Project sponsors double down on renewables in Asia
Renewable energy dominated Asia’s project finance market with investors turning more bullish on green projects
With infrastructure at the heart of economic growth in many developing economies, the project finance market continues to see important projects across various countries and sectors. In 2017 there was no shortage of funds for bankable projects, and in many markets domestic liquidity could meet the funding requirements of project sponsors. In the Philippines, local banks can arrange US dollar-denominated loans that are placed purely onshore.
In 2017 renewable energy was a key theme in project finance, with activity accelerating in the region. Project sponsors are making strong commitments towards clean energy, while investors are turning more bullish on green projects.
These dynamics are reflected in The Asset Triple A Asia Infrastructure Awards 2018. ReNew Power is project sponsor of the year. As India's largest renewable energy independent power producer (solar and wind), the company has a portfolio of over 5.6 gigawatt of commissioned and under construction wind and solar power assets across the country. One of its highlight deals in 2017 was the innovative US$475 million senior secured notes raised through its debt issuing vehicle Neerg Energy, the proceeds of which will be used to purchase the rupee-denominated Masala bonds issued by seven subsidiaries of Renew Power.
Australia continues to be at the forefront of the renewable energy drive in the region due to a combination of policy and regulatory regime. The Regulatory Energy Target requires Australia to source about 20% of its power from large-scale renewable energy by 2020.
This heightened focus on renewables is spreading in other countries. Market participants are looking forward to the prospects of offshore wind in Taiwan, and one banker says there will be a number of offshore wind projects that are coming into financial close, thus creating a new asset class. Vietnam has a strong solar programme, but the power purchase agreement was a challenge as projects are small and fragmented, according to another banker.
Sumitomo Mitsui Banking Corporation (SMBC), once again voted project finance house of the year, was involved in several renewable energy projects. These include the US$587.67 million facility to fund the construction of 80MW Muara Laboh geothermal power plant. This greenfield project enables Indonesia to realize some of its geothermal energy potential and add significant new clean energy capacity to its energy mix.
In one of the largest renewable energy deals in Asia Pacific in 2017, SMBC was involved in the US$1.25 billion secured amortizing term loan facility and the US$660 million syndicated secured term loan facilities to fund Star Energy consortium's acquisition of Chevron's geothermal and power businesses in Indonesia and the Philippines. SMBC is a forerunner in recently opened frontier markets, such as Mongolia, Bangladesh, Sri Lanka and Myanmar. In addition to promoting new markets, the bank is committed to pushing project finance boundaries by expanding into new sectors and introducing new players, both sponsors and lenders.
HSBC — project finance advisory house of the year — was likewise involved in several landmark deals, foremost of which was the US$2.75 billion project bond and term loan facilities for Paiton Energy. This was voted as the project finance deal of the year, with the US$2 billion bond tranche representing a landmark transaction in the development of the Asian bond market as the first Reg S/144A project bond in the region since 1997. This is a big breakthrough in infrastructure financing. The bank was also involved in arranging the innovative US$500 million bond offering by Azure Power Energy. This was the first solar green bond from India, to finance the company's existing and future eligible solar power projects that promote sustainability.
Green financing figured prominently in the project finance market in 2017. Another deal that stood out was the 250 million ringgit (US$63.13 million) green sukuk for Tadau Energy of Malaysia. This was the world's first green sukuk and it kick-started and attracted capital inflows to Malaysia. It also encouraged potential issuers to use the SRI platform to raise funds and contributed to further developing Malaysia's capital markets. This is Malaysia's first large-scale solar power plant that has tapped the Islamic financial market issued under the SRI framework of the Securities Commission Malaysia.
HSBC was among the latest banks to announce that it will withdraw its funding for coal-fired power plants, oil sand projects and large hydroelectric dams as part of efforts to support a transition to a low-carbon economy. It says it will now stop financing new coal-fired power plants in all countries except Bangladesh, Indonesia and Vietnam, since many people in those countries have no access to electricity.
Another trend underpinning the project finance market is the resurgence in activity in the oil and gas sector due to higher oil prices. From a depressed environment in 2015-2016 when the industry was focused on cutting costs to manage the downturn, it has now turned the corner. In 2017, the spotlight switched to investing, replenishing reserves and re-investing in the business. Representing such a revival was the US$360 million reserve-based lending for Medco E&P Malaka. "It is the poster child of the change in focus in the oil and gas market," says one banker of the transaction. "But while the focus now is on investing, people remain disciplined in terms of spending capital."
Capital Advisors Partners Asia (CapAsia), based in Singapore, is institutional investor of the year. As a dedicated infrastructure-focused fund manager, it has a track record spanning more than 10 years of investing, managing and divesting investments across three funds. In January 2017, CapAsia partnered with a co-investor to buy Southeast Asia Telecommunications Holdings in Vietnam from Vina Capital for US$50 million. In May 2017, it divested its holdings in Petrowind Energy, a renewable energy company sponsored by PetroGreen Energy Corporation and EEI Corporation, and by CapAsia's third fund, CAIF III. It sold its holding to a Thailand-based regional strategic operator, which was looking to increase its exposure to operating renewable assets in the Philippines.
Linklaters was honoured with the project finance law firm of the year award for the diversity of its project finance deals. It also has a strong practice on renewables with solar developments in Japan; on wind, solar and biomass in India, Thailand and the Philippines; on hydro and wind in Pakistan and on hydro and geothermal in Indonesia.
Other institutions that made their mark in the project finance market in 2017: International Finance Corporation, multilateral agency of the year; plus Sinosure of China, export credit agency of the year. In terms of deals, the other standouts in 2017 include the takeover by Australian Registry Investments (ARI) of the operations of Land and Property Information (LPI), the State of New South Wales' monopoly land registry for 35 years. As a new asset class, LPI is the first land and property registry to be offered for concession in Australia. Also cited as one of the unique deals in 2017 was the A$742 million senior debt facilities for New Grafton Correctional Centre, voted PPP project of the year.
Also please see the deal of the year awards winners for Asean, South Asia, North Asia, and Australia.
Winners will be honored at an awards gala in Hong Kong. For more information about the event which is scheduled for June 19, 2018 please contact us here
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