Private credit rescues Adani’s NQXT

IFR 2539 - 22 Jun 2024 - 28 Jun 2024
5 min read
Emerging Markets, Asia
Krishna Merchant, Prakash Chakravarti

North Queensland Export Terminal, a unit of Indian conglomerate Adani Group, is eyeing a second private credit loan of up to A$350m (US$230m) to complete the refinancing of the controversial Australian coal export facility.

Private credit funds Alpha Wave Global and Davidson Kempner Capital Management are understood to be potential investors in the latest high-yield loan, along with Farallon Capital Management and King Street Capital Management, which were lenders on a A$450m borrowing in April. NQXT, Davidson Kempner and King Street declined to comment. Farallon and Alpha Wave did not immediately respond to requests for comment.

Formerly known as Adani Abbot Point Terminal, NQXT is looking to close the loan on the same terms as the April deal – a door-to-door tenor of seven years with interest of 9.50% excluding fees of some 65bp–75bp, according to a person involved in the financing.

“We hope to close the second tranche by the first quarter of next year as we have time until July but we won't wait until the very end,” the person said.

The April loan went towards refinancing, leaving NQXT with only a A$329m seven-year bond outstanding that matures on June 5 2025.

With the closing of the first private credit financing and the likely completion of the follow-on borrowing, NQXT would finally complete a challenging debt refinancing that has been two years in the making, in the face of environmental, legal and political hurdles that made it impossible to access the bond and conventional loan markets.

Coal exposure

Opposition to the port has been a focal point of local and global environmentalists, and bank lenders and bond investors, who increasingly avoid coal exposure, have been wary of concerns that the port could damage the Great Barrier Reef. According to a Queensland government report, all Abbot Point anchorages are within the Great Barrier Reef Marine Park.

Australia’s Big Four banks and many other global institutions like HSBC and Deutsche Bank ruled out financing the project, and big names were absent from NQXT’s proposed Yankee offering in March 2020, which was led by Stifel, Emirates NBD Capital, Haitong and CLSA and failed to find sufficient investor demand.

Australia’s buyside has also scaled back its exposure to coal. In early May, the country’s second-largest pension fund Australian Retirement Trust said it would stop investing in most thermal coal companies from July as part of a plan to hit net-zero emissions across its portfolio by 2050.

NQXT, with a total capacity of 50 million tonnes per year, of which approximately 60% is metallurgical coal and 40% thermal, is a deep water multi-user coal export terminal 25km north of Bowen in North Queensland. Adani acquired a 99-year leasehold from the Queensland government in 2011. The terminal will also export coal from Adani’s flagship Carmichael thermal coal mine development, which is expected to produce 10 million tonnes per year.

In December 2022, NQXT was forced to tap its shareholders – the Adani family and Adani Group – to repay US$500m to bondholders after struggling to raise bonds and loans, including the planned Yankee offering in March 2020.

Against this backdrop, the 9.5% interest rate on the seven-year private credit financing for NQXT seems cheap.

Last December, Australia's top coal producer Whitehaven Coal closed a five-year credit facility of US$1.1bn with a range of senior financiers, including several non-bank lenders, to fund the acquisition of the Daunia and Blackwater mines. The company had initially marketed a US$900m syndicated financing to bank and institutional investors, releasing price guidance for both sets of lenders.

The opening margin for a US$300m three-year revolving credit was guided at 400bp–450bp over SOFR, based on the net leverage ratio of less than 0.5 times, while the margin for a US$600m five-year term loan portion was guided at 600bp–650bp over SOFR, and an original issue discount of 98.

Credit ratings

The completion of NQXT’s private credit financing in April might assuage rating agencies' concerns over its fundraising abilities.

In September, Fitch affirmed its BB+ (stable) rating of NQXT’s senior secured debt after taking into consideration its medium-term take-or-pay contracts with port users, and the terminal’s ability to deleverage significantly. However, Fitch said the rating is constrained by uncertainty around the terminal’s long-term capital structure and its ability to access external funding. It expects annual maintenance capex of around A$25m, which will be covered by cashflow from operations.

“The capex is fully funded; the cashflow is high and there is no need to borrow more,” the person involved in the private credit financing said.

Refiled story: Clarifies Davidson Kempner had no comment