The coordinating banks had to try to move both the project contracts and the financing ahead
at the same time. Some decisions on financing documents could not be made because the
credit structure was not yet defined by the project documents. For example, the bankers did
not know where the equipment would be coming from and how much ECA financing would
be available. They were concerned that, even though the PPA would be signed, the project
would not yet be structured enough to take to the lending community.
The bank underwriting
Even though a great deal of work remained to be done on negotiating and finalising the other
project contracts, the sponsors wanted some kind of underwriting commitment from Chase
and IBJ. Given the amount of financing required, Chase and IBJ had to start by estimating the
total amount that could be raised and the longest maturity available from each market, such
as the ECAs, the multilaterals and the commercial banks. The ECAs were offering a maxi-
mum maturity of 10 years for power plants, although there was some indication that they
might go out as far as 12 years in a competitive bidding situation. The commercial banks
appeared to have a capacity of about US$300–400 million for uncovered Indonesian risk, and
were willing to go out as far as eight years, with a four-year construction period and four
years of amortisation.
The two coordinating banks sought internal approval to underwrite the deal before syn-
dication with as much flexibility as possible. To be safe, they got internal approval assuming
a minimum amount of ECA cover, hoping that the ECAs would provide a lot more, and nego-
tiated a term sheet with the sponsors. Then the coordinating banks talked to six additional
commercial banks, hoping that at least four would be willing to match Chase and IBJ’s
US$250 million underwriting commitments. They all accepted, so all eight banks were ratch-
eted down to US$187.5 million.
With commercial banks on board, attention turned to the official lenders. Although the
commercial banks were used to working in a fluid environment, the ECAs were not so flex-
ible. When first approached they replied with long lists of issues. On most of these issues they
said that they did not have enough information to analyse the credit because they did not have
all of the project documents. Another delay was caused by US Exim’s creation of a new pro-
ject finance group in the summer of 1994. While such a commitment by US Exim boded well
for project finance, the new group needed time to get started, and to redefine policies and pro-
cedures, before making major new commitments.
US Exim said right from the beginning that it would not assume construction risk, but
after a lot of time and effort the coordinating banks were able to persuade Jexim to take con-
struction risk. Looking back, Wood considers the bank group fortunate, in that all the ECAs
were willing to commit themselves to 12 years post-completion, and while the financing was
being arranged OPIC increased its maximum coverage for a single project from US$50 to
US$200 million. This minimised the final retention of uncovered debt and improved the debt-
coverage ratios.
An underwriting of this size before syndication was a real milestone for the Asian mar-
ket. Another related milestone was getting the Japanese Ministry of International Trade and
Industry (MITI) to commit itself to political risk coverage before all the banks were signed
up. MITI made an exception to its normal policy, giving the banks a time window to syndi-
cate the loan and reassign the political risk coverage to the participating banks.
POWER PLANT