Thu Duc: Vietnam’s first BOT
As one Hong Kong banker likes to put it, ?Vietnam is a country that
some banks won't touch with a barge pole?. One of the many
difficulties of arranging financing for Vietnamese projects,
highlighted by the recently closed $154 million Thu Duc water
project deal, is the convertibility of the Vietnamese Dong. The
Dong is not freely convertible nor is hard currency a readily
available commodity. The three arrangers and commercial lenders to
Thu Duc ? Fortis Bank, Credit Lyonnais and ANZ Investment Bank ?
had their work cut out to ensure there would be dollars available
to pay back the loan amount.
The three banks originally tried to tackle the foreign exchange problem by seeking an availability guarantee from the State Bank of Vietnam. When it became apparent that that wasn't feasible, the arrangers went for a more practical approach, says Geert Lippens, head of global export and project finance Asia, at Fortis Bank in Singapore. ?What we secured instead,? he says, ?was priority of access to US dollars at the state bank level, ahead of the majority of other foreign lenders to the country.?
The project, sponsored by Suez Lyonnais de Eaux, Pilecon Engineering of Malaysia and Tractebel, entails the construction, ownership and operation of a water treatment plant in Ho Chi Minh City's Thu Duc district. Being a project which does not export from Vietnam and which therefore has no export revenues, it is particularly vulnerable to US dollar shortages. Thu Duc does not have priority over all foreign investment schemes in terms of access to dollars, however. ?Its just behind most power and gas projects in this regard,? says Lippens.
While there is no suggestion that Vietnam is about to run dry of US dollars, it is not clear whether future power and gas projects in addition to existing energy sector financings will also get priority over Thu Duc in the queue for dollars.
Two sizeable power station project finance deals in Vietnam are due to be mandated in coming months. Phu My 2.2, a 700MW gas fired power station sponsored by Tokyo Electric and Sumitomo Bank which will cost between $400 and $450 million, and Phu My 3, a 715MW combined-cycle power plant sponsored by BP and SembCogen (more sponsors are expected to join this project shortly as BP sells down part of its stake) which is expected to cost about the same amount. As a result of the financing agreements for these projects it is quite possible that Thu Duc will find itself further down the priority list, (bankers say these things will be decided on a case by case basis), slightly raising the exchange risks for the water project.
Thu Duc is notable for being the first foreign-owned build operate and transfer (BOT) project in Vietnam. The offtaker in the development is Ho Chi Minh City Water Supply Co and the concession agreement has been signed for a period of 25 years with the People's Committee of Ho Chi Minh City.
As a project financing Thu Duc is small and complex. For that reason a number of banks declined participation in the financing when Fortis brought the deal to market in June 2000, or to bid for the financial advisory role in 1999. ?It was just too small for us to waste our time on,? says a banker at another European banking house. Fortis, however, was willing to take up the challenge in order to chalk up more project finance experience, highlighting its increasing ambitions in the Asian project finance market.
While ANZ acted as the insurance bank and Credit Lyonnais as the Coface agent, Fortis, took most of the other roles including the coordinating, documentation, financial modeling and technical modeling. The bank has been financial adviser to the project sponsors since January 2000 and became lead arranger in August 2000.
The project is financed by $48 million of equity and $106 million of debt. There are a total of six tranches to the debt financing package the sixth being a $4.5 million contingency debt tranche. ADB is providing the loan for the largest tranche ($29.7 million) plus $1.3 million to the contingency debt amount.
Malaysian Export Import Bank is providing the second tranche of $13 million and $600,000 to the contingency loan. The term on the Mexim tranche is 12.5 years.
The three commercial banks provide the funds for the remaining tranches, the third of which is supported by political risk cover from Coface. The Coface loan amount, with a maturity of 14.5 years, is $23.2 million, including $1.3 million for the contingency debt.
Office National Ducroire (OND) provides 90% political risk cover for an equal amount ($23.2 million) and also extended political risk insurance on a $15 million export credit loan with a maturity of 12.5 years.
Pricing on the Coface and OND tranche is 200bp over Libor and 80bp for the OND export credit loan. Pricing, not easy for such a unique deal, was primarily the result of the financing tender in June 2000, says a Singapore-based banker involved in the transaction.
The three banks originally tried to tackle the foreign exchange problem by seeking an availability guarantee from the State Bank of Vietnam. When it became apparent that that wasn't feasible, the arrangers went for a more practical approach, says Geert Lippens, head of global export and project finance Asia, at Fortis Bank in Singapore. ?What we secured instead,? he says, ?was priority of access to US dollars at the state bank level, ahead of the majority of other foreign lenders to the country.?
The project, sponsored by Suez Lyonnais de Eaux, Pilecon Engineering of Malaysia and Tractebel, entails the construction, ownership and operation of a water treatment plant in Ho Chi Minh City's Thu Duc district. Being a project which does not export from Vietnam and which therefore has no export revenues, it is particularly vulnerable to US dollar shortages. Thu Duc does not have priority over all foreign investment schemes in terms of access to dollars, however. ?Its just behind most power and gas projects in this regard,? says Lippens.
While there is no suggestion that Vietnam is about to run dry of US dollars, it is not clear whether future power and gas projects in addition to existing energy sector financings will also get priority over Thu Duc in the queue for dollars.
Two sizeable power station project finance deals in Vietnam are due to be mandated in coming months. Phu My 2.2, a 700MW gas fired power station sponsored by Tokyo Electric and Sumitomo Bank which will cost between $400 and $450 million, and Phu My 3, a 715MW combined-cycle power plant sponsored by BP and SembCogen (more sponsors are expected to join this project shortly as BP sells down part of its stake) which is expected to cost about the same amount. As a result of the financing agreements for these projects it is quite possible that Thu Duc will find itself further down the priority list, (bankers say these things will be decided on a case by case basis), slightly raising the exchange risks for the water project.
Thu Duc is notable for being the first foreign-owned build operate and transfer (BOT) project in Vietnam. The offtaker in the development is Ho Chi Minh City Water Supply Co and the concession agreement has been signed for a period of 25 years with the People's Committee of Ho Chi Minh City.
As a project financing Thu Duc is small and complex. For that reason a number of banks declined participation in the financing when Fortis brought the deal to market in June 2000, or to bid for the financial advisory role in 1999. ?It was just too small for us to waste our time on,? says a banker at another European banking house. Fortis, however, was willing to take up the challenge in order to chalk up more project finance experience, highlighting its increasing ambitions in the Asian project finance market.
While ANZ acted as the insurance bank and Credit Lyonnais as the Coface agent, Fortis, took most of the other roles including the coordinating, documentation, financial modeling and technical modeling. The bank has been financial adviser to the project sponsors since January 2000 and became lead arranger in August 2000.
The project is financed by $48 million of equity and $106 million of debt. There are a total of six tranches to the debt financing package the sixth being a $4.5 million contingency debt tranche. ADB is providing the loan for the largest tranche ($29.7 million) plus $1.3 million to the contingency debt amount.
Malaysian Export Import Bank is providing the second tranche of $13 million and $600,000 to the contingency loan. The term on the Mexim tranche is 12.5 years.
The three commercial banks provide the funds for the remaining tranches, the third of which is supported by political risk cover from Coface. The Coface loan amount, with a maturity of 14.5 years, is $23.2 million, including $1.3 million for the contingency debt.
Office National Ducroire (OND) provides 90% political risk cover for an equal amount ($23.2 million) and also extended political risk insurance on a $15 million export credit loan with a maturity of 12.5 years.
Pricing on the Coface and OND tranche is 200bp over Libor and 80bp for the OND export credit loan. Pricing, not easy for such a unique deal, was primarily the result of the financing tender in June 2000, says a Singapore-based banker involved in the transaction.
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