Sbi Bridge LoanThe Sbi Bridge Loan
It' a story of prudence and occasion.
Australia's natural resource base, especially hard coal, has long been sought after by Asia-Pacific generators who need this essential resource to strengthen their economy. lndia is the newest participant in this powerful online match, but as businesses like Adani, GVK and Lanco Infratech note, this match has different set of puzzles than they are used to and the cost of getting started can be high.
In India, banking operations, in particular by the State Bank of India (SBI), were easily accessible to large Indian corporations and the cost of debts was not always associated with burdensome terms. Often the funding of the project is finally provided by the sponsors and/or a personally warranted warranty from the owners.
However, relocating abroad and ensuring funding is a new challenge for some India businesses who find that their house bank in India does not always have the US dollars or Australia dollars to finance large Australia deals. Adani Group found this out when it had to finance a one-year bridging loan of 2 billion US dollars to buy the Abbot Point mining facility in Queensland.
Instead, Adani decided to use the SPV to fund the projects, which was the largest SPV in Australia. Funding was split into Term Loan A due 27 March 2016 of AUD 1.25 billion (AUD 1.29 billion) and Term Loan B due 28 March 2019 of AUD 800 million.
The loan for the Australia Dollars was financed by seven creditors - the Commonwealth Bank of Australia, the National Australia Bank, Westpac, the Bank of Tokyo-Mitsubishi UFJ, Mizuho, Standard Chartered and the OCBC Bank. StanChart and SBI took out the bridge loan. UBS Capital arranges the Term Loan B financed by SBI's off-shore affiliates and the loan was contracted on 23 March this year.
It would have financed the whole loan, but it just did not have the long-term level of the US dollars or the Australia dollars to do so without putting its own company credit rating at risk by taking out new ones. SBI has no doubts that it has the ambition to become a major actor in the PF Australia markets, and since Adani needs another AUD 6 billion and GVK around AUD 4 billion in banking financing, SBI needs to strengthen its foreign exchange credit capacity.
Recently, ANZ was awarded a pit-to-port financing contract for another India-based GVK Power & Infrastructures venture operating the A$10 billion Queensland based Alpha Charcoal, Track and Harbour Development Loan facility. First GVK will be selling capital, concluding take-take transactions and procuring financing from European Central Banks (ECA) before entering the merchant banking sector.
The GVK disbursed AUD 1.26 billion for its participation in the last year's carbon investments. Acquired 79% of the shares in the power plant carbon schemes alpha and alpha west in the Queensland Galilee Basin and 100% of the Kevin's Corner next to alfa as well as the railway and harbour connection to Abbot Point Station.
Alpha's other 21% of its carbon assets are held by Hancock Prospecting, Australia's wealthiest wife, Gina Rinehart. Interested parties for equities and/or take-offs include China, India, Japan, Malaysia, the Philippines, South Korea, Taiwan and Vietnam. Alpha Mine will generate 30 million tons of annual hard coal output for generating stations, while railway and harbour capacity will be 60 million tons per year.
With full output, GVK's three Australia based carbon contracts are projected to deliver 84 million tons per year for exports. GVK would try to find around AUD 3,5 billion if the shares were divested to finance all the capital for the schemes. Each year Adani Enterprises will mine 60 tons of Carmichael charcoal in the Galilean Basin and ship it to India.
This $6 billion investment also involves the construction of a new runway and new runway and harbour in Queensland to support exports of carbon to India. Railway installations that can be connected to any of the Abbot Point or Hay Point mining terminal's existent carbon exporting terminal's will support the work.
Adani purchased the Carmichael plants for A$3 billion in August 2010 in the form of liquid funds and license fees from Linc Energy Ltd., making it the biggest takeover by an Australian based Indian group. It aims at first producing by the end of 2014 and producing between 50 and 60 mptpa by 2022.
Whereas India businesses on the eastern seaboard of Australia are in various phases of financing their project, the western coastal landscape is very different. Whilst the state brags that it has the wealthiest resource in the nation, it can also be very expensive for global corporations that do not follow best practices to try to make cash flow positives from a project.
That was certainly Lanco Infratech's expertise when he purchased the Griffin mine in WA for around $800 million in 2011. At the beginning of September, the company syndicated its USD 800 million credit line to finance the takeover of the Griffin Col mine in Australia by Lanco Infratech of India.
The ICICI Bank had provided the facilities and is the MLA. The Bank of India teamed up as MLA and sub-underwriter with 200 million US dollars before starting underwriting. 3 general syndicated credit institutions with commitments totalling USD 140 million: Export-Import Bank of India (USD 50 million), Bank of Baroda (USD 50 million) and Indian Overseas Bank (USD 40 million).
Included in the loan is a USD 550 million loan in support of the transaction and a USD 250 million stand-by L/C, comprising a two-year USD 100 million and a four-year USD 150 million part. This $550 million long loan has a five year life from house to house and a put options at the lender's discretion after three years.
Loan will pay a spread of 410 bp over Libor during the first three years and rises to 525 bp if creditors do not use putt. This loan will finance the total purchase amount of approximately USD 750 million and will include funding for the original working equity and equity increase. One of the biggest acquisitions of an India based business in Australia at the turn of the century was not without its dramatic nature.
The Lanco company purchased the assets just to find out that the mine was a loss-maker, unless the price of hard coal was increased. Trouble was that his two major clients, Bluewaters and Perdaman Industries, suggested A$3. 5 billion coal-urea plants near Collie had long-term mining agreements. It was obvious that Lanco had thought that all earlier deal Griffin could sign could either be renegotiated at higher price or could just be made.
The WA goverment intervened seperately to compel Lanco to continue powering the Bluewaters plants. As a result, the sales of Bluewaters to the energy corporations in Japan were put on ice. Mr. Perdaman has blamed Lanco for abandoning a crucial contract to deliver carbon that has strengthened his prospects to build his A$3.7 billion carbamide facility at Collie.
Lanco is accused of raising the cost of carbon for the factory from around AUD 49.50 per ton ne to AUD 60 to 75 per ton ne in May of last year, shortly before tight funding was required for the planned factory. Lanco, for its part, says it has ended a pact with Australia's Perdaman Chemicals & Fertilisers for supplying hard coal because the latter did not fulfil a requirement for closing financially.
Pédaman is awaiting the reply before he can subscribe to the loan from his bank consortium for the carbamide facility. With a high debt-equity ratio, Lanco Infratech has to divest around $700 million in asset values to finance the growth of its electricity generation operations in India. Part of the funds will be used to finance a 4,900 MW facility that it is currently building and another 4,000 MW construction work.
At Lanco, we have to ensure new deliveries of carbon from Australia and other countries. India's developing countries that are importing hard coal are currently faced with a 25% suggested levy on Indonesian hard coal imports. As a result, India's powerhouses such as Tata Powers, Reliance Powers, Adani Powers and Lanco Infratech are forced to look for other resources such as Australia and Africa.
It is not uncommon for there to be hybrid results for India firms that invest in Australia. Youngest participant is the National Mineral Development Corporation of India, which has a 50% interest in Legacy Iron Ore. On May 3, Legacy announces its entry into the Queensland coke industry with the proposed purchase of six exciting coke and charcoal communities in the Surat, Maryborough and Mulgildie production basins in Queensland.
Legacy is currently in negotiations for an AUD 200 million line of debt to improve both its existing steel mining facilities and its prospective carbon reserves. Australia's resource gamble is clear and India's businesses want to be among the key actors.