.8 billion ($154 million) financing placed in the capital markets took out non-recourse dollar and baht denominated debt at each plant.

The deal though comparatively small, punches above its weight in terms of the number firsts it achieves. It is the first project bond based on a portfolio of assets in Asia, the first project bond in Asia since 1997 and the first project bond in Thailand. The deal also features a number of personal firsts: it is the first project bond covered by NEXI insurance, the first joint venture company using NEXI's Asian Bond Insurance Program with no recourse to the Japanese sponsor, J-Power, and also guarantor Depfa's first transaction in Thailand.

The three plants are Gulf Cogeneration (107MW), Nong Khae Cogeneration (126MW), and Samutprakarn Cogeneration (121MW). The plants have been in operation since 1998, 1999 and 2000, respectively. Each is located in central Thailand and sells around 80% of its power to the Electricity Generating Authority of Thailand (EGAT) under 21-year power purchase agreements. The remaining 20% is sold to nearby industrial customers.
The holding company for the plant-level special purpose vehicles is Gulf Electric Company, whose shareholders comprise Thai generator EGCO (50%), J-Power (49%) and Mit-Power (1%).

Gulf Electric bought the Nong Khae and Samutprakarn cogen assets from Tractebel in September 2002. For this, Industrial Finance Corp of Thailand arranged a $81.59 million dollar portion, priced at 275bp over Libor, and the Baht1.9 billion priced at 50bp under local benchmark the MLR, then MLR flat after three years.

The latest refinancing, lead arranged by Citigroup with TMB Bank as co-manager, features a novel domestic capital markets guarantee from Depfa Bank Tokyo. Depfa's guarantee has a backstop from NEXI, the Japanese export credit insurer. NEXI's coverage is almost comprehensive: 97.5% cover for political risks and 95% commercial risk coverage. The bonds gained an AAA rating from Fitch on the back of the guarantee. Depfa has usually avoided power assets, but has used this exception to study how to adapt it to other projects that fulfill its core mandate. The bonds were issued in three tranches. The first, of Baht1.74 billion, has a three-year maturity and came in with a coupon of 5.87%, a second five-year tranche, with a three-year grace period, of Baht1.16 billion priced for a 6.11% coupon, and the final 10-year tranche, with five-year grace period, of Baht2.9 billion carries a 6.64% coupon.

Gulf Cogeneration
Status: Financial close 27 April 2006
Description: A $154 million capital market refinancing of three power plants
Sponsor: Gulf Electric Company (Electricity Generating Public Company 50%, Electric Power Development Company, 'J-Power' 49%, Mit-Power Thailand 1%)
Financial adviser: Citigroup
Lead arranger: Citigroup                                                                                                                                  Co-manager: TMB Bank
Guarantor: Depfa
Insurer: NEXI
Legal adviser to borrower: Baker & McKenzie
Legal adviser to lenders: Clifford Chance