of credit. We believe it is virtually unprecedented that Korea First Bank has failed to comply
with customary banking practices and failed to honour its obligations. The sponsors of the
Casecnan Project recognise the value and importance of this facility to the Philippines.
Accordingly, we plan to proceed to complete construction of the facility and pursue all result-
ing damages from Korea First Bank.^2
CE Casecnan issued a notice to proceed to the replacement EPC contractor on 7 August.
Daniel M. O’Shei, Jr, CEO of CE Casecnan, said:
We are pleased to have our replacement contractor proceeding with the important
Casecnan project in the Philippines. Given the priority that our client, the Philippine
National Irrigation Administration, and the Philippine government place on this flagship pro-
ject, it was necessary that the replacement contractor be given a notice to commence work.
Although Korea First Bank has still not honoured the draw made by CE Casecnan on the
irrevocable standby letter of credit issued by the bank to support the obligations of the Hanbo
contractors, CE Casecnan’s issuance of the notice to proceed to the replacement contractor
demonstrates our commitment. The receipt of the letter of credit funds from Korea First Bank
remains essential and we will continue to press for Korea First Bank to honour its clear oblig-
ations under the letter of credit, and to pursue Hanbo and Korea First Bank for any additional
damages arising out of their actions to date.^3
CE Casecnan received a favourable summary judgement against Korea First Bank in the
New York State Court on 27 August, although the judgement was subject to appeal. O’Shei
said:
It is essential that international lending institutions honour their obligations under
standby letters of credit and we believe it is virtually unprecedented that Korea First Bank has
failed to comply with customary banking practices and failed to honour its letter of credit
obligations to date. However, if Korea First Bank chooses to appeal [against] this court rul-
ing and thereby further delay CE Casecnan’s receipt of the requested funds, we intend to pur-
sue Hanbo and Korea First Bank for all additional damages arising out of such actions as
well as their actions to date, including making such additional draws as may be required on
the remaining balance of the letter of credit.^4
In September 1997, CalEnergy’s board of directors approved a US$1.1 billion buyout of
stock held by its 30 per cent shareholder, Kiewit Diversified Group (KDC), a unit of Peter
Kiewit Sons, as well as KDC’s interests in the UK power distributor Northern Electric, and
in several power projects CalEnergy was focusing on developing in Asia, including its 35 per
cent interest in CE Casecnan. KDC decided to sell the interests so that it could devote more
management time and capital to its information services business. Later that month Standard
& Poor’s confirmed its ‘BB+’ senior debt rating for CalEnergy, noting that the company
would buy out the minority interests through a combination of cash, new debt and a new equity
offering, after which its debt would be about 80 per cent of long-term capital.
On 8 April 1998 the New York State Appellate Court ruled in CalEnergy’s favour, order-
ing Korea First Bank to honour draws of US$93 million plus interest under the standby letter
of credit. The court unanimously denied the bank’s appeal against the earlier summary judge-
CASECNAN WATER & ENERGY COMPANY, THE PHILIPPINES