Standard Chartered Bank (SCB) and Noble Trade Finance (NTF) have completed a five-year US$68mn pre-export financing deal that enables Tenaga Nasional Berhad(TNB) Coal International Ltd of Malaysia to acquire Indonesian coal mine company PT Dasa Eka Jasatama (DEJ). This guarantees TNB access to four concessionary coalmine areas in South Kalimantan.
TNB Coal International Limited (TNBC) is a company incorporated in Mauritius, 70% owned by TNB. It is a special purpose vehicle set up by TNB to acquire coalmine companies. As an exchange, TNBC will obtain exclusive mining and marketing rights to produce and sell coal.
The margin is six-month Libor + 2.25%. Underwriting commitments are: Standard Chartered Bank with US$23mn; Noble Trade Finance US$20mn; Bumiputra-Commerce Bank Ltd with US$15mn; RHB Bank with US$10mn.
To meet the syndication schedule, NTF decided to transfer the target market to Malaysia, in particular to Malaysian banks that had offshore branches in Labuan. Noble believed Malaysian banks already have rich market knowledge towards TNB, therefore they can save a lot of time from their due diligence work. This strategy proved correct. The primary market was successfully closed by four banks (two are Malaysian major banks). Each of participating banks shared a balanced portfolio of the total syndication amount. There are banks in Singapore and Hong Kong still interested in the deal. They have agreed to join the secondary market. Already two of them have committed to the secondary market. Once the loan drawdown is complete financial exposure will be transferred to the participating banks.
TNB is the largest electricity utility company in Malaysia with M$57.1bn in assets. By the end of 2002 it served about 5.8mn customers throughout the Peninsula, Sabah and Labuan. Tenaga is 70% owned by the Malaysian government, which ensures its electric generation strategies are consistent with national policy. It is considered quasi-sovereign as board members of TNB including representatives from the Ministry of Finance and Ministry of Energy, Telecommunications and Multimedia.
TNB has a monopolistic position in electricity transmission and distribution in Peninsular Malaysia as it accounted for around 66% of Malaysia’s electric generating capacity. Around 60% of its fuel mix for electricity generation is derived from natural gas. The rest of the main fuel mix is represented by 14% of Hydro, 6% of oil and 16% of coal. TNB’s major supplier of natural gas is Petronas, the Malaysian national oil company that continues to supply TNB with natural gas at a subsidised rate. However on numerous occasions, the Malaysian government has refused Petronas application for waiving the gas supply subsidy. As TNB has failed since 1997 to raise electricity tariffs, it could immediately justify an increase in prices if the subsidy is cancelled. An increase in electricity prices could destabilise growth in the economy, especially in the manufacturing sector as it represents 25% of GDP. Highly aware of this scenario, the Malaysian government fully supports TNB to reduce its dependency upon Petronas and search for alternative fuel sources.
Earlier this year, the Malaysian and Indonesian governments concluded an agreement to allow TNB to purchase Indonesian coal. TNB set up a vehicle company TNBC to acquire extensive marketing rights to produce and sell the coal via acquiring Indonesian company mining company PT Dasa Eka Jasatama (DEJ). The coal will be supplied to TNB’s electricity generation system thereby releasing pressure on tariff increases caused by the rise in the price of oil and natural gas.
NEI of Noble Group started to work with DEJ since 1997 by seeing the potential of its coalmine concessionary contracts. Noble Group’s strategy is to go downstream to hold extensive marketing rights of coalmines but not own the coalmine operations. To comply with Noble’s corporate strategy, NTF lends money to DEJ so that NEI can get the coal from DEJ’s mines. DEJ respects NTF’s specialty in structuring and financing coalmines.
When DEJ had been approached by TNB, DEJ did not want to cancel the supply contract with NEI. Therefore it included NEI as one of the off takers in the deal, furthermore DEJ recommended to mandate NTF to structure and arrange the deal with a group of primary banks. Based on the prior experience working with DEJ, the deal had been structured as an export backed term loan facility. NTF invited Standard Chartered Bank as a co-arranger. SCB is one of the world’s leading emerging markets bank with 150 years history; it is also Noble Groups main bank.
NTF, NEI and the structured finance team of SCB composed the information memorandum together. The deal was given to the syndication desk of SCB to sell. The initial strategy of SCB was to sell it in the Singapore market but it did not show quick results. Due to the complexity of the structure and professional requirements of the deal, the banks needed to spend a lot of time to understand the deal before completing their due diligence report.