In March 2007 mandated lead arrangers Société Générale and Mizuho Corporate Bank co-financed with the Japan Bank for International Cooperation (JBIC) a ¥7.319bn (US$68mn) facility for Electricity of Vietnam (EVN), the country’s national electricity company. The Export-Import Bank of China (China Exim) also provided a direct loan to EVN alongside this transaction.
The funds are being used by EVN to support the development of Haiphong 2, a 600MW coal-fired thermal power plant in the city of Haiphong in Northern Vietnam.
This transaction constitutes one of the first concrete examples of Japanese and Chinese exporters winning a contract together, with the active support of their respective ECAs, in a third Asian country,
Under the terms of the financing, JBIC is directly providing 60% of the transaction, with the two commercial banks raising the remaining 40% within a club deal arrangement. The banks also benefit from cover provided by Japan’s Nippon Export and Investment insurance (Nexi), in addition to the guarantee of the Vietnamese ministry of finance.
Romain Lasne, vice-president, export and project finance, at Société Générale, comments: “Both Japanese and Chinese ECAs provided support in their own traditional way: a Japanese buyer credit funded by JBIC and commercial banks with Nexi insurance and a direct loan from China Exim. But while the ECAs of both countries worked independently they still made sure to co-ordinate with each other in terms of timing to achieve an orderly close.”
The loan will finance two 300MW generating units at a coal-fired power plant in North Vietnam. Japanese trading company Marubeni Corporation and Chinese company Dongfang Electric Corporation (DEC) formed a consortium for this project.
Marubeni is a Japanese trading company, with a diverse portfolio of operations including metals, energy, transportation and machinery. DEC is a Chinese state-owned company specialising in power equipment manufacturing and worldwide power projects.
Marubeni will supply the steam turbine and generator, while DEC will manufacture and supply the boilers and the balance of the plant.
Delivery risk involved in the transaction was effectively mitigated by the fact that both Société Générale and Mizuho have extensive experience in working with Japanese ECA structures as well as in the Vietnam market. Both banks also arranged the first EVN Haiphong deal closed in 2005.
Vietnam has experienced a sharp increase in power demand in tandem with fast economic growth. It needs to double its electricity generating capacity by 2010 to maintain its high economic development.
All the additional capacity generated by Haiphong 2 will be for domestic consumption, particularly as Haiphong is a key economic and industrial centre. Current electricity needs are met through importing electricity from China.
This deal provides a clear example of the opportunities for financing the Asian power sector, as well as demonstrating how intra-Asian trade is developing. Increasingly Asian companies are keen to export their advanced technology to support projects in other Asian nations.
Lasne remarks: “We have noticed for some time that the trade patterns in Asia were evolving quickly as a result of the fast economic growth experienced by the region. This is leading to important investment needs including power generation, as without power there can be no sustainable growth.
“At the same time, several Asian countries have developed technological expertise in different sectors with cost competitive advantage. According to the overall requirements of the buyer in terms of technology this has led exporters from various Asian countries to tie together to respond to a buyer’s sourcing demands.”
This trend is set to result in an increasing level of Asian multisource ECA-backed financing arrangements.
Electricity of Vietnam (EVN)
Mandated lead arrangers: Société Générale; Mizuho Corporate Bank; JBIC
Additional lenders: China Exim
Tenor: 15 years
Date signed: March 2007