Phu My 3 ready to launch

Rare Vietnamese credit set to test market appetite.

Bank of Tokyo-Mitsubishi, Credit Agricole Indosuez, Credit Lyonnais, Fortis Bank and Mizuho have underwritten a $170 million credit facility to finance the construction of the Phu My 3 Power Project in Vietnam. The project involves the construction of a 717MW gas-fired combined cycle power plant in the southern province of Ba Ria-Vung Tau, 75km from Ho Chi Minh City.

This is the third phase of the Phu My power project, which will eventually be able to supply 3,600MW of electricity to meet the rapidly growing demand in Vietnam. Phase 1 was commissioned in 2000 and the plans for phase 4 are currently underway after Siemens was awarded the contract to develop the project in early 2002.

The total cost of the undertaking is $412 million, with Japan Bank for International Cooperation (JBIC) providing $99 million, Asian Development Bank (ADB) $40 million and this loan accounting for $170 million. The remaining funds will be provided via an equity injection from sponsors British Petroleum, Sembcorp Utilities Pte of Singapore and Japanese concerns Kyushu Electric Power Co and Nisshio Iwai Corp.

In addition to its loan commitment ADB has agreed to provide political risk insurance to the tune of $35 million of the commercially syndicated portion. Multilateral Investment Guarantee Agency is covering a further $41 million, with NEXI taking the remaining $95 million.

The arrangers earn a step up margin which ratchets up from 175bp to 200bp over Libor over the life of the transaction. An upfront fee of 175bp was paid to each bank for underwriting commitments of $34 million apiece with a projected final take in the region of $20 million.

This is just the third US dollar financing from Vietnam to hit the market this year, leaving bankers with few comparables. The other two deals are small scale transactions and were also arranged and syndicated amongst domestic Vietnamese banks.

Market observers point to the similar $340 million fundraising completed late last year for the Phu My 2 Phase 2 project, arranged by ANZ Investment Bank, SG and Sumitomo Mitsui Banking Corp. This deal did not go out into general syndication, with the arrangers splitting the $100 million syndicated portion equally, although the margin was rumoured to be in the 100bp to 150bp range.

Aside from this facility, another project financing was completed in 2001 by ANZ Investment Bank, Credit Lyonnais and Fortis Bank for Thai Duc Water Treatment Plant in Ho Chi Minh City. Again this deal received substantial support from the ADB and other agencies and was not launched to the market as the commercial portion totalled just $61 million.

Bankers around the region have shown keen interest in the credit as opportunities to book Vietnamese assets are few and far between. Despite this some have raised concerns regarding the infrastructure of the country and the governments dedication to developing the communist country's economy.

Analysts have suggested that the government's cancellation of the project three times before construction actually commenced in mid-2001 is likely to cause doubts in some investors' minds. Officials close to the deal say that while this was the case, the power plant is due to be completed on schedule in January 2004.

Market observers point to the sales agreements already in place with Vietnam Oil and Gas Corp and the 20-year power purchase agreement with Electricity of Vietnam. Furthermore they believe the financial and political risk support from the three agencies will give bankers added comfort.

No date has been set for the launch of the deal, although the arrangers expect to invite a handful of banks to join the transaction in the third quarter.