Financing for the 500mw San Lorenzo Power Project at Batangas in the Philippines is a rare ray of sunshine in the gloom of the regional project finance market. Beset by non-payment problems in Indonesia, low merchant power prices in Australia and overcapacity elsewhere in the region, international power sponsors, investors and lenders can take heart from the fact that even in this environment, deals can get closed in Asia.
The project is sponsored by FGP Corporation, a 60:40 joint venture between First Philippine Holdings and BG Energy Holdings. It is the largest greenfield independent power project to be successfully financed since the Asian financial crisis and follows on from the sponsors' success in financing the 1000mw Santa Rita Power Project also in the Philippines, which closed in early 1997.
The key to getting the deal done was the strong backing the project received from three separate export credit agencies (ECAs). The financing was split into three tranches. The first tranche is a $133 million, 14-year loan covered by German ECA Hermes which was 60% taken up by KfW. The second tranche is a 16-year $77 million loan with full political cover provided by the German GKA program. The third is a 14-year $115 million term loan with political risk cover from ECGD and the fourth a seven-year, $50 million revolving credit with no cover.
The lead arranger banks for the transaction were KfW, ABN Amro, Bayerische Hypo-und Vereinsbank, Bayerische Landesbank, Citibank, Credit Lyonnais, DKB, DG Bank, Deutsche Bank, Bank of Tokyo Mitsubishi and Westdeutsche Landesbank.
These banks have lent to the project with full political risk cover, although they have taken the commercial risk of the project's 25-year power purchase agreement with national distributor, Meralco. In these times of cronyism and political gerrymandering in the Philippines, lenders need all the reassurance they can get. And the extensive cover that this deal received from OECD governments was an extremely attractive way to reduce the project's risks.
"There was a tremendous amount of demand from banks to lend to this deal," says Jeffrey Christie, partner at Skadden, Arps, Slate, Meagher and Flom, project counsel to FGP Corporation. "The banks had pretty much all the political risks in the project covered."