Semen Tonasa closed the financing of its Rp5.3 trillion ($570 million) cement plant in south Sulawesi, Indonesia, on 22 June 2009. The deal was the largest project financing by volume for eastern Indonesia that year. Added to that, it went through credit approval very quickly, taking just under six months to cross the line.

The project company's determination to set its long-term strategic investment plan for eastern Indonesia in place is evidenced by the fact that it chose to borrow in the money market conditions it did. The debt was not cheap, and state-owned Semen Gresik, Semen Tonasa's parent company, provided a guarantee covering cost over-run, loan service obligation and events of cash deficiency over the full course of the debt's tenor.

To win the mandate, Bank Mandiri had to guarantee Semen Tonasa that it would fully underwrite the entire debt amount of Rp3.2 trillion. The debt was then sold down to a group of five local banks – Bank Rakyat Indonesia, Bank Jatim, Bank Sulsel, Bank Central Asia and Bank Ekspor Indonesia. The debt constitutes 68% of project capex with the remaining amount funded from internal accruals.

The 10-year debt has an average life of 6.5 years and a 3.5-year grace period. Pricing starts at 12% per annum for the first three months, and is being re-set every three months in light of each lender's prime lending rate. Upfront fees are 190bp, and commitment fees are 50bp, with an annual management fee of 12.5bp. The debt to equity ratio is 67:33.

The project involves building a 2.5 million-tonnes-per-year cement factory with a dedicated 70MW coal-fired plant at Pangkep Tonasa, south Sulawesi. Construction is expected to be complete in 2012. PB Capital Corp and Rothschild were financial advisers to the consortium, with Hadiputranto, Hadinoto & Partners and Melli Darsa Law Office providing legal advice to the sponsors and the lenders respectively.

An increase in cement production is seen as vital in Indonesia, where demand for cement increases by around 6% per year. A strong pipeline of projects is in place, and national production is expected to reach 20 million tonnes per year by 2012. Semen Gresik is now looking at new locations for its next plant in central Java, after a high court turned down the company's appeal over the denial of a licence to explore the karst on the Kendeng mountain range in Pati Central Java.

Semen Tonasa
Status: Financial close 22 June 2009
Description: Rp3.2 trillion financing of a 2.5 million tonnes per annum cement plant with a 70MW coal-fired plant in south Sulawesi, Indonesia
Sponsor: PT Semen Tonasa
Mandated arranger: Bank Mandiri
Participating banks: Bank Rakyat Indonesia, Bank Jatim, Bank Sulsel, Bank Central Asia and Bank Ekspor Indonesia
Financial advisers to the sponsor: Rothschild, PB Capital Corp
Legal adviser to the sponsor: Hadiputranto, Hadinoto & Partners
Legal adviser to the lender: Melli Darsa Law Office