MUMBAI, March 30: A clutch of international banks led by ANZ Investment Bank (ANZIB) has quietly put through a $825-million cross-border risk-syndication and underwriting transaction of a letter of credit (LC) confirmation facility for Essar Oil's nine-million tonne per annum (tpa) Vadinar oil refinery's equipment supplier, ABB Lummus Global BV.Investment bankers say the deal -- with an all-in life span of three years -- is the largest of its kind out of India and represents the biggest credit risk the international financial community has taken on domestic institutions and banks.
The deal has two parts: underwriting and syndication of a $550-million LC confirmation facility and $275-million vendor financing, also secured under the same.
About the deal's structure, market sources said domestic institutions and banks opened LCs on behalf of Essar Oil in favour of ABB Lummus Global BV. The equipment supplier in turn approached ANZIB to structure a pre and post-delivery financing package, approximating acredit enhancement by way of a letter of confirmation facility for the domestic LCs opened.
Norton Rose acted as the legal counsel for the transaction. The Zurich-based ABB Project and Trade Finance International (ABBPTF) worked closely with ANZIB to structure the deal.
Joining ANZIB in the underwriting and syndication of the LC confirmation were five international banks: Bayerische Landesbank Girozentrale, Baden Wurttembergische Bank AG, Generale Bank SA/NV, Kredietbank NV and Skandinaviska Enskilda Banken. The $275-million vendor-financing facility, also secured by the LC confirmation, has been made available to a special- purpose vehicle (SPV) incorporated outside the country. The SPV will advance the pre-shipment credit, say sources.
"The LC confirmation enables discounting of the the instrument. When done at the pre-shipment stage, the proceeds will enable ABB Lummus to source equipment. At the post-shipment stage, it will help the company get money upfront as Essar Oil will pay up only in stages,"said sources close to the deal. ANZIB's global head-debt orgination, Chris Vermont, said: "The risk profile is ring-fenced from the underlying project by the issuance of LCs and we have combined traditional banking products in new ways to meet our client's requirements. The speed at which the facilities were put together is a testament to the innovative way that ABB works with banks to accelerate project mobilisations."
On the deal, ABBPTF's senior vice-president, Jacques Degouve, said: "For this important transaction, we needed a bank which could act quickly and coordinate all the LCs issued and mobilise financing sources during the pre-shipment period. The deal represents one of the largest securitisations of trade-related instruments ever realised."
Pricing on the LC confirmation front is closely guarded, but market sources estimate it to be in a quarter to half a per cent (25-50 basis points) range of the transaction size. The incidence of this cost is not known, whether ABB Lummus will bear the costof the LC confirmation and pass it on to Essar Oil.
"The financing has been arranged without recourse to ABB Lummus, structured on the back of the LCs provided by institutions and banks on behalf of Essar Oil. On account of the large value of financing, ANZIB has syndicated the domestic risk among a group of international banks," senior Essar officials said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
