Mandated lead arranger BNP Paribas has structured a US$300mn facility, backed by Japan’s Nippon Export & Investment Insurance’s (Nexi) overseas untied loan insurance (OULI), in support of the Dung Quat refinery project in Vietnam. The transaction signifies an important development in Japan-Vietnam trade relations and in the way in which the Vietnamese government could fund future projects.
This US$300mn tranche is being raised to support a number of infrastructure sub-projects being developed by Vietnamese contractors at the refinery. It forms part of a larger US$2.272mn project financing for the Dung Quat development.
The facility is being lent to the Vietnamese ministry of finance, and the project sponsor is Vietnam Oil and Gas Corporation (Petrovietnam).
The sub-projects consist of developments such as the construction of a jetty structure and a breakwater facility. These individual projects are being developed by Vietnamese firms, including Lung Lo Corp, a consortium of Cienco1-Cienco6-Portcoast, and Coma.
This transaction stands out in the world of export financing, as to date it is the only ECA-backed facility within the US$2.272bn financing, with Petrovietnam sourcing the remaining funds through other means.
It is also the first untied facility made available by Nexi to the Vietnamese government, as well as the largest Nexi OULI deal signed in 2007.
Based on BNPP’s strong track record in providing ECA-backed financing in Vietnam and for working with Nexi’s untied financing facilities, BNPP was appointed by the ministry of finance of Vietnam to arrange a suitable financing solution for the project.
“The complexity or originality of this deal lies more in the fact that it did not fit the standard profile of Vietnamese export credit transactions,” explains Emmanuel Galzy, head of export finance, Asia Pacific at BNP Paribas.
“So the achievement and the difficulty was more to identify the opportunity and convince our partners (ministry of finance as borrower, Nexi as an export credit agency and Petrovietnam as ultimate beneficiary), that this financing would fit both Vietnamese side financing need and Nexi eligibility requirements,” he adds.
One of the key achievements of this deal is that it has helped create a new category of customer in Vietnam, in that a wider range of Vietnamese companies are able to take advantage of a more flexible range of export credit-related products offered by Nexi.
“It has satisfied a financing need that was not catered by the market so far, in the sense that it financed local costs of the project, when most available sources of offshore financing sources for this kind of project in Vietnam are only applicable for large import contracts,” explains Galzy.
The Dung Quat refinery is one of the largest projects implemented in Vietnam during the last five years. It is located in the central regions of Vietnam in the Quang Ngai province, a difficult location as it is far from the oil fields and existing industrialised zones of Vung Tau Phu My.
Within the US$2.272mn project, Petrovietnam awarded the main packages to a consortium consisting of Technip France, Tecnicas Reunidas Spain, JGC Japan and Technip Malaysia.
Most of these packages have already been funded by mainly domestic sources, although international banks active in the country have previously tried to offer Petrovietnam some form of offshore financing to cover a large proportion of the project cost.
Vietnam is the third largest crude oil producer in Asia however the country lacks the necessary refining capacity to exploit these resources.
The Dung Quat refinery was first planned in January 1998, and upon completion Vietnam is expected to be able to meet about 40% of its domestic refined oil requirements.
The Ministry of Finance of Vietnam
Mandated lead arrangers: BNP Paribas
Additional lenders: Co-lead arrangers – Bank of Tokyo-Mitsubishi UFJ and Mizuho Corporate Bank
Tenor: 13 years
Law firms: Baker & McKenzie JGBJ Tokyo Aoyama Aoki
Date signed: January 2007