IFR Asia 872 - November 29, 2014 | By Prakash Chakravarti
John Keells Holdings, Sri Lanka’s most valuable listed company, is set to make history with a US$445m seven-year project financing that is the country’s largest syndicated loan.
Standard Chartered is the sole mandated lead arranger, underwriter and bookrunner on the financing, which takes out a partially drawn US$100m 12-month bridge loan the bank had provided in February to kick-start debt financing on an integrated resort development in the country’s capital, Colombo.
The remainder of the new loan will fund the construction of the Waterfront Project, expected to take around four years and start operations in the 2018–19 financial year.
The integrated resort project comprises a luxury hotel, a multi-level retail arcade, conference centres, entertainment and gaming facilities, commercial office space and residential apartments, according to a research report earlier this month from John Keells Stock Brokers.
“The integrated resort John Keells is building in Colombo is the largest project the company has undertaken. It would be a landmark property development as it would change the face of the central business district in the country’s capital similar to how the Marina Bay Sands resort has transformed Singapore,” said one person familiar with the development plans.
Regardless of whether or not John Keells follows Marina Bay Sands in becoming a regular visitor to the international loan markets, the conglomerate has already firmly planted Lanka Inc on the loans market map.
Prior to its transaction, the country’s largest loan was in March 2007 when the government signed a ¥39.23bn (US$336m at the time) 30-year facility, according to Thomson Reuters LPC. Japan Bank for International Cooperation was the sole lender on that loan, which funded a rural development project, a water sector development project and an urban transport development scheme in greater Colombo.
Since the global financial crisis, no Sri Lankan borrower has raised more than US$200m from the offshore loan markets. In July 2013, Bank of Ceylon signed a US$200m one-year loan, paying a margin of 155bp over Libor. Emirates NBD was the sole bookrunner. Of the 13 other lenders participating, most were from the Middle East and the Indian subcontinent. The same month, Dialog Axiata raised US$200m five-year loan via a two-bank club involving OCBC Bank and StanChart.
International bond sales, however, have drawn growing support, with Bank of Ceylon and Sri Lankan Airlines both following the government’s lead in tapping the US dollar markets.
Targeted sell
For the Waterfront project financing, StanChart is targeting domestic lenders and a handful of foreign banks. A couple of commitments are already in, while four to five lenders are processing approvals. Syndication will launch shortly.
The facility provides a rare opportunity for lenders to take exposure to one of Sri Lanka’s blue chips, which has diversified interests in consumer foods and retail, financial services, information technology, leisure, property, transportation and plantation services.
It is also the largest of three planned integrated resorts in the country’s capital.
Sri Lanka’s Vallibel One is developing the US$300m Queensbury resort, while James Packer’s Crown is behind a US$400m hotel and casino project.
The gaming component of the three projects has attracted heavy local opposition, and legal uncertainty has led to delays to the Crown Colombo project. In John Keells’ case, the casino is said to be a far smaller component of the overall project than that of Marina Bay Sands.
Construction work on the Waterfront integrated resort project, which will cost around US$820m, started around the end of April, according to the research report from John Keells Stock Brokers. The project has won SDP status under the government’s Strategic Development Projects Act and will provide the company with a host of tax exemptions and concessions.
To fund the project, John Keells raised US$175m from a rights issue in October 2013 with attached warrants to be exercised in late 2015 and 2016 that will help raise an additional US$125m for the project. John Keells will hold an about 97% stake in Waterfront Properties, according to the research report.
Waterfront Properties is the project company and the borrower on the US$445m seven-year loan, which has an average life of slightly over five years. John Keells is providing sponsor support to the project and the financing in terms of addressing cost overruns and shortfalls in debt servicing. The loan also carries charges over the borrower’s assets, cash flows, receivables and accounts.
The loan marks the third syndicated financing from Sri Lanka this year. In April, Sri Lankan Airlines sealed a US$150m dual-tranche three-year Islamic financing in which six lenders participated, including sole structuring bank StanChart. A month earlier, National Development Bank obtained a US$125m financing package from the International Finance Corp and a bunch of commercial banks.
http://www.ifrasia.com/sri-lanka-set-for-historic-loan/21175187.article