July 26, 2019 / 10:15 AM / 2 months ago

CIP adds to Taiwan wind surge

* Loans: Record wind farm financing will test liquidity

By Evelynn Lin

HONG KONG, July 26 (LPC) - Danish fund manager Copenhagen Infrastructure Partners is testing appetite for Taiwan’s offshore wind sector with a NT$93bn (US$3bn) 18-year loan that marks the island’s largest project financing in nearly 20 years.

The multi-tranche deal comes as lenders are already reviewing two other wind farm financings totalling an additional NT$142bn.

CIP, which is developing three projects off the coast of Changhua county, is competing with a NT$81.9bn multi-tranche 18-year loan that German wind energy developer Wpd launched in early July and a NT$60bn 16 to 18-year borrowing for Formosa II OWF that was launched in late May.

The infrastructure developers are banking on deep appetite for renewable energy financings in Taiwan thanks to the government’s incentives to develop the sector. Taiwan has an ambitious target of installing 5.5GW of offshore wind power capacity by 2025.

The loans also offer higher returns than plain-vanilla corporate loans, but the projects face hurdles, including requirements that stipulate greater involvement of domestic companies and environmental factors.

The government is talking to international developers on the level of localisation for offshore wind projects. Concerns have also been raised about the capability of local supply chains and the status of environmental impact assessments.

“Greater localisation would make it more difficult for developers to secure export credit agency (ECA) support. We would be conservative if the project doesn’t have sufficient ECA guarantees given the non-recourse nature of these PF deals,” a senior loan banker at a state-owned Taiwanese bank said.

CIP’s financing includes an ECA tranche with insurance cover from a host of agencies including Denmark’s EKF, Germany’s Euler Hermes, Atradius of the Netherlands, and South Korea’s K-Sure, among others. The size of the tranches has yet to be determined.

Wpd’s NT$81.9bn PF comes with ECA cover from EKF, Hermes, KfW, and Atradius. The ECAs involved in Formosa II OWF are not known, but the project counts Taiwan’s Swancor Renewable Energy and Australia’s Macquarie Capital as joint shareholders.

Wpd’s PF, which finances its Yunlin county offshore wind farms, has already received a good response with 19 banks involved, including six mandated lead arrangers and bookrunners.

Only four banks are from Taiwan, and the other 15 include other Asian and European institutions, sources said.

“We believe that European banks will provide continuous support to the offshore wind loans in Taiwan as the European sponsors ramp up activity here,” another Taiwan-based senior loan banker said.

DOMESTIC CONSIDERATIONS

State-owned Taiwanese banks are generally more conservative about investing in businesses that develop offshore wind power because the sector is still in its infancy in Taiwan.

In June, Danish wind energy developer Orsted closed a NT$25bn five-year corporate loan backing the construction of offshore wind farms in Changhua county.

Fifteen lenders joined the deal, including eight state-owned Taiwanese banks that had never previously lent to an offshore wind financing.

“We extended the short-term loan to Orsted after a careful assessment and the Danish firm agreed to provide a full guarantee for the loan. The facility provides us an opportunity to tap into the offshore wind energy industry and get more familiar with those projects,” a third banker from a state-owned Taiwanese bank said.

The offshore wind farm deals will boost loan volume in Taiwan and Asian project financing.

Several wind farm loans have been completed in Taiwan since Formosa I OWF raised a NT$18.7bn loan in June 2018 to finance Stage 2 of its project, the island’s first commercial-scale offshore wind plant.

CIP’s NT$93bn loan is the largest PF in Taiwan since a jumbo NT$323.3bn loan completed in February 2000 for Taiwan High Speed Rail Corp. The borrower subsequently carried out amendments and increases to the size of the loan, the last of which was a NT$382bn financing in August 2015.

Taiwan was one of the only Asian markets to show loan growth in the first half of this year with a 3% year-on-year increase to US$19.8bn. ( Reporting By Evelynn Lin; editing by Prakash Chakravarti and Tessa Walsh)

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