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BOOK REVIEW
Project Finance in Asia Pacific: Practical Case Studies*by Richard Tinsley(Euromoney Books, London, 2002) The author of this volume is well known to many members of Australian Mining & Petroleum Law Association ("AMPLA"). Tinsley’s group, International Advisory & Finance, was most recently ranked fourth among 9th listed Asia Pacific project finance advisors by Project Finance International. The book comprehensively details 16 recent Asia Pacific project financings, across a wide range of sectors:
The financings for the Chengdu water treatment plant and the Southern Cross Cable Network have received accolades from Project Finance International, Financial Intelligence Agency (Hong Kong), International Financial Law Review, Finance Asia and Global Finance. Some of the cases presented are cutting-edge, state-of-the-art examples of innovative financial engineering. For all but two of the cases, there is a comprehensive deal structure diagram, the complexity of which in some cases calls for a three dimensional viewpoint. There is a wealth of detail included, even to the extent where any student of this text can become a five minute expert in numerous obscure fields, for example the annual storage charges for five different types of hydrocarbons in the Port of Mumbai. AMPLA members will be interested to view the moves in recent years in the league table of legal advisors to Asia Pacific project financings, with the growing dominance of English law firms. Risk Analysis For each of the 16 projects, the aspect of risk analysis, long a strong theme in Tinsley’s approach to project financings in the resources sector, is particularly well covered. For the Korea Zinc smelter in Townsville, the project risk factors, each reviewed in detailed, cover operating-technology, operating-cost, operating-management, completion, political, market, supply/reserve, infrastructure, participant, environmental, FX, engineering, syndication, funding/interest and legal. For the Qatar LNG project, very similar risk factors are analysed, with the addition of force majeure risk. 20:20 Vision: History not Hindsight A number of AMPLA readers – some with first-hand involvement - will smile, with the perfection of hindsight, at parts of the coverage of the Murrin Murrin project funding. How good is 20:20 vision for those who always knew better about this project? A student of seven earlier failed nickel project financings would recognize the recorded history, with examples from three of these cited: · Botswana: the Selebi-Pikwe underground sulphide operation, developed in 1974, had a 100 per cent completion cost overrun. · The Philippines: the Marinduque project, which started in 1975, was twice bankrupted. · Australia: Queensland’s Greenvale Nickel, near Townsville, defaulted on its US$326 million project financing. The main lenders were CIBC, KfW and ANZ (its first project financing lead). Notwithstanding this background of nickel project financing disasters, the Murrin Murrin project bond and other raisings for subsidiaries of both Anaconda Nickel Limited and Glencore International AG were all successfully concluded, and the project was built. The more recent history puts a different slant on that success. Problems Encountered and Lessons Learned The descriptions of problems encountered and lessons learned for each project financing are educational, with the following selected examples: · “Cooperation with the ADB led to a consultative process, resulting in a pragmatic but not perfect solution.” · “As India’s first BOOT bridge, the innovative credit enhancements sprang the requisite funds on a back-ended principal repayment basis that is well suited to infrastructure project finance.” · “Local currency debt was very wise as the currency has been progressively devalued against the US dollar since the time of the financings.” · “This well-structured project financing shows how readily any project financing deal becomes a ‘living’ arrangement that responds dynamically to changing conditions.” · “The surplus of completion funding was neatly used to underpin FX hedging unforeseen when the deal was first underwritten.” · “A greater amount of legal due diligence was required as a result of complications in novation of the cross-border leases.” · “A light-handed approach to regulation made it difficult to assess the extent of the inherent regulatory risk due to the absence of a regulator or any clear direction on the regulatory framework at the time.” Islamic Project Funding The mobilisation of Islamic capital is governed under Shariah (canon) law, drawn from five separate principles. The book describes the seven different types of Islamic funding, where the concept of interest is illegal, with the lender requiring a return via a participation in either the capital or the profits of the enterprise. The depth of the Islamic capital market in Malaysia allows for project financings greater than US$1 billion. By contrast, the book reports that neighbouring Indonesia, the world’s largest Islamic nation, has been unable to put any Islamic project financing into effect. The US$178 million Penang Bridge was funded in Al-Bai Bithaman Ajil Islamic project finance bonds. With this method which is sometimes known as “cost-plus” or “mark-up” financing, the bank purchases an asset, up to 90 per cent of the total value of the project. Repayments are in deferred payments for a specific period, or by instalments. The repayment amount is the sum of the purchase cost plus a margin of profit to the bank. There are no commitment fees. There are no late-payment penalties. This book is well researched, topical and well presented. There are many references for most of the project chapters. The extensive array of acronyms – such as ECA, PRI, NEXI, BOO/BOT, KfW, PLR, IPP, NNCF and LLR - and other technical terms are well covered in a useful glossary. Project Finance in Asia Pacific: Practical Case Studies is a solid new essential work for professional advisors to project finance structuring and transactions. 278 + xiv pp. US$215 or GBP120. Order via www.euromoneybooks.com at Project Finance, which also shows the complete list of contents. _____________________ * Reviewed by Neil Cole, N H Cole and Associates Pty Ltd |
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