10th  August,  2003, Volume 10, Issue 4

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BUSINESS

HNB leads landmark financing
deal of US$ 88 million

In February 2002 the Ceylon Electricity Board (CEB) called for Request for Proposals (RFP) from interested parties for the supply of 200 MW of power under a medium term proposal. CEB awarded two 100 MW plants to be built on a BOO basis to the following bidders:

- Aitken Spence/Caterpillar Consortium 100MW at Embilipitiya

- Hemas/Lakdhanavi Consortium 100MW at Puttalam

The RFP required that a separate project company should be floated for the project. A consortium led by Hemas Group and Lakdhanavi Limited and a consortium led by Aitken Spence & Co. Ltd., and Caterpillar Inc. were successful in their bids and each incorporated a separate company called Heladhanavi Limited to undertake the project at Puttalam and ACE Power Embilipitiya (Pvt) Limited to undertake the project in Embilipitiya respectively. The Letter of Intent (LOI) was issued to the two project companies by the CEB on 11 April 2003.

Lakdhanavi Ltd. was incorporated by its parent company Lanka Transformers ( a subsidiary of CEB) to construct and operate a power plant at Sapugaskanda. It is the first and the only fully Sri Lankan owned Independent Power Producer (IPP) operating in the island.

The Hemas Group has its roots in the pharmaceutical sector and currently is the largest private sector importer of pharmaceuticals. The group has diversified into the personal care, leisure and the garment sectors. With this venture the company's latest diversification is into the power sector.

As the lead bank arrangers the Corporate Finance Division of HNB has undertaken to raise US $ 47 million of debt for Heladhanvi Limited from the FCBU's of the local commercial banks and foreign credit lines available to DFIs. The syndicated term loan has been structured for a period of seven years including a grace period of two years with an interest rate of LIBOR + 3% p.a. The security for the facility would be a mortgage over the project assets, assignment of rights under the project documents and pledge of shares of the promoters. HNB has successfully functioned as the lead bank arranger in raising US Dollar debt financing for large scale infrastructure projects.

HNB along with Commercial Bank of Ceylon Limited are the joint lead banks\arrangers for the syndicated term loan for ACE Power Embilipitiya project.

In 1999 in response to a Ceylon Electricity Board (CEB) request for proposal Aitken Spence together with the Wartsila Group of Finland, Commonwealth Development Corporation of U.K. and Banaras House of India tendered a bid to supply the CEB with 2x20 MW of power. This consortium was successful in their bid and constructed power plants in Matara and Horana. The Matara plant was commissioned in March 2002 while the plant at Horana was commissioned in December 2002. Both power plants are currently supplying power to the national grid. The debt financing of both projects amounting to US $ 24 million and Rs. 357 million was arranged through a consortium of local banks with HNB acting as the lead bank/arranger.

Caterpillar Inc., is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. The group is also the world's second largest manufacturer of electrical power generation equipment and has experience in developing power projects around the world, often as IPPs, with plant sizes ranging from approximately 15 to 100 MW.

The group makes significant direct equity contributions to the projects it undertakes as well as being involved in project development from the initial stages through to the construction, long-term operations and maintenance of the project. This shows the commitment placed in each project undertaken and also ensures that the Caterpillar Group's reputation for quality and customer service is maintained. The proposed 100MW power project to be located at Embilipitiya is the group's first project as an IPP in the Sri Lankan power sector.

The joint lead banks/arrangers have undertaken to raise US $ 41 million of debt for ACE Power Embilipitiya (Pvt) Limited from the FCBU's of the local commercial banks and foreign credit lines of DFIs. The tenor and the security for the facility would be the same as the Heladhanavi project.

Both project companies are extremely cautious of their environmental and social responsibilities and standards that have to be met. The power plant equipment use the latest technology, which are designed and built according to standards specified by the World Bank (WB) and World Health Organisation (WHO).

Officials of HNB indicated that they have received in principle commitments from local commercial banks and are confident that with their experience financial closure will be achieved within the stipulated time period of four months by mid September 2003. The financing to the above two projects is the largest ever lending done by the local banks on a non-recourse basis to the power sector in Sri Lanka.

HNB has a fully functional Corporate Finance Division that provides a range of corporate finance and investment banking services including issue management, underwriting and placement of equity and debt, loan syndication, fund management, corporate restructuring and mergers and acquisitions, and advisory services. Since the upturn of the economy resulting from the peace process, HNB Corporate Finance has been extremely active with new assignments in equity and debt structuring.

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