PetroVietnam, the government-owned national oil and gas producer, sought long-term financing for its Power Nhon Trach 2 Joint Stock Co. (PVPower NT2), the Owner of the Nhon Trach 2 750MW Combined Cycle power plant, a project of national importance and is part of Vietnam’s current National Electricity Master Plan. PetroVietnam’s goal was to find affordable, long-term financing for its Nhon Trach 2 plant, a project that is key to the company as well as to national planning objectives.

In Q3 2009, PVPower NT2 was considering a mix of Export Credit Agency (ECA)-supported financing together with commercial bank debt, with the latter playing a significant part. The company came to realise this would involve significant costs and lower door-to-door tenor. Moreover, a key objective for the company was to maximise the proportion of ECA-supported financing of its total borrowings and reduce the proportion of commercial bank debt.

The company turned to Citi, which has a track-record in Asia for financing large projects. In particular, the bank has a strong history of arranging ECA-backed loans in Vietnam, having arranged the first US Exim financing for Vietnam Airlines in 2003/04 and a NEXI Untied Facility for PetroVietnam Transportation Corporation (PVTrans) in 2008. In July 2010, Citi’s Global Transaction Services, led by the Export and Agency Finance division, completed the $470m debt financing arrangement for the PetroVietnam sponsored power plant in southern Vietnam.

Supported by Euler Hermes Kreditversicherungs AG (Hermes) and Nippon Export and Investment Insurance (NEXI), the deal reflects the agencies’ willingness to support large projects of critical national importance to Vietnam as the economy develops rapidly, despite reduced financing liquidity. The facilities attracted significant interest from the market because the financing was successfully syndicated prior to closing, engaging leading international banks with long-term interest in the country. The deal enhanced Vietnam’s image in international financing circles.

“The unique and complete financing solution for the project demonstrates the strength of Citi’s global presence, its deep relationships with the Agencies concerned (Hermes and NEXI), the depth of its on-the-ground presence in Vietnam and relationship with the company, as well as its strong relationships with partner banks, which participated in the financing. All of these were instrumental in successfully structuring, arranging and closing this landmark financing,” says Dr Hoang Xuan Quoc, General Director of PVPower NT2.

Highlights of the project include:

• The door-to-door tenor of the Hermes and NEXI Facilities were both 11 years, enabling the company to meet its desired tenor profile.
• Citi’s competitive pricing established new benchmarks for ECA-backed transactions in Vietnam, and provided the company with significant savings over other alternatives.
• Notwithstanding structural differences, the Hermes and NEXI Facilities were ‘harmonised’ on key documentation terms.
• The Hermes Facility was structured with a mix of euro and US dollar, matching the terms of the supply sub-contract of Siemens AG for the project.
• That Facility also included a €85m fixed rate Commercial Interest Reference Rate (CIRR) based facility, providing attractive fixed rate terms for the life of the financing. The €85m is the maximum possible under the German CIRR system.
• The lender under the CIRR Facility is AKA Ausfuhrkredit-Gesellschaft mbH (AKA), making it the first CIRR financing ever concluded by an international bank with AKA.
• The construction of the Nhon Trach 2 Power Plant Project is now almost complete. Full commercial operation with total capacity of 750 MW is expected by November 2011.