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Peru LNG is the country’s biggest project |
The liquefied natural gas project, which will export gas from the Camisea field, and is the largest foreign direct investment in Peru, will be funded through a mixture of loans, equity investment and a local-currency bond. This should be issued in the second half of the year, market conditions notwithstanding.
Peru LNG has secured $2.25 billion in loans from third parties – export credit agencies, multilateral institutions and commercial banks – which signed a deal on June 26.
Among the multilaterals is the Inter-American Development Bank, which signed loans totalling $800 million through two equal A and B tranches. It constitutes the largest such transaction for a Latin American borrower in the bank’s history – before this deal there was a $200 million limit per borrower.
"When the IDB was first approached about this project, it was obvious it was very important in terms of Peru’s future economic development," says Warren Weissman, division chief in the structured and corporate finance department at the Washington-based multilateral. "Through extensive analysis, it became clear that this project was viable both financially and technically."
He adds: "We wanted an influential role in this very large project, especially because of the environmental and social concerns, and that meant having a very significant role in the financing."
IFC loan
The International Finance Corporation, the private-sector arm of the World Bank, is another backer, providing a $300 million A loan, its largest to date in Latin America.
Alejandro Valencia, director at Société Générale, the sole financial adviser and lead arranger on the deal, notes that in contrast to previous projects in Peru, this one was in many ways easier to finance. "For this project we had more alternatives for funding sources – both the IDB and IFC were more flexible than they have been in the past. An example of this was not only the size of the A loans but their flexibility to work together with the sponsors on the due diligence and discovery work that was done early on and continued under the fast pace dictated by the sponsors. This allowed us to close this complex financing in a reasonable time."
All A loans have tenors of construction plus 14 years, while B portions have construction plus 12 years. Valencia says that a relatively limited tenor is to be expected for Andean projects.
Despite this the deal is poised to close successfully, which will be quite an achievement in the light of the state of international markets. "The timing of syndication for the project was probably fortunate, as it began before much of the deepening of turmoil in the financial markets," says Weissman.
"When we requested proposals for the lead roles in November, we had a lot of aggressive proposals. All the banks involved are aware this is a key global project and have remained focused on the merits of the project, irrespective of what is happening in certain financial markets. The project is also well supported from a risk perspective."
Valencia adds: "Given the size of the project, we knew there would be ECAs and multilateral agencies involved. These funding sources are less sensitive to market events, allowing a structural hedge against uncertainty in the marketplace, both locally and internationally."
In addition to the loans, more than $1.6 billion has been secured in equity. The final $200 million will be raised in the Peruvian capital markets later this year. As the project has no immediate demand for the money from the bond, the lead manager, Banco de Crédito del Peru, has the luxury of waiting for a window to open in the market. At this stage, bankers are confident that the bond transaction will be received well especially since the project received a triple-A rating from international agencies.
One challenge for the project was the offtake buyer. This issue was overcome once Repsol YPF signed the offtake agreement for the entire project and secured a deal to sell LNG to Mexico.
Repsol is also in talks with southeast Asian countries. The first LNG deliveries are expected in the first half of 2010.
Sovereign upgrade
The financing for the project was nearing a successful close just as Peru achieved an investment grade rating from Standard & Poor’s. This investment-grade rating marks Peru out as a key market in Latin America. Several banks have opened their doors there recently. Last month, Deutsche Bank announced its plans to expand into Peru and try to capitalize on growing opportunities in the capital markets and commodity sector.
The LNG project is owned by a partnership of Hunt Oil (50%) of the US, SK Energy (20%) from South Korea, Repsol YPF (20%) of Spain and Marubeni (10%) from Japan. The natural gas feedstock will be supplied from the Camisea gas field through the 408-kilometre pipeline owned by Peru LNG and processed at a LNG plant located at Pampa Melchorita, 170 kilometres south of Lima.
As well as the IDB and the IFC, other lenders include the Export-Import Bank of the US, the Export-Import Bank of Korea, Italian export credit agency SACE, Société Générale, BBVA, Calyon, Sumitomo Mitsui Banking Corporation, ING, Mizuho Corporate Bank and Bank of Tokyo-Mitsubishi UFJ.