Taiwan syndication offers model for project financing
A NT$14.2 billion (about HK$3.12 billion) syndication for a power plant in Taiwan signed this month offers a model for the financing of infrastructure projects in a region struck by higher foreign exchange risk levels, the Bank of America, which served as financial advisers to the project, says.
The syndication, arranged by the state-owned Chiaotung Bank, covers most of the $19 billion needed to build and operate a 960-megawatt gas-fired combined-cycle power plant to be built in Taoyuan by the private Ever Power IPP Co, a joint venture of Taichung-based Ever Fortune Group, Chiaotung Bank, Japan's Marubeni Corp and smaller investors.
The plant should enter commercial service by mid-1999, with state-owned Taiwan Power Co taking up its production.
Liquefied natural gas fuel, mostly from Indonesia, will be supplied by the state-owned Chinese Petroleum Corp.
The depreciation of many regional currencies 'makes it imperative to explore the domestic financial market to support infrastructure projects given the imposition of greater foreign exchange risk', Dai Chen, vice-president for Bank of America's project finance group, said.
Mr Chen said 'the New Taiwan dollar revenues match with the source of financing in a perfect world while in Indonesia consumers are paying rupiah but the power utility must pay IPPs in US dollars'.
'This mismatch has led to everyday liabilities getting higher and higher and putting the utility on the brink of bankruptcy,' he said.
Mr Chen said Taiwan Power had carefully examined the domestic market and decided to structure the Bank of America concept to domestic financing.
Typical financing packages for leading corporations in Taiwan offer maturities of between five and seven years, but 85 per cent of the $14.2 billion in the Ever Power IPP finance package arranged by Chiaotung Bank carries a 15-year maturity, Mr Chen said.
The package carries an overall interest rate of 0.65 percentage points over the one-year savings deposit rate offered by the government postal savings system.
Mr Chen said Marubeni, which holds a 25 per cent shareholding in Ever Power, 'brought much credibility to the transaction through its experience in IPP development and supply of power equipment, while Bank of America played a leading role in financial talks with Chiaotung Bank'.
'Many foreign banks felt that this type of financing package couldn't be arranged for such projects in Taiwan because they try to impose models from countries such as Indonesia and the Philippines on Taiwan.
'But conditions [in Taiwan] are vastly different as Taiwan has an AA+ credit rating far superior to those countries and even Australia, liquidity in the trillions of NT dollars and well-developed financial markets,' Mr Chen said.
He said the lack of foreign funding was not related to the regional currency crisis as foreign banks were never asked to participate.
'After surveying the market, we felt foreign banks should be limited to an advisory capacity given the huge liquidity in the local currency market at better rates.' Jack Michalowski, vice-president of the financing group, said the bank was focusing on domestic bank financing and closed a similar deal in the Philippines that combined 75 per cent domestic financing with 25 per cent foreign funds for a US$168 million build-operated-transfer hydropower project.
