The financial close of the Jaguar Energy coal-fired power plant in Guatemala last year was a triumph for Latin American project finance.

The project had to completely re-work its financing after a combination of factors – not just the global credit crunch – wiped out its initial plans for funding. In the end, it was saved by a combination of Latin American development finance institutions, Central American banks, and a vendor loan from China.

The project

AEI, then known as Ashmore Energy, signed two offtake agreements for its proposed greenfield 300MW coal-fired power plant in Guatemala in 2008. The PPAs, with two local subsidiaries of Union Fenosa run for 15 years.

The PPAs cover 200MW of the plant’s capacity, while the remaining 100MW will be sold in the local Guatemalan and regional wholesale power markets.

AEI signed a turnkey EPC agreement with a Chinese firm, China Machine New Energy Corp.

The project, even before its financing tribulations, was destined to be a landmark for two reasons. It was the first major project financing in Latin America involving a Chinese contractor, and also the biggest ever foreign investment in Guatemala.

Financing – take one

The project cost was originally put at US$700 million, of which AEI planned to borrow US$510 million. That was to have come through two A/B loan structures from the Interamerican Development Bank (IDB) and the IFC, as follows:

• IDB ‘A’ loan – US$200m
• IFC ‘A’ loan – US$100m
• IDB ‘B’ loan – US$140m
• IFC ‘B’ loan – US$70m

Both B loans would have been subscribed to, and later syndicated by, three MLAs:

• BNP Paribas
• Mizuho
• Scotia Bank

The A loan was to have a 17-year tenor, and the B loan a 15-year tenor.

However, this financing plan fell victim to both the global credit crunch, and a shift in global public opinion away from coal-fired power.

Despite the fact that the plant will be the most efficient in Guatemala and one of the most efficient coal-fired plants in Latin America, the IFC and IDB both withdrew from the deal as they reassessed their policies towards financing coal-fired generation.

For the commercial banks, more pressing priorities came into play than the financing of Jaguar – and they too withdrew. It was back to the drawing board for AEI.

To the rescue

Salvation came in the perhaps unlikely form of Colombian bank Bancolombia, which stepped up to structure the deal with AEI.

Bancolombia itself offered significant lending to the deal, but was also able to offer lending from a fund it had set up which invests Colombian pension cash – called Fondo de Capital Privado BIBA.

The other significant lender was the Central American Bank for Economic Integration (CABEI), which joined Bancolombia as lead MLA – and each provided the top ticket of US$66.5 million.

As well as Latin American lenders, though, the project borrowed US$200 million from China – though not through the usual channels.

As Guatemala recognises Taiwan, and not People’s Republic, as China, Chinese state lenders were not in a position to lend to the project. This was got around, however, by the EPC contractor, China Machine New Energy, providing US$200 million.

Financing – take two

Bancolombia and CABEI arranged a 10-year, US$350 million loan at a landmark low price for project finance in the region.

The two joint lead arrangers (JLAs) each lent US$66.5 million on the term loan, while a Fondo de Capital Privado BIBA managed by Bancolombia contributed US$47 million. Panama’s Banco Geral and HSBC’s Panama branch were lead arrangers after the two JLAs.

The remaining US$170 million was syndicated - following over-subscription - to 11 banks:

• Banco General (Panama) – US$40m
• HSBC Bank (Panama) – US$40m
• Banco Industrial (Guatemala) – US$21m
• Banco G&T Continental (Guatemala) – US$15m
• Banco Agromercantil (Guatemala) – US$13m
• BICSA (Costa Rica) – US$10m
• Westrust Bank – US$9m
• Banco Reformador (Guatemala) – US$7m
• Mercom Bank – US$7m
• GTC Bank – US$5m
• Transcom Bank (Barbados) – US$3m

The loan includes a three-year grace period for construction, and is priced at 575bp over Libor - believed to be the first long-term project finance in Guatemala to go under the 600bp barrier.

The loan will amortize fully over the 10-year period – although it is likely to be refinanced once the plant goes operational, expected in 2013.

China Machine New Energy Corp. (CMNC), whose contribution can be converted to equity following completion of construction.

Equity comes to US$135 million, filling out the total project value of US$685 million.

AEI was advised on the deal by Clifford Chance. Bancolombia's legal advice came from Milbank, and Shearman & Sterling advised CABEI.

Conclusion

The deal proved to the world that Latin American project finance is not dependent on North American or European support – but rather that, when necessary, the continent can go it alone.

AEI’s perseverance with the deal is also to be commended – a trait of the company also evidenced by its rescuing of a gas-fired IPP in Peru, now in financing.

On closing Jaguar, AEI chief executive Jim Hughes said: "This energy infrastructure investment underpins AEI's continued commitment to Guatemala and the Central American region and is indicative of the company's confidence in the electricity sector's legal and regulatory frameworks.”

A joint statement from the heads of Bancolombia and CABEI said: "The project's financing has been a successful joint effort between AEI and the lead arrangers; the result is a facility with sound fundamentals that demonstrates the financial market potential for well structured development projects.”