The pursuit of climate goals continued to dominate infrastructure finance activity in 2021, and renewables hit an all-time high as a percentage of the total energy projects.
Though the Covid-19 lockdowns were a continuing challenge, and highlighted weaknesses in global supply chains, last year's market now looks benign in comparison to the challenges of 2022 – inflation, bond market volatility, and a re-ordering of energy and commodity markets in the wake of the Russian invasion of Ukraine.
Energy security has moved up the agenda, though clean energy projects remain a high priority, alongside an accelerated push for liquefied natural gas (LNG) as a transition fuel.
Many of the 2021 projects honoured in The Asset Triple A Sustainable Infrastructure Awards have an environmental or clean energy focus. However, there was plenty of activity reflecting broader economic development aims, ranging from metro and rail networks and affordable housing to improving internet access and underserved communities.
And it is one of these deals with a social and economic development goal that The Asset has chosen as its 2021 Global deal of the year.
The 150 gigabits per second Satria satellite will be launched in 2023 on the back of a SpaceX rocket, and will bring fast broadband and WiFi access to 149,000 underserved Indonesian public service entities such as schools, hospitals and local government offices. The public-private partnership (PPP) project was awarded to a consortium led by Pasifik Satelit Nusantara, partnering with satellite manufacturer Thales Alenia Space. The multi-tranche project financing featured cover provided by bpifrance, and an uncovered commercial facility from the Asian Infrastructure Investment Bank and Korea Development Bank.
Narrowing the digital divide is not only a theme for developing countries, and in western Europe, governments are pushing to improve broadband speeds in rural areas, and confront a block to regional economic development – what in the United Kingdom is known as levelling up.
The Digital deal of the year award goes to the €1.65 billion (US$1.76 billion) financing for German firm Unsere Grune Glasfaser. The joint venture between a strong infrastructure investor (Alllianz) and a partner with the relevant technological expertise (Telefonica), has an ambitious €5 billion plan to roll out Fiber To The Home (FTTH) to two million households.
In the social infrastructure category, the M Square affordable housing project in Georgia will increase the availability of affordable and sustainable housing in Tbilisi. The financing provided by the Asian Development Bank (ADB) is its first private sector housing transaction in the Central and West Asia region, and is the first private sector-sponsored development to adopt Georgia’s Inclusive Cities Guidelines – established with ADB support.
These three projects are a reminder that, though the main focus of many investors is the E in ESG, nonetheless there are a growing number of social projects that are high on the agenda for governments around the world – and that a vast amount of private sector debt and equity capital is going to be needed.
Nonetheless, it is the environmental projects that dominate this year‘s list, and the Most innovative deal of the year is awarded to Basrah Gas Company (BGC), which signed a five-year US$360 million loan arranged by International Finance Corporation (IFC), a member of the World Bank, featuring eight commercial banks as B-lenders. The loan will help BGC expand its gas-processing capabilities, on the way to eliminating all routine natural gas flaring by 2030. Given Iraq's position as the world's second biggest gas flarer, this was an important transaction for the World Bank Group's Gas Flaring Reduction Initiative.
The Global water deal award goes to Al Jubail International Water Company (Jubail 3B IWP), which put in place US$539 million of senior project debt. This reverse osmosis technology PPP project forms an important part of Saudi Arabia's plans to almost triple its desalination capacity. Al Jubail 3B is being developed on a build-own-operate (BOT) basis, with output sold to Saudi Water Partnership Company under a 25-year water purchase agreement. The project includes on-site solar energy units, and aligns with the United Nations‘ Sustainable Development Goals.
The Green deal winner is the €124 million green loan financing for a joint venture between supermarket chain Carrefour and Meridiam, which will deploy over 200 fast and ultra-fast charging stations at Carrefour locations across France. The mass adoption of electric vehicles (EVs) by car owners is being held up by so called “range anxiety“, and the arrangers view this transaction as opening up a whole new infrastructure finance asset class.
In the power transmission category, the winner is the £1.1 billion (US$1.38 billion) acquisition of Hornsea One offshore wind farm transmission assets. Under the offshore transmission owner (OFTO) regime, generation and transmission are split. The huge 1.2-gigawatt Hornsea One wind farm is owned by Orsted and Global Infrastrucure Partners (GIP). The sale of the transmission assets to Mitsubishi Corporation and Chubu Electric Power illustrates the growing Japanese appetite for UK infrastructure. The debt financing featured Nippon Life Insurance Company alongside a group of Japanese bank lenders.
The Global transport award goes to the financing of 18 newbuild containerships for Seaspan Corporation. This US$2.24 billion transaction for the first time combines two well-established ship financing structures, export credit agency (ECA)-backed loans and the Japanese Operating Lease with Call Option. Sinosure and K-SURE provided cover to support the Chinese and Korean shipyards. In line with Seaspan’s ESG policies, all the financing documentation was in line with the Poseidon Principles. The Japanese tax equity will be placed by Financial Products Group as each ship is delivered.
Best regional awards
With regard to awards for individual regions of the world, the winner in Asia-Pacific is the Satria satellite project. For North America, the award goes to Vineyard Wind 1. In the United States, offshore wind has been slow to develop compared to Europe or Asia, so the financial close for this 800-megawatt project was an important milestone. The strength of the joint venture comprising Copenhagen Infrastructure Partners and Iberdrola group company Avangrid Renewables, helped bring in US$2.3 billion of senior debt. Bankers view the transaction as paving the way for more large offshore wind projects, including some in the same area off the Massachusetts coast.
In Latin America, there is a strong focus on improving public transport, both as a quality-of-life issue for city dwellers, and addressing the environmental goal of reducing carbon emissions. 2021 was another year with a tremendous level of activity across the region, and a number of regional rail and metro projects were financed.
Metro de Panama Line 3 stood out for its size and structural complexity. It featured partial financing and credit support from the Export-Import Bank of Korea, backing up the Hyundai-led consortium. The US$2 billion financing was led by a strong group of mandated lead arrangers from the US, Japan, Korea, France and Spain. There was a K-SURE-covered tranche, and uncovered tranches in both US dollar and yen – the latter in support of the monorail trains and other equitment being supplied by Hitachi.
In Africa, the push to provide electricity to a larger number of the population continues, and a critical project for Mozambique is the Central Termica de Temane combined cycle gas turbine plant. This 450MW facility will contribute 14% of the country's total electricity production. It is being developed in parallel to a separate project for a 531-kilometre transmission line, supplying the power from the north to the main population centre of Moputo in the south. The development finance institutions involved included the US International Development Finance Corporation, illustrating the increased US commitment to supporting infrastructure development in Africa. FMO of the Netherlands and the private Emerging Africa Infrastructure Fund came in on the B-loan tranche.
In Europe, there is a vast programme of offshore wind underway, a policy which is currently being accelerated as European countries slowly move towards phasing out Russian gas. The Courseulles Offshore Wind is one of the first large projects in France, and is viewed as important for the development of the market. The strong sponsor group featured RDF Renouvelables, Enbridge, and German developer wpd. With the support of a sustainable feed-in-tariff, €2.2 billion of non-recourse debt was syndicated.
The Middle East deal of the year goes to the waste-to-energy PPP being developed by Dubai Waste Management Company. The facility, which will be the biggest in the world, will receive waste from Dubai municipality, much of which currently goes into landfill. The US$1.16 billion limited recourse loan featured a strong group of commercial banks, alongside Japan Bank for International Cooperation and NEXI, in their first project in the overseas waste-to-energy sector.
Best deals in Asia-Pacific
Renewable energy projects are also prevalent in Asia-Pacific as several countries across the region stepped up their efforts to improve their energy mix away from non-fossils fuels. Taiwan continues to capture the headlines with its offshore wind projects, but India is generating a lot of interest with landmark transactions of its own and projects designed to enhance its transmission capability for the renewables output into the grid system.
Dubbed Project Mercury, the 605MW Greater Changhua 1 offshore wind project is the fifth offshore wind project financing closed in Taiwan, which aims to have an installed capacity of 5.5GW in offshore wind power by 2025. The project is originally awarded to Danish multinational power company Orsted, which eventually divested 50% of its stake to a consortium of Canada’s public pension investor Caisse de depot et placement due Quebec (CDPQ) and Taiwanese private equity investor Cathay PE.
The NT$82 billion (US$2.70 billion) project financing is extended to the CDPQ-Cathay PE consortium‘s 50% share in the project via a holdco structure, which is a novelty in the Taiwan offshore wind market. This is the largest offshore wind and non-recourse acquisition project financing transaction ever announced in Asia-Pacific and it’s the first investment by a pension fund into the offshore wind sector in Asia.
Another offshore wind project that stood out in the Taiwan market in 2021 was the 298MW project for Central Steel Power Corporation developed by the sponsors China Steel Corporation and Copenhagen Infrastructure IV. Called Project Zhong Neng, this project helped unlocked local liquidity as this is the first offshore wind project in Taiwan to be majority-funded by Taiwanese state-owned and commercial banks. This is also the first time that an offshore wind project in Taiwan has a local conglomerate acting as the majority and core sponsor, which contributed to the large participation of the domestic financial institutions.
Project Zhong Neng also marked the first green loan raised to fund an offshore wind project and its boasts the highest localization percentage in Taiwan offshore wind to-date.
It was not all offshore wind that defined the renewable energy market in Taiwan as Singapore-headquartered Vena Energy raised NT$7.78 billion term loan facility to support the financing of a 272MW Yunlin E2 ground-mounted solar photovoltaic (PV) plant. This is the company’s largest solar power asset in the Taiwan market.
The renewable energy sector also continued to drive the project finance market in India, helping underpin the country’s economic development, enhance energy security, increase access to energy supply and mitigate climate change. This comes as the Indian government is implementing local content requirements to create domestic supply chains and jobs. In December 2018, the Ministry of New and Renewable Energy (MNRE) issued an order for the implementation of “Make in India” for public procurement in the clean power sector.
The directive applies to renewable energy projects tendered by the federal government, ministries and public sector undertakings or entities in which the federal government holds at least a 51% stake. The required share of local content differs in terms of technology, with 100% for solar modules in grid-connected power plants and 70% for off-grid decentralized solar projects.
The project that generated a lot of attention in India in 2021 was the 1.69GW hybrid renewable project developed by Adani Green Energy. It is the first of its kind in scale and technology, combining wind and solar PV together to be constructed under the hybrid programme of the MNRE. Hybrid renewable projects, which are new in India, have several advantages, such as higher levels of capacity utilization factor, greater efficiency to utilization of grid/land infrastructure and lower intermittency.
Another renewable project that demonstrates the participation of the private sector in ramping up the sector in India was the 300MW solar PV plant developed by Azure Power in the state of Rajasthan. The US$163.92 million project financing was funded by a green loan certified by Climate Bonds Initiative and it was Azure’s largest solar project so far.
A strategic project that supported the renewables growth in India was undertaken by Adani Transmission funded by a US$700 million syndicated project finance facility. It involves the development of four transmission lines located in the states of Gujarat and Maharashtra and the financing was the first of its kind by international banks in the transmission sector in India. The two projects in Gujarat are part of the Green Energy Corridor, while the other two implemented in Maharashtra are critical upgrades to strengthen the grid.
These transmission projects represent the key response to overcome the technical constraints of renewable energy interface into the transmission network as India promotes the move towards a low-carbon economy. The financing facility also has its unique features in the structure, notably an in-built recycling capital arrangement. On a bond capital market take out of the first three projects, the bank capital would be recycled to fully financed the fourth project.
In another transmission-related project in India, ADB funded in 2021 the modernization and upgrades of the power transmission system in Bangalore city in the state of Karnataka. It was the first time the ADB provided a combination of private sector and sovereign loans to a state-level sub-sovereign enterprise. It financed the conversion of overhead distribution lines to underground cables with parallel installation of optical fibre cables as well as the installation of automated ring main units adapted with a distributed automated system in the Bengaluru urban area.
Vietnam continued to attract interest in the renewables space in 2021 with Thai power producer B.Grimm Power PCL building one of the first and largest solar power projects in the country with international limited recourse project finance structure. The 240MW Dau Tieng Tay Ninh Energy project leveraged on an innovative financing structure developed by ADB and is critical to support the sustainable development of Vietnam’s renewable energy sector. In response to market conditions and sponsor demand, ADB’s innovative solution includes tailor-made sponsor support to address the key risks in the country’s standard power purchase agreement. The financing has been also certified as a green loan by the Climate Bonds Initiative.
In what is referred to as the Lotus project, the sponsors Power Construction Joint Stock Company No 1 of Vietnam and RENOVA of Japan developed three wind farms, each with a capacity of 48MW, across three different sites in Quang Tri province in central Vietnam. It is to-date the first and largest wind power project in Vietnam funded internationally on a significantly limited recourse basis where lenders do not have access to any bank guarantee or ECA cover.
Indonesia saw a new asset class in terms of renewable energy with the first utility-scale floating solar power project of its kind not just in the country but also in Southeast Asia. The 145MW power plant being built at the Cirata reservoir in West Java has been designated as a strategic project by the government as it aims to boost the contribution of renewables to the country’s energy mix by 23% by 2025 under its electricity infrastructure acceleration programme. Once completed around the fourth quarter of 2022, the project will provide enough electricity to power 50,000 homes and will offset 214,000 tonnes of carbon dioxide emissions.
In China, TotalEnergies Renewables and Envision Energy Company, acting as sponsors, concluded in 2021 the first distributed generation PV non-recourse portfolio project financing in China’s renewable energy sector and the first green loan credential for commercial and industrial (C&I) customers in the country’s solar industry. The innovative structure encompasses the complexity of a multi-locational pool of assets and the diversified C&I offtakers from different industries.
Another country that is making a stride in the renewable sector is Cambodia. Prime Road Power PCL is developing a project comprising the first phase of the country’s National Solar Park – the first large-scale solar park in Southeast Asia. It will operate a 60MW alternating current solar PV power plant in Kampong Chhnang province, promoting Cambodia’s clean energy transition and support its emission reduction goals under the Paris agreement.
Over in Australia, one of the defining project finance transactions in 2021 was the Powering Australia Renewables’ A$1.23 billion (US$866.20 million) acquisition financing for the purchase of the Tilt Renewables portfolio. The acquisition included a portfolio of renewable energy assets in Australia, including five operating wind farms with 506MW of installed capacity and 2,848MW in development pipeline. It is the largest renewable energy transaction in Australia to-date and transforms the combined Powering Australia-Tilt Renewables portfolio into the largest pure-play renewable energy generator in the country with an operating portfolio of 1.3GW. Powering Australia teamed up with Mercury NZ to acquire all Tilt Renewables’ assets in New Zealand.
Outside of renewables, the other project finance deals that stood out in Australia in 2021 was the A$2.5 billion sustainability loan for Celsus Securitisation, which was part of the refinancing package of the project finance facilities for the Royal Adelaide Hospital. The hospital is the first PPP project in Australia to be funded through a green and social loan under the Green Loan Principles and the Social Loan Principles published by the Asia-Pacific Loan Market Association.
The PPP deal of the year in Australia goes to Stella NEL Finance Pty Limited. Financed by a A$4.2 billion syndicated term loan facility, the North East Link is the largest-ever road project in the state of Victoria and the largest-ever PPP for an infrastructure project in Australia.
The telecommunications sector also generated a number of transactions in 2021 across the region. Australia’s largest superannuation and pension fund, AustralianSuper, signed a A$1.25 billion syndicated debt financing for the acquisition of a 70% stake in Australia Tower Network from Singtel. This is AustralianSuper’s first digital infrastructure investment in Australia, supporting its strategy of investing in long-term national infrastructure assets. The transaction makes Australian Tower the country’s leading independent tower company with a portfolio of 2,312 mobile network towers and rooftop sites.
Over in Malaysia, edotco Malaysia arranged an 800 million ringgit (US$182.20 million) syndicated bridging term loan facility to acquire 100% stake in Touch Mindscape. This was one of the largest M&A transactions in the telecommunications sector in Malaysia in 2021, adding a portfolio of about 1,000 tenanted towers to edotco and strengthening its aspiration to be a top five tower company in the world.
Another Malaysian deal in the sector involved the acquisition of 531 completed telecoms towers by Cellco Capital from its parent Stealth Solutions. It raised a 540 million ringgit ijara sukuk to fund the deal and concurrently lease the towers back to its parent. The sukuk offering in turn will be backed by the lease payments from the towers injected into Cellco.
In Pakistan, Engro Infrashare Private Limited secured a 4.5 billion rupee (US$22.45 million) Islamic syndicated finance facility to build tower sites for use by various mobile network operators and service providers operating in Pakistan. The project plays an important role in the enhancement of telecom network coverage and capacity requirements of the country.
In Papua New Guinea, ADB made a US$25 million equity financing to ATH International Venture Pte Ltd, which is undertaking a US$404.5 million project to support the development of a modern and affordable information and communications technology across the country.
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