Milbank Advises on US$2.3 Billion Tanjung Jati B Expansion Power Plant Financing
Milbank Acts For Government and Commercial Financial Institutions in Indonesia’s Headline Power Financing
TOKYO, January 8, 2009 –– Milbank has advised multiple syndicates of financial institutions on the US$2.3 billion financing and restructuring of the Tanjung Jati B Expansion coal-fired power project in Indonesia, which was signed on December 25, 2008.
This was the first large-scale Asian power project to be closed by an international investor in the wake of the recent credit crisis, and is notable for the successful syndication of the commercial bank tranches in the current market environment. "The financing through Japanese Yen denominated loans is an indicator of the Tokyo credit market’s ability to continue to finance headline deals despite the overall global downturn," said Gary Wigmore, Milbank’s managing partner in Tokyo and head of Asia Project Finance.
The principal sponsor of the highly anticipated expansion project is Sumitomo Corporation, a successful long-term investor in Indonesia’s power sector. The borrower, PT Central Java Power, owns the existing coal-fired power plants financed by a syndicate of senior and mezzanine lenders with a mix of hybrid limited recourse secured loans and credit enhanced secured loans (TJB1&2). The planned expansion includes two additional 660MW plants financed by Japan Bank for International Cooperation (JBIC), and syndicates of financial institutions providing limited recourse secured and PRI covered senior debt, and credit-enhanced subordinated debt (TJB3&4).
Through information walls and multiple teams, Milbank represented each commercial and governmental financial institution participating in the bifurcated financing of TJB1&2 and TJB3&4. These included the existing TJB1&2 lenders, and JBIC and the mandated lead arrangers for TJB3&4, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Sumitomo Mitsui Banking Corporation, and BNP Paribas. Milbank also represented the political risk guarantors, Nippon Export and Investment Insurance (NEXI) in relation to the restructuring for TJB1&2, and JBIC for the expansion, TJB3&4.
The Tanjung Jati B Expansion Project financing is the first Indonesian power deal to be signed utilising JBIC’s Umbrella Note for Mutual Understanding with the Indonesian Ministry of Finance. The financing of TJB3&4 is structured as a stand-alone financing alongside the existing TJB1&2 loans, with synthetic separation of cash-flows, collateral and credit enhancement. The construction, operation and offtake contracts are structured as finance lease agreements with bifurcated sets of documents for TJB1&2 and TJB3&4. The finance lease agreements governing the construction phase are on a tri-partite basis between the contractors, the borrower and the Indonesian state power company Perusahaan Listrik Negara (PLN), and for the operation phase between the borrower and PLN.
"The transaction required a complicated multi-step default, enforcement, call option and buy-out regime to achieve the goal of synthetically separating the projects to replicate the commercial risk of two financings in separate legal vehicles," said Mark Plenderleith, who heads Milbank’s project and leveraged finance practice in Tokyo. "This was a complex deal, with revisions to the original financing, leasing, sponsor support, permits, approvals and other project documentation; restructuring of collateral, credit enhancement, call option and buy-out rights; and structuring, negotiation and documentation of a bespoke limited resource financing for the expansion."
Mr. Wigmore added, "This is the most prominent new-build power development since the 1997 Asian Financial Crisis. The successful signing of the project documentation with Indonesian authorities and the related financing is a credit to the very committed sponsor, Sumitomo Corporation, and an indication of the ability of Japan-based financial institutions to obtain credit approvals and to have a positive effect on the timetable of other Indonesian power projects we are currently assisting our clients to negotiate."
Team leaders on the project were: Mark Plenderleith, Tokyo (Common Counsel and JBIC); Darrel Holstein, Tokyo (TJB1&2, Restructuring); Gary Wigmore, Tokyo (Intercreditor); Melissa Lewis, Singapore (TJB3&4 Commercial Banks). Client relationship leaders included: Mr. Wigmore (JBIC), Mr. Holstein (NEXI) and David Zemans, Singapore’s managing partner (Commercial Banks). Other members of the core team were lead associates, Daniel Lin and Leigh Schulz, assisted by Peter Norman, Masa Yamamoto and legal assistant, Marika Tanaka.
Paul, Weiss, Rifkind, Wharton & Garrison LLP, led by Jack Lange and Hans Herrmann, represented the borrower, and also assisted the experienced in-house legal team of the lead sponsor, Sumitomo Corporation. For Indonesian law matters, the lenders were represented by a team led by Emir Nurmansyah at ABNR.
Milbank has three decades of experience in the region as a leader in international financial transactions in Greater China, India, Japan, Korea and Southeast Asia. The firm’s track record includes many of the largest and most complex financings in Asia.