Export finance powers up Trinidad
In July 2008, HSBC and Republic Bank closed a buyer credit facility 100% backed by the Finnish export credit agency (ECA) Finnvera in support of the construction of a power plant in Tobago.
The total US$78mn financing package also included a commercial loan to fund the portion of the project ineligible for Finnvera support. The plant is to be built on behalf of the Trinidad and Tobago Electricity Commission (T&TEC).
The deal marks a return to the use of export credit by the Trinidadian public sector. It is the first export credit deal to be completed by T&TEC in over five years.
The planned 64MW dual-fuel power plant is being constructed on the Cove Industrial Estate in Tobago, by Finnish firm Wartsila Power Plants.
Sam Lippitt, director, HSBC project and export finance, comments on the renewed appeal of export credit: “Previously, export credit opportunities in the Trinidadian public sector have been limited, due to ample and more readily accessible liquidity in the bond and syndicated bank markets.
“The recent global tightening of liquidity and elevation of spreads has meant that many single A-rated sovereigns, such as Trinidad, can now see significant advantages to export credits in terms of both pricing and deliverability. In addition, the Cirr fixed rate supported by Finnish Export Credit (FEC) proved to be a key attraction to T&TEC, achieving a highly competitive rate with much greater flexibility than could have been possible in the commercial swap market.”
HSBC has been actively promoting business in Trinidad and Tobago for a number of years and has tapped into opportunities in the oil and gas, infrastructure, primary industries and shipping sectors.
It was the bank’s level of experience, plus the fact that the deal involved Wartsila, one of Finland’s leading exporters and a company with which HSBC has previously closed export credit deals, that made the project particularly attractive.
When structuring the deal, HSBC decided to combine the 100% covered Finnvera loan into the same facility as the commercial loan.
The facility is to be drawn down over an 18-month construction period with capitalisation of interest, and amortising semi-annually for a 12-year period. There is also an option to extend the tenor of the financing by an additional three years.
Lippitt explains the reasoning behind the deal structure: “For ease of delivery, HSBC amalgamated the Finnvera export credit and separate commercial loan into a single funding arrangement with shared documentation.
“To meet T&TEC’s requirement for 15-years amortisation, as opposed to the OECD-dictated maximum of 12, HSBC was also able to implement a supplementary commercial financing for the additional years.”
Republic Bank was a co-arranger on the ECA-backed deal, but not a signatory.
HSBC arranged and lent under both the ECA and parallel commercial tranche for a portion of the loan not eligible for Finnvera support. Republic Bank lent on an additional bridge facility only. This facility was put in place to fund early contractual works while the long-term financing was being arranged.
The co-arrangers achieved a fixed rate of finance for both tranches, which at time of financial close was approximately 40 basis points beneath the current swap market.
Given that the deal was closed in the public sector, and that it required full cabinet approval, the co-arrangers managed to put the deal together in a very tight timeframe. The transaction took approximately three months from mandate to drawdown.
The decision to install the power facility at Tobago’s Cove industrial estate was partly fuelled by the Trinidadian government’s aim to develop light industries as a means of reducing Tobago’s economic reliance on tourism.
A dual-fuel facility was selected so that the plant can run on fuel oil until the pipeline linking Tobago to Trinidad’s natural gasfields is completed.
HSBC decided to work with the Caribbean-based Republic Bank to combine its own expertise in providing ECA-backed facilities and its US dollar funding base with Republic’s strong local presence and experience. This partnering of a local and international financial institution is now a model that is being applied to other transactions across the Caribbean.
Co-arrangers: HSBC Bank; Republic Finance & Merchant Bank
Law firm: Mayer Brown
Tenor: 12 years (optional 3-year extension)
Date signed: July 2008