Directory of Innovative Financing: Thailand

Thailand

Project Title: Regco Project Financing in U.S. Capital Markets

Country: Thailand

Issue Amount: $141 million

Sector: Power generation

Status: Long-term bonds successfully sold in Rule 144a private placement offering, July, 1994.

Sponsor/Adviser: Rayong Electricity Generating Co. (Regco), a special purpose corporation wholly owned by Thailand's Electricity Generating Co. (Egco); CS First Boston was financial adviser.

Purchaser: U.S. insurance companies

Financing Package: Fixed rate 15-year private placement with 12-year average life and an 8.85% coupon. It was rated BBB+ by Standard & Poor's, or only one notch lower than sovereign Thai debt.

Innovation: This U.S. capital market financing was just one element of the innovative, multifaceted $770 million transaction leading to Thailand's first major privatization of any kind. The private placement was also the first time a rated Asian project financing had raised funds in the U.S. capital markets, and received the highest rating for any international independent power project to date.

Through the deal the Thai government gradually reduced its ownership in major existing power generating assets to minority levels, transferring them instead to a new holding company - Regco - that would eventually list shares on the local capital market.

The U.S. capital market deal was just one of five related tranches for Regco. The others were: 1) a $141 million 10-year non-recourse floating rate LIBOR plus 60 bp loan from an international commercial bank syndicate with BNP, Barclays, Mitsubishi, Sanwa and Societe General as lead managers; 2) a Bt4.2 billion ($168 million) non-recourse floating rate loan from the Thai bank syndicated loan market with Krung Thai Bank and Government Savings Bank as lead managers; 3) a Bt3.5 billion ($140 million) fixed rate 11.25% secured debenture offering on the Thai private placement market; 4) a $180 million initial public equity offering on the Thai and international markets.

The project's strong 20-year power purchase agreement with the highly regarded Electricity Generating Authority of Thailand (EGAT) was considered the key to winning the investment grade credit rating necessary to access the U.S. private placement market. Under the contract EGAT had committed to continuing to pay in full even if it stopped offtaking power from Regco, and to providing the project company with a 20% internal rate of return.

Brief: Egco was established as the holding company for Thailand's power utilities in 1992. Through this transaction, its wholly owned subsidiary Regco purchased the 1,232MW Rayong gas-fired combined cycle power plant on Thailand's eastern seaboard from state-run EGAT. The plant accounts for 10% of Thailand's total power generation. CSFB acted adviser to each stage of its complex financing.

One key to the package was the extremely tight spreads the borrower received from the international commercial loan syndication despite the long maturities. That aspect which was made easier by the fact that the project was already operational and had no completion risk. The package was split into a $93 million 10-year commercial syndicated loan with Sanwa and Mitsubishi as lead managers and a $48 million guarantee facility led by Barclays, BNP and SocGen. The borrower reportedly could have closed the entire offshore syndicate at spreads of no more than 55 bp with Japanese banks, but raised the threshold to bring in the European lenders because it wanted to develop a diversified, long-term relationship with international banks to support future expansion needs.

After the transaction closed Dec. 7, 1994, Egco undertook a privatization IPO that reduced EGAT's ownership from 100% to 48%. That offering also provided additional funds for expansion projects such as the purchase of the 824 MW Khanom Electricity Generation Co. plant.

Infrastructure and Financial Markets Division
Private Enterprise and Financial Markets Subdepartment
Sustainable Development Department
Inter-American Development Bank

Last updated: 02/26/07