Seoul searching
The $100 million, 16-year offshore loan facility for Seoul Beltway
will almost certainly be a club deal, say sources in Tokyo,
highlighting the difficulties of selling the country's toll road
projects to the international banking community. The deal will be
only the second Private Participation in Infrastructure (PPI)
transaction with foreign banking involvement, the first such deal,
for the Daegu-Pusan Expressway, closed on July 26.
Sanwa Bank says that about four banks will be in the club, however, the institution is not revealing the names of the club members until the deal completes. The Japanese bank is also still in negotiation with Nippon Export and Investment Insurance (NEXI) for political risk insurance. The US Dollar loan is expected to carry a spread of 145bp over Libor provided that NEXI cover is approved. Sanwa hopes to wrap up the financing in November or December.
Meanwhile, Won 950 billion ($725 million) of funds for the road project, one of the largest road construction projects currently planned in South Korea, have been raised relatively painlessly in the domestic market. The on-shore debt financing comprises a Won 400 billion, 18 year term loan, a Won 500 billion project bond package with tenors of up to 15 years and a Won 50 billion, 10 year contingency loan, which will be available five years after the road has opened. Korea Development Bank (KDB) is the arranger and underwriter of all three domestic facilities while Sanwa Bank is arranger and co-ordinator of the offshore loan.
Clues to the fate of the Seoul Beltway offshore loan were provided by the similar, $100 million offshore facility for the Daegu-Pusan Expressway financing. A Dai-Ichi Kangyo Bank (DKB) official, which arranged the Daegu-Pusan international loan, says that the deal was syndicated to three other banks: Shinkin Central Bank which took $25 million and Bank of Tokyo-Mitsubishi and Standard Chartered who took $10 million apiece.
However, DKB had to hold the remaining $55 million of the loan and is now trying to offload most of that amount into the secondary market. ?A number of banks will participate but final allocations haven't been made,? says the DKB banker.
According to DKB, it didn't manage to fully syndicate the offshore facility because the project sponsors, who had little prior experience of international project finance markets, insisted on a very tight time schedule.
But other foreign bankers suggest that the Daegu-Pusan syndication is only half complete, and the Seoul Beltway offshore financing a club deal because the international banking community is wary of Korean infrastructure projects. ?Although there may be a few sound road projects most are pretty challenged. Many of the road building schemes are inspired by the government's drive to prop up the local construction sector? says a Hong Kong banker adding, ?that's why 90% of toll revenues are typically guaranteed by the state.?
Moreover, Korean banks are only trying to draw foreign banks into the deals to protect themselves against the possibility that the Korean government does not honour its obligations to support the projects. ?Its basically a very odd sort of political risk insurance ? there's no other good reason why a domestic road project in Korea would need US Dollar denominated funds,? says a Japanese banker. He continues: ?Korean financiers figure it is less likely that the Korean government will ever abandon the projects if its reputation in the international financial markets is also at stake.? According to Sanwa, a foreign loan tranche for Seoul Beltway was an idea that KDB championed from the start.
Thirteen banks and insurance companies participated in the onshore term loan including Cho Hung Bank, Korea Life Insurance, Kyobo Life Insurance, Havit Bank, KDB, KEB, Kookmin Bank and Shinhan Bank. The loan has a spread, according to KDB, of 180bp over the three year corporate A+ bond yield, and commitment fees of 10bp rising to 25bp.
The contingency loan is being provided by KDB and Shinhan Bank and will be available only in the event of a shortfall of cash. Pricing and commitment fees on the contingency amount are both 80bp.
A Korean banker says that the project bond program will be launched in 2003 and 2004. Individual bonds will have maturities ranging from five years to 15 years. Repayment will be bullet for bonds with tenors less than 10 years, whereas, repayment will be made in the last two years on a 10 year bond issue and in equal amounts over the last five years of the 15 year bond. The bond package will be marketed to the usual range of investors, pension funds, commercial banks, securities companies and life insurance institutions. Coupons are likely to be at least 200bp over three year government bonds.
The bonds have been rated AA by two local ratings houses ? Korea Management and Consulting Corporation and National Information and Credit Evaluation.
The government is providing a Won 5.16 billion subsidy for construction, which will be available early 2003. The offshore loan is to be drawn down thereafter.
Sanwa Bank says that about four banks will be in the club, however, the institution is not revealing the names of the club members until the deal completes. The Japanese bank is also still in negotiation with Nippon Export and Investment Insurance (NEXI) for political risk insurance. The US Dollar loan is expected to carry a spread of 145bp over Libor provided that NEXI cover is approved. Sanwa hopes to wrap up the financing in November or December.
Meanwhile, Won 950 billion ($725 million) of funds for the road project, one of the largest road construction projects currently planned in South Korea, have been raised relatively painlessly in the domestic market. The on-shore debt financing comprises a Won 400 billion, 18 year term loan, a Won 500 billion project bond package with tenors of up to 15 years and a Won 50 billion, 10 year contingency loan, which will be available five years after the road has opened. Korea Development Bank (KDB) is the arranger and underwriter of all three domestic facilities while Sanwa Bank is arranger and co-ordinator of the offshore loan.
Clues to the fate of the Seoul Beltway offshore loan were provided by the similar, $100 million offshore facility for the Daegu-Pusan Expressway financing. A Dai-Ichi Kangyo Bank (DKB) official, which arranged the Daegu-Pusan international loan, says that the deal was syndicated to three other banks: Shinkin Central Bank which took $25 million and Bank of Tokyo-Mitsubishi and Standard Chartered who took $10 million apiece.
However, DKB had to hold the remaining $55 million of the loan and is now trying to offload most of that amount into the secondary market. ?A number of banks will participate but final allocations haven't been made,? says the DKB banker.
According to DKB, it didn't manage to fully syndicate the offshore facility because the project sponsors, who had little prior experience of international project finance markets, insisted on a very tight time schedule.
But other foreign bankers suggest that the Daegu-Pusan syndication is only half complete, and the Seoul Beltway offshore financing a club deal because the international banking community is wary of Korean infrastructure projects. ?Although there may be a few sound road projects most are pretty challenged. Many of the road building schemes are inspired by the government's drive to prop up the local construction sector? says a Hong Kong banker adding, ?that's why 90% of toll revenues are typically guaranteed by the state.?
Moreover, Korean banks are only trying to draw foreign banks into the deals to protect themselves against the possibility that the Korean government does not honour its obligations to support the projects. ?Its basically a very odd sort of political risk insurance ? there's no other good reason why a domestic road project in Korea would need US Dollar denominated funds,? says a Japanese banker. He continues: ?Korean financiers figure it is less likely that the Korean government will ever abandon the projects if its reputation in the international financial markets is also at stake.? According to Sanwa, a foreign loan tranche for Seoul Beltway was an idea that KDB championed from the start.
Thirteen banks and insurance companies participated in the onshore term loan including Cho Hung Bank, Korea Life Insurance, Kyobo Life Insurance, Havit Bank, KDB, KEB, Kookmin Bank and Shinhan Bank. The loan has a spread, according to KDB, of 180bp over the three year corporate A+ bond yield, and commitment fees of 10bp rising to 25bp.
The contingency loan is being provided by KDB and Shinhan Bank and will be available only in the event of a shortfall of cash. Pricing and commitment fees on the contingency amount are both 80bp.
A Korean banker says that the project bond program will be launched in 2003 and 2004. Individual bonds will have maturities ranging from five years to 15 years. Repayment will be bullet for bonds with tenors less than 10 years, whereas, repayment will be made in the last two years on a 10 year bond issue and in equal amounts over the last five years of the 15 year bond. The bond package will be marketed to the usual range of investors, pension funds, commercial banks, securities companies and life insurance institutions. Coupons are likely to be at least 200bp over three year government bonds.
The bonds have been rated AA by two local ratings houses ? Korea Management and Consulting Corporation and National Information and Credit Evaluation.
The government is providing a Won 5.16 billion subsidy for construction, which will be available early 2003. The offshore loan is to be drawn down thereafter.
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