One of the largest cross-border leveraged financings by an Indian sponsor into the transport sector and 100% debt funded, the $2 billion one-year bridge financing backing the A$1.83 billion acquisition of a 99-year lease on Abbot Point X50 Coal Terminal in Australia (since renamed Adani Abbot Point Terminal) by Adani-sponsored Mundra Port and Special Economic Zone Limited (MPSEZ) featured the use of an underlying letter of comfort (LoC) that reduced withholding tax on debt repayments for the sponsor.

The Abbot Point acquisition compliments Adani’s buy-out of Linc Energy's Galilee coal project in 2010 by vertically integrating the shipping of coal from Galilee to Adani’s coal-fired power plants in India, notably the 4620MW Mundra (Kutch) project.

Closed in under a month, the deal comprises two one-year $1 billion tranches from State Bank of India (SBI) and Standard Chartered respectively, with corporate guarantees from Adani.

The SBI tranche takes the form of a LoC from from SBI to SBI London which acts as lender. The LoC has a number of benefits for both lender and sponsor. For SBI it enables to keep the risk on its Indian balance sheet while its overseas branch acts as lender, thus keeping the balance sheet of the overseas branch immune from failures abroad. It also enables SBI to sell down the risk to other Indian banks without those banks actually providing funding: The risk was sold down within two months of financial close, pulling participations from State Bank of Travancore, IDBI, Punjab Bank and Karnataka Bank.

The benefit of the LoC to the sponsor is a lowering of the ultimate cost of borrowing. The pricing on the tranche is split into two parts - commission on the LoC and interest on the US dollar loan. Commission on the LoC is exempt from withholding tax for Australia thus reducing the sponsor’s overall cost of payments to the Indian banks in the deal.

The deal is in the process of being refinanced with a longer -term facility that features both a repeat of the LoC structure and a new non-recourse tranche. The new deal will comprise $100-250 million of equity, a similar $800 million LoC tranche led by SBI with a tenor of 7-8 years, and around A$1.1 billion of non-recourse debt (refinanceable after five years) being arranged by Standard Chartered and Macquarie. The LoC tranche will again benefit from an Adani corporate guarantee.

Abbot Point X50 Coal Terminal Acquisition
Total debt: $2 billion
Status: Financial close 27 May 2011
Description: Debt financing of 99-year lease of Abbot Point Coal Terminal in North Queensland
Sponsor/lessee: Mundra Port & Special Economic Zone Ltd (Adani Group)
Seller/lessor: North Queensland Bulk Ports
Financial adviser: SBI Capital Markets
Lenders: Standard Chartered; State Bank of India
Legal counsel lenders; Amarchand & Mangaldas & Suresh A Shroff & Co. (Indian), Corrs Chamber Westgarth (Australia), Reed Smith LLP (English)
Legal counsel sponsors: Blake Dawson; Economic Laws Practice
Legal counsel seller: Allens Arthur Robinson