Vietnam Capital Markets Deal
Vietnam has found it tough to attract commercial lenders after the Vinashin default, but one deal proved that viable infrastructure projects remained achievable. For its size and significance, the Mong Duong 2 US$1.5bn project financing is IFR Asia’s Vietnam Capital Markets Deal of the Year.
With US-based AES Corp as the lead, the Mong Duong 2 thermal power project was a lesson in the ability of a carefully structured project financing to withstand some severe external shocks.
Despite the devaluation of the Vietnamese currency, the rampant inflation in the country and the default of former investor favourite Vinashin, the non-recourse project financing was closed on time with an oversubscription from commercial lenders.
The 1,240MW Mong Duong 2 power plant in Quang Ninh Province is the largest-ever private-sector power project in Vietnam and the country’s first privately owned thermal power plant to be built since the early 2000s.
The US$1.5bn debt facility, meanwhile, is the largest in the country’s power sector and, at 18 years, the longest-ever for a build-operate-transfer power project financing in Vietnam.
AES, having begun negotiations over its first investment in Vietnam back in 2005, had worked hard to ensure the project would be bankable. It brought in as sponsors Posco Power Corp (30%) and China Investment Corp (19%), giving the project a significant political boost, and sealed 25-year coal-supply and power-purchase agreements with state-owned Vinacomin and EVN, respectively. A fixed-price construction contract with South Korea’s Doosan Heavy Industries and an undertaking from the Vietnamese Government to guarantee the financings also helped.
The project cost is US$1.95bn and total debt is US$1.462bn, divided into three tranches. Tranche 1 is a Kexim direct loan of US$342m; Tranche 2 is an 80% K-Sure covered facility of US$839m; and Tranche 3 is a 100% Kexim-covered US$280m loan.
Banks signed up to Tranches 2 and 3 on pro-rata basis, with coverage from the Korean ECAs a key factor in the appeal of the loan. The K-Sure facility pays 240bp over Libor for the first four years, rising to 250bp after seven years and then to 260bp until maturity. The Kexim tranche also has a step-up margin structure that starts at 215bp, then rises to 225bp and finally to 235bp. The upfront fee was 200bp.
Despite the ECA coverage, AES still needed to cope with tricky questions related to the default of state-owned shipbuilder Vinashin in December 2010 – in the middle of its negotiations with lenders. The government’s refusal to stand behind Vinashin’s debts spooked foreign investors and led to the cancellation of numerous other financings in the syndicated loan and international debt capital markets.
Mong Duong, nonetheless, ended up winning the support of 12 commercial banks – seven of which underwrote one-seventh of the loan amount. BNP Paribas (facility agent), Credit Agricole (documentation bank, inter-creditor agent), HSBC (financial adviser, account bank and collateral agent), ING (modelling bank), Natixis, Societe Generale and SMBC (insurance bank) were bookrunners. They were joined as MLAs by Mizuho Corporate Bank, StanChart and UniCredit, while CIC and DZ Bank signed up as lead arrangers.
The sponsors are not providing any undertaking on cost overruns, but equity portion is injected whenever debt is drawn down, on a 75:25 pro-rata ratio. Also, the project company has to maintain a DSCR of 1.4x–1.5x and DSRA is six months equivalent of repayments.
Repayment is in semi-annual instalments beginning six months after completion of the project. Construction is to start in August and will take four years. COD of the whole plant (2x 620MW) is targeted for June 2015.
Shearman & Sterling provided international legal advice for the sponsors, with Freshfields acting locally. The lenders worked with Latham & Watkins and local firm YKVN.
AES VCM Mong Duong Power made the first drawdown on September 1, and the plant is set to come online in the second half of 2015.