Indonesia Capital Markets Deal
Star Energy’s US$1.91bn financing for its acquisition of geothermal assets in Indonesia from US energy giant Chevron brought together multiple moving parts in a short time frame and a challenging sector.
Star Energy and its consortium partners (Philippine conglomerate Ayala and Thailand’s Electricity Generating, or EGCO) announced their agreement to acquire the Salak and Darajat fields in West Java in December 2016 and closed the US$2.1bn acquisition in March, barely three months later.
The speedy execution of the world’s largest acquisition in the geothermal energy sector was all the more noteworthy given the multiple capital markets exercises involved, with two loans at different points in the capital structure as well as the redemption of outstanding bonds at another Star Energy unit.
The US$1.91bn package comprised a US$1.25bn loan at the target – Star Energy Geothermal (Salak-Darajat) – and a US$660m facility for Star Energy Geothermal (SEGPL), a holding company that already owned another geothermal asset at Wayang Windu.
The sheer size of the borrowing posed a challenge for Star’s lenders, as did the geothermal sector, which is not easy to understand and offered few comparables in Asia. Adding to the complication was a US$350m seven-year non-call four bond due in March 2020 at the Wayang Windu level.
Bank of the Philippine Islands and DBS Bank coordinated the US$1.25bn secured amortising loan that attracted six other Asian lenders and was put in place by March. Credit Suisse, DBS and Maybank underwrote the US$660m SEGPL loan, which was further split into a US$310m tranche A to fund Star Energy’s equity contribution and a US$350m tranche B to redeem the bond.
By end March, when the acquisition closed, the leads on the US$660m loan funded the entire tranche B to prepay the bonds after having funded a portion of tranche A for the equity consideration. A few weeks later the loan succeeded in attracting 10 other lenders in senior syndication.
The US$660m SEGPL portion effectively started out as a leveraged recapitalisation with only shares in the operating company, Star Energy Geothermal (Wayang Windu), as collateral. Following the repayment of the bond, however, the loan was pushed down to the opco, helping Star Energy term out the debt at the Wayang Windu asset.
Both facilities were structured as typical project financings with cash-sweep mechanisms and ring-fencing of assets, including cashflows from offtake contracts with state-owned Perusahaan Listrik Negara.
More importantly, the financing package had to meet multiple deadlines to fund the acquisition and the redemption of the bond, each of which carried execution risks.
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