Sponsors of the $300 million 225MW gas-fired Myingyan IPP project in Myanmar have signed on a $250 million non-recourse DFI-backed loan. The deal is the unrated country’s debut in the internationally banked long-term project finance market and its first non-recourse financing in the power sector.
The project was awarded under a 22-year BOT concession to Sembcorp (80%) and MMID Utilities (20%) in 2015, and marked Myanmar’s first internationally competitively tendered power project.
The scheme, which is scheduled to be commissioned in early 2018, will be financed via special purpose borrower Sembcorp Myingyan Power Company and will address in some part the country’s 30% electrification ratio as well as its reliance on expensive short-term leased power generation units. GE is supplying two high-efficiency 6F.03 gas turbines and associated steam turbines and heat recovery steam generators (HRSG) for the project.
“This deal is setting the scene for IPP financings in an unrated country,” a banker on the transaction tells TXF. “It’s innovative because it gels the involvement of multilaterals, commercial lenders, and political risk insurance providers into a package which makes it work economically for all parties.”
The 15-year debt combines fixed and floating rate loans, with heavy DFI backing ensuring commercial banks joined the deal. The loan documentation signed in May 2017 following delays due to land lease issues, but first drawdown took place in November.
The facility comprises three tranches: a MIGA-covered commercial tranche, an ADB B-loan tranche, and a DFI direct lending facility jointly provided by the ADB, IFC and AIIB (at time of signing, AIIB’s first project financing). The deal is rumoured to be priced at around 450bp over Libor.
Commercial lenders include Clifford Capital (documentation agent and legal services coordinator), DBS Bank (PRG coordinator), DZ Bank (technical & environmental) and OCBC (insurance). MIGA and ADB are providing political risk guarantees as well as covering the interest rate swap breakage costs. Mayer Brown JSM provided legal counsel to the lenders, while Duane Morris & Selvam acted for the sponsors.
The scheme is backed by a 22-year PPA with Myanmar Electric Power Generation Enterprise (EPGE), which is also guaranteeing the gas feedstock supply. “Myanmar isn’t going to run out of gas anytime soon,” say the banker, “therefore lenders don’t have to worry contractually”. With a 22-year PPA in place lenders can also take comfort from the fact there is a seven-year tail period on the 15-year debt.
Project financing is a new phenomenon in Myanmar. After decades of isolation and a ruinous period of brutal military dictatorship, the country is only just opening up to foreign investment. The accelerating pace of economic and political reforms, led by the first democratically elected office of the National League for Democracy, bodes well for investors who are dubbing Myanmar as ‘Asia’s final frontier’.
While the Myingyan deal sets a significant template – a bankable project document, and PPA and BOT structures – as a lawyer close to the transaction says, there is still a long way to go before Myanmar has clear legal foundations for future project financings.
Under the Myanmar Investment Law, which was passed in 2016, certain large-scale projects require further approval in the form of a permit from the Myanmar Investment Commission (MIC), as well as the Myanmar government. “While there has been some legal reform, the government’s new legal provisions will delay future projects significantly if they don’t get clearance. It will put off international developers too,” he says.
In relation to land, foreign investors face two main restriction in Myanmar. Firstly, the Transfer of Immovable Property Restriction Act prohibits the transfer and acquisition of immovable property to a foreign company with foreign shareholding. Secondly, it also prohibits a foreign person/company from leasing land for more than one year without a land rights authorisation from the MIC.
Therefore, while the framework for the Myingyan IPP financing sets a benchmark for multilaterals and commercial banks backing future Myanmar IPPs – the environment the deal sits within still needs considerable work to be considered project finance-friendly. Myingyan would not have got to financial close without strong multilateral support.
That said, with the ADB supporting development of Myanmar’s new companies and insolvency laws, and the IFC having supported the development of the Myanmar Investment Law, the reform required to progress the country’s fledgling project finance market looks likely to emerge.
Source: TXF News
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