Sovereign Risk Insurance Ltd has signed a landmark political risk insurance agreement with the Asian Development Bank (ADB) for a project in Vietnam. Sovereign is supporting the ADB’s political risk guarantee (PRG) that covers a commercial financing tranche for the Phu My 2.2 power project.
This transaction marks the first PRG issued by the ADB under its co-guarantee programme. The US$25mn, 12.5-year PRG covers a syndicate of commercial lenders. ANZ Investment Bank, Société Gén érale and Sumitomo Mitsui Bank are acting as co-lead arrangers for this ADB PRG facility.
Phu My 2.2 is a 715MW gas-fired power project located near Vung Tau in southern Vietnam. It is the first build-operate-transfer (BOT) power project in Vietnam and is the first large, international project financing in Vietnam. The project’s sponsors are EDF International of France, Tokyo Electric Power and Sumitomo Corporation of Japan. Other lenders to the project include JBIC, the ADB, Proparco (the French development bank) and the World Bank.
Commenting on the transaction, Sovereign’s president Price Lowenstein notes that: “We are very proud to have been the private political risk insurer selected by ADB to support the structuring and launching of ADB’s inaugural Political Risk Guarantee under the co-guarantee programme. We believe that this structure, which brings private sector underwriting experience and capacity under an ADB Political Risk Guarantee, will be applicable for other large infrastructure project financings in Asia. Sovereign works with financial institutions and bilateral and multilateral agencies on a global basis, and we are very pleased to be the first private sector underwriter to participate in an ADB PRG transaction.”
Martin Endelman, the ADB’s senior co-financing officer, notes that “this is a ground-breaking transaction that will allow the ADB to further support private sector operations in one of its developing member countries.”
He adds that: “Mobilising private sector political risk insurance support for vital infrastructure projects in challenging markets is one of the key objectives of the ADB’s PRG co-guarantee programme. We were impressed by Sovereign’s underwriting skills, flexibility, and knowledge of project finance. Sovereign’s experience in working with both commercial banks and multilateral agencies was a real asset in closing this complex transaction, and it highlighted the importance of close collaboration between public and private sector PRI providers.”
Says Vikas Batra, director, project and structured finance of ANZ in Singapore, the ADB PRG co-ordinator, “We found Sovereign to be willing to tailor the product to the unique requirements of this project. As with any transaction that is “first of its kind”, the guarantor of record structure raised a number of complex risk allocation and documentation issues, all of which were addressed by Sovereign with a pragmatic approach.”
The ADB is the leading multilateral development finance institution in Asia and the Pacific, committed to reducing poverty in the region. It helps its developing member countries through loans, grants, equity investments and guarantees, including those covering specified noncommercial risks.
Established in 1966, the bank today has 61 members.
Sovereign is a specialised political risk insurer and reinsurer based in Bermuda. Sovereign’s portfolio exceeds US$6bn of exposure spread over 65 emerging markets. Sovereign’s clients include financial institutions, national export credit agencies, multilateral institutions and multinational corporations. Sovereign is a joint venture between XL Insurance (Bermuda) Ltd, a wholly-owned subsidiary of XL Capital Ltd, and ACE Bermuda Insurance, Ltd, a wholly-owned subsidiary of ACE Limited.