Structure of the financing
The US$900 million Jexim facility finances up to 85 per cent of the amounts payable by
Paiton Energy to Mitsui for Japanese goods and services pursuant to the construction con-
tract, and for Indonesian goods and services as long as they do not exceed 15 per cent of the
amount exported from Japan. The facility has two tranches. Tranche A is a US$540 million
loan at a fixed rate of 9.44 per cent. Tranche B is a financing based on the London interbank
offered rate (Libor) swapped to provide all-in fixed rates ranging from 4.875 per cent to
1 1.375 per cent. Tranche B lenders have the benefit of political risk insurance from MITI for
97.5 per cent of the principal amount and commercial risk coverage related to PLN’s payment
obligations for 95 per cent of the principal amount. The MITI insurance is denominated in
yen, but Tranche B holders have an indemnity covering exchange risk in converting yen to
US dollars.
The US$540 million US Exim facility is a four-year commercial bank construction loan
at an interest rate of 9.382 per cent with US Exim political risk coverage, which will be taken
out by a US Exim term loan over eleven-and-a-half-years at a rate of 11.5 per cent on the US
Exim project completion date, when Paiton Energy is to satisfy various terms in US Exim’s
credit agreement. These terms include its own certification that the plant is capable of oper-
ating in accordance with the technical requirements of the PPA and a technical adviser’s cer-
tification that all work under the construction contract is complete.
The US$200 million OPIC facility is a 12-year loan with Libor-based rates that have
been swapped to provide for all-in fixed rates, ranging from 6.18 per cent to 12.288 per cent
per annum.
The commercial bank facility has two tranches. Tranche A is a US$180 million uncov-
ered four-year construction loan at Libor plus 2.25 per cent, with a four-year amortisation
period. Tranche B is a US$93,750,000 uncovered standby contingent facility available for
funding project cost overruns after the US$175 million sponsors’ overrun equity is fully used.
Tranche A of the commercial bank facility was refunded by US$180 million of 9.75 per
cent bonds due in 2014 under Rule 144A. The bank group gave Paiton a year to refinance
Tranche A, and agreed to relinquish their upfront fees when and if the refinancing was done.
This gave the investment bankers a firm deadline to get the bond deal done.
The issuer of the bonds was a Netherlands Antilles company. Because of a tax treaty
between the Netherlands Antilles and Indonesia, itself a former Dutch colony, this domicile
offered a withholding tax saving.
The structure of the bond offering is illustrated in Exhibit 6.1.
The government support letter
In November 1994 representatives from the coordinating banks and the ECAs met in
Indonesia to discuss the form of support that the government would give to the project. The
ECAs were pressing for a guarantee, but the government had already agreed with the spon-
sors on a support letter. The government was not willing to change a condition that it had
already agreed to, and thus increase its risk, without a price reduction or some other conces-
sion in return. The support letter issued by the ministry of finance (MOF) says that the gov-
ernment will cause PLN to discharge its payment obligations. Lenders at the time considered
it adequate, because it provided a statement of support for the project at the highest level of
the government, but it was not a guarantee.
PAITON 1, INDONESIA