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First Laos project bond takes shape in Thailand
August 4, 2017 / 6:57 AM / 2 months ago

First Laos project bond takes shape in Thailand

* Nam Ngum 2 hydropower plant targets Thai baht investors

By Kit Yin Boey

SINGAPORE, Aug 4 (IFR) - Nam Ngum 2 Power, the owner of a major Laotian hydroelectric complex, is preparing to sell bonds in the Thai baht market in a move that promises to unlock an alternative source of funding for other infrastructure projects in the region.

The project company aims to raise around 6 billion baht ($180.5 million) to refinance existing debt. Bankers say investors have already voiced interest in Nam Ngum 2, which augurs well for the issue.

A offering of baht bonds for Nam Ngum 2 would be the first cross-border capital markets financing in the Greater Mekong region to be backed against project cashflows.

The move comes as Asian institutions are growing more interested in long-term infrastructure financings as they look to match their assets and liabilities. The move comes as Asian institutions are growing more interested in long-term project financings as they look to match their assets and liabilities.

Thai investors have shown a willingness to take on riskier assets, such as unrated bonds, to boost returns and a successful issue may encourage other infrastructure owners to refinance bank debt in the country’s capital markets.

Investor meetings in Bangkok are planned towards the end of the month after the company filed the relevant documents with Thailand’s Securities and Exchange Commission.

As it is a foreign entity, Nam Ngum 2 applied last month for approval from Thailand’s Ministry of Finance to issue baht-denominated bonds. The Thai debt office said it would make a decision by the end of August.

Thai investors have bought sovereign bonds from Lao PDR and state-owned EDL-Generation over the last three years. Appetite for private-sector Laotian risk will be tested soon as Kolao Holdings, the biggest automotive dealer in Laos, is expected to sell a small-sized US dollar bond in Thailand in the next couple of weeks. THAI CONTRACTS Nam Ngum 2 Power has a couple of aces up its sleeve. Its major shareholder is Thai construction and engineering company Ch Karnchang, a regular issuer in the local market, while Ratchaburi Electricity Generating Holding of Thailand has a 25 percent stake. EDL-Gen holds the remaining 25 percent.

However, a power-purchase agreement with state-owned Electricity Generating Authority of Thailand is likely to be critical for Thai investors. The PPA was sufficient for Tris Rating to grant Nam Ngum 2 Power a A rating, the highest it has given to a Laotian borrower.

Demand for electricity in Thailand outstrips supply, and Thailand last year signed an agreement to increase its annual purchase from Laos to 9,000MW from 7,000MW. Hydropower plants generate most of the electricity that Laos exports.

Under the 25-year PPA with Nam Ngum 2, Egat buys the electricity and pays half in Thai baht and half in US dollars. This baht-denominated tariff will offset foreign currency risks in the proposed bonds in the Thai currency.

The power plant, costing an estimated Bt31bn, started full operation in January 2013, when the PPA began. It was originally funded with a 15 billion baht loan from Krungthai Bank, TMB Bank and Siam City Bank, $180 million from international banks, and a $25 million 25-year guarantee facility.

At that time, it was one of very few Laotian power projects not funded by multilateral banks or export credit agencies. Concerns around resettling local residents were high in all the hydropower projects. However, unlike the other projects, critics said Nam Ngum 2 did not release its environmental impact study when it was completed.

The original bank loans were refinanced last year with about 15 billion baht-equivalent of facilities extending maturities by eight years. These were loans of 10.9 billion baht and US$136m.

Hydropower companies had previously explored the possibility of issuing bonds to refinance bank loans, but failed in their attempts as Thai investors were not willing to take on project-related risks. For instance, Nam Theun 2 Power, under the control of Electricite de France, Thailand’s Electricity Generating Company (Egco) and Lao Holding State Enterprise, had twice explored selling bonds - once in 2014, via an Asian Development Bank project bond scheme and again in 2016, via the baht bond market - but nothing materialised.

Bangkok Bank, Krungthai Bank and Siam Commercial Bank will be joint lead managers and underwriters on the issue. (Reporting by Kit Yin Boey; Editing by Steve Garton and Daniel Stanton)

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