Chandra Asri faces lender doubts as Singapore goes green
Indonesian conglomerate Chandra Asri Group is in talks to raise around US$850m in debt for its acquisition of ExxonMobil’s petrol stations in Singapore, but the impact of the country’s ban on sales of new petrol-only cars from 2030 could discourage lenders.
Chandra Asri Pacific is weighing options to borrow from a unitranche financing or a senior bank loan of around US$600m and a US$250m mezzanine portion from private credit funds.
Discussions are at an early stage but potential lenders flagged that getting it done without recourse to Chandra Asri will not be easy as Singapore moves towards cleaner transport such as electric, hybrid or hydrogen fuel cell vehicles.
The predicted reduction in demand for fuel is likely to lead to a decline in business for ExxonMobil's petrol stations. “You can’t even slap leverage on it because it’s probably declining,” said a Singapore-based banker familiar with the transaction.
Under the Singapore Green Plan 2030, which was launched in 2021, new diesel car and taxi registrations stopped in January and will cease for petrol-only vehicles from 2030. All vehicles in the country are expected run on cleaner energy by 2040.
Petrol vehicles will remain in use during the transition period but demand for petrol and diesel fuel will decline, making it harder for lenders to get comfortable with the credit.
Some of the 58 Esso-branded petrol stations that the petrochemical producer has agreed to buy already offer renewable diesel and EV charging, but increasingly motorists will be able to charge their vehicles at locations other than petrol stations.
The government is installing EV charging infrastructure across the island, including in all public housing estates. Service station owners have responded by adding non-fuel retail options such as convenience stores, car washes and car workshops at some locations.
The acquisition, financial details of which were not disclosed, is part of Chandra Asri’s aim to build an integrated energy platform and adds to the oil refinery and advanced downstream manufacturing infrastructure it already owns in Singapore.
Chandra Asri’s purchase is expected to be completed by the end of this year, subject to regulatory approvals. Reuters reported at the bidding stage in April that the Esso retail network was valued at roughly US$1bn and none of the initial bids exceeded that level.
Private credit play?
In the first half of the year, Aster Chemicals and Energy – a joint venture between Chandra Asri Pacific and Glencore – had been in talks with private credit funds to finance the acquisition but the sale process stalled over terms.
On October 24, Chandra Asri Pacific said it had agreed to buy the petrol stations via a special purpose vehicle under a wholly owned subsidiary.
The company is now exploring various options to put together the debt financing but a high loan-to-value ratio may make it challenging for some private credit funds to participate in a US$250m mezzanine portion.
A US$600m bank loan for a US$1bn deal implies an LTV of 60%, so “if banks are willing to lend to them at a high LTV ratio, then if you're coming after that as a mezz piece how do you get comfort around a slightly more limited equity cushion, or a more subordinated position at the asset level?”, said a source at a private credit fund.
“If any private credit funds come into the mezz piece, they will be attaching at 60% and detaching at some ridiculously high LTV of 85%,” the source said. “Generally, private credit investors would prefer to come into a deal with detachment at 50%–60%."
Attachment and detachment points are based on the total value of the underlying assets and the position of each tranche in the capital structure. Attachment point refers to the loss percentage at which a specific tranche begins to absorb losses, while detachment point is the loss percentage at which the entire tranche is wiped out.
In Chandra Asri’s case, the bank loan represents 60% LTV and the mezz is between 60% and 85%, while the equity cushion is 15%. A loss of 15% will wipe out the equity and mezz investors will start taking losses. If the valuation drops by 40% then the mezz portion will be wiped out.
In the past, Chandra Asri has used non-recourse financing for businesses it has bought and provided recourse for bolt-on acquisitions by those companies, according to sources familiar with the company.
In September, Aster Chemicals closed syndication of a US$1bn seven-year sustainability-linked loan. Proceeds of the unsecured, non-recourse SLL will go towards upgrading a crude oil refinery and an ethylene cracker plant on Bukom Island, and a petrochemical production centre on Jurong Island that Aster bought from Shell.
The amortising loan offered top-level all-in pricing of 205bp based on a margin of 188bp over term SOFR and an average life of 6.3 years. A dozen banks participated in the financing, including mandated lead arrangers, bookrunners and underwriters DBS Bank and OCBC Bank.