Phu My 2.2
Asia Pacific Power Deal of the Year 2002
Phu My 2.2
Vietnam's biggest project financing to date and its first build-operate-transfer (BOT) ? Phu My 2.2 reached financial close in October 2002. The deal is also the first in Vietnam with loan tenors of up to 16 years and has pushed the envelope of what can be financed via limited recourse debt in emerging Asian markets.
Vietnamese demand for power is increasing and the government, in a successful bid to get the deal done quickly (12 months from licensing to financing), offered guarantees against performance risk associated with other government-controlled entities, thus mitigating problems like gas supply risk.
Phu My 2.2 is both the first project financing, and the first hedging agreement, to be approved by the State Bank of Vietnam. It is also the first to be registered at the new National Centre for the Registration of Secured Transactions.
Coextensive with economic growth, Vietnam's electricity demand has grown by 13% in the past 10 years and 2.2 is an integral part of the Vietnam Electricity Planning approved in June 2001 ? the deal relieves some of the strain on Electricity of Vietnam's limited capacity to fund significant investment in the near term.
The project is part of the Phu My Power Generation Complex in Ba Ria-Vung Tau Province. 85km south of Ho Chi Minh City ? Vietnam's highest growth area. The 715MW combined-cycle gas-fired plant will be fuelled from the local Nam Con Son Gas development which has proven reserves of 20 years
The $480 million BOT deal includes multi-sourced financing using a variety of financial enhancements.
On the commercial debt, co-ordinating lead arrangers ANZ, SG Asia (also financial advisor, documentation bank and interest rate swap/hedge provider) and Sumitomo-Mitsui benefit from a $75 million partial risk guarantee provided by the World Bank's International Development Association (IDA) as well as $25 million in extended political risk insurance provided by a private insurer under a partial risk guarantee from the Asian Development Bank (ADB). Tenors on these facilities are 16 and 11 years respectively.
The ADB partial risk guarantee is a first, in that the bank has entered into a back-to-back arrangement with private political risk insurer ? Sovereign Risk Insurance. ADB acts as the guarantor of record but passes on all risk to Sovereign.
The deal also includes $240 million in direct loans from multilaterals. Japan Bank for International Cooperation (JBIC) has put up a $150 million direct loan facility, priced at 185bp over libor, as has Societe de Promotion et de Participation pour la Cooperation Economique (Proparco) with $40 million. ABD also provided a $50 million OCR loan facility. All facilities have a 15-year tenor.
The project is owned by Mekong Energy Company Ltd. (MECO), which comprises a strong set of sponsors ? EDF International (56.25%), Sumitomo Corporation (28.125%) and Tokyo Electric Power Company International BV, a tax efficient unit of Tokyo Electricity Power Co. Inc. (15.652%).
Despite being EDF-led, Coface declined to guarantee the original commercial bank portion of $100 million ? since upped by JBIC to $150 million. Lenders were simply uncomfortable with the deal's 15-year tenor in an untested Vietnamese market. The strength of the sponsors and the feasibility study eventually won out with JBIC.
Legal counsel on Phu My 2.2 ? Allen & Overy and Gide Loyrette Nouel (Vietnam) for the sponsors, and Clifford Chance and VILAF ? Hong Duc (Vietnam) for the lenders ? were faced with a number of challenges: negotiation of the government guarantee; risk allocation on termination compensation; conversion of Vietnamese Dong into US dollars for remission; a Vietnamese-law compliant project finance insurance regime; and finally the application of Vietnamese foreign investment laws to a project financing.
Plant construction is due to begin in September 2003, and commercial operation from September 2004. Phu My 2.2's technical specs are tried and tested. General Electric is supplying F class technology ? already used in 70% of the world's gas fired turbines. The plant will be highly competitive relative to existing or future plants of EVN.
Technology aside, lenders also took comfort from the deal's power purchase agreement (expiry date September 2024) with EVN, which provides for a take-or-pay with capacity charge payable irrespective of despatch. Furthermore, the whole project comes with a government guarantee.
Phu My 2.2 has set a template that should make upcoming financings in Vietnam a great deal easier. It has also demonstrated that the Vietnamese government is serious about creating a legal and fiscal environment conducive to pulling in foreign project investment.
Phu My 2.2
Status: Closed October 2002
Size: $480 million
Location: Vietnam
Description: Development of 715MW gas-fired plant
Sponsors: EDF International; Sumitomo Corporation; Tokyo Electric Power Company (TEPCO)
EPC contractor: EDF
Debt: $340 million
Co-ordinating lead arrangers: SG Asia; ANZ; Sumitomo-Mitsui Banking Corporation
Direct loans: JBIC ($150 million), Proparco ($40 million), ADB ($50 million)
Political risk guarantee: ADB ($25 million)
Partial risk guarantee: IDA ($75 million)
Technical advisory: PB Power
Insurance advisory: Willis
Tax advisory: PricewaterhouseCoopers
Legal counsel to sponsors: Allen & Overy (international); Gide Loyrette Nouel (Vietnam)
Legal counsel to lenders: Clifford Chance (international); VILAF-Hong Duc (Vietnam)
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Phu My 2.2
Vietnam's biggest project financing to date and its first build-operate-transfer (BOT) ? Phu My 2.2 reached financial close in October 2002. The deal is also the first in Vietnam with loan tenors of up to 16 years and has pushed the envelope of what can be financed via limited recourse debt in emerging Asian markets.
Vietnamese demand for power is increasing and the government, in a successful bid to get the deal done quickly (12 months from licensing to financing), offered guarantees against performance risk associated with other government-controlled entities, thus mitigating problems like gas supply risk.
Phu My 2.2 is both the first project financing, and the first hedging agreement, to be approved by the State Bank of Vietnam. It is also the first to be registered at the new National Centre for the Registration of Secured Transactions.
Coextensive with economic growth, Vietnam's electricity demand has grown by 13% in the past 10 years and 2.2 is an integral part of the Vietnam Electricity Planning approved in June 2001 ? the deal relieves some of the strain on Electricity of Vietnam's limited capacity to fund significant investment in the near term.
The project is part of the Phu My Power Generation Complex in Ba Ria-Vung Tau Province. 85km south of Ho Chi Minh City ? Vietnam's highest growth area. The 715MW combined-cycle gas-fired plant will be fuelled from the local Nam Con Son Gas development which has proven reserves of 20 years
The $480 million BOT deal includes multi-sourced financing using a variety of financial enhancements.
On the commercial debt, co-ordinating lead arrangers ANZ, SG Asia (also financial advisor, documentation bank and interest rate swap/hedge provider) and Sumitomo-Mitsui benefit from a $75 million partial risk guarantee provided by the World Bank's International Development Association (IDA) as well as $25 million in extended political risk insurance provided by a private insurer under a partial risk guarantee from the Asian Development Bank (ADB). Tenors on these facilities are 16 and 11 years respectively.
The ADB partial risk guarantee is a first, in that the bank has entered into a back-to-back arrangement with private political risk insurer ? Sovereign Risk Insurance. ADB acts as the guarantor of record but passes on all risk to Sovereign.
The deal also includes $240 million in direct loans from multilaterals. Japan Bank for International Cooperation (JBIC) has put up a $150 million direct loan facility, priced at 185bp over libor, as has Societe de Promotion et de Participation pour la Cooperation Economique (Proparco) with $40 million. ABD also provided a $50 million OCR loan facility. All facilities have a 15-year tenor.
The project is owned by Mekong Energy Company Ltd. (MECO), which comprises a strong set of sponsors ? EDF International (56.25%), Sumitomo Corporation (28.125%) and Tokyo Electric Power Company International BV, a tax efficient unit of Tokyo Electricity Power Co. Inc. (15.652%).
Despite being EDF-led, Coface declined to guarantee the original commercial bank portion of $100 million ? since upped by JBIC to $150 million. Lenders were simply uncomfortable with the deal's 15-year tenor in an untested Vietnamese market. The strength of the sponsors and the feasibility study eventually won out with JBIC.
Legal counsel on Phu My 2.2 ? Allen & Overy and Gide Loyrette Nouel (Vietnam) for the sponsors, and Clifford Chance and VILAF ? Hong Duc (Vietnam) for the lenders ? were faced with a number of challenges: negotiation of the government guarantee; risk allocation on termination compensation; conversion of Vietnamese Dong into US dollars for remission; a Vietnamese-law compliant project finance insurance regime; and finally the application of Vietnamese foreign investment laws to a project financing.
Plant construction is due to begin in September 2003, and commercial operation from September 2004. Phu My 2.2's technical specs are tried and tested. General Electric is supplying F class technology ? already used in 70% of the world's gas fired turbines. The plant will be highly competitive relative to existing or future plants of EVN.
Technology aside, lenders also took comfort from the deal's power purchase agreement (expiry date September 2024) with EVN, which provides for a take-or-pay with capacity charge payable irrespective of despatch. Furthermore, the whole project comes with a government guarantee.
Phu My 2.2 has set a template that should make upcoming financings in Vietnam a great deal easier. It has also demonstrated that the Vietnamese government is serious about creating a legal and fiscal environment conducive to pulling in foreign project investment.
Phu My 2.2
Status: Closed October 2002
Size: $480 million
Location: Vietnam
Description: Development of 715MW gas-fired plant
Sponsors: EDF International; Sumitomo Corporation; Tokyo Electric Power Company (TEPCO)
EPC contractor: EDF
Debt: $340 million
Co-ordinating lead arrangers: SG Asia; ANZ; Sumitomo-Mitsui Banking Corporation
Direct loans: JBIC ($150 million), Proparco ($40 million), ADB ($50 million)
Political risk guarantee: ADB ($25 million)
Partial risk guarantee: IDA ($75 million)
Technical advisory: PB Power
Insurance advisory: Willis
Tax advisory: PricewaterhouseCoopers
Legal counsel to sponsors: Allen & Overy (international); Gide Loyrette Nouel (Vietnam)
Legal counsel to lenders: Clifford Chance (international); VILAF-Hong Duc (Vietnam)
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