Sydney water plant targets Japanese liquidity

The sponsors of the storm-damaged Sydney Desalination Plant are tapping Japanese appetite for infrastructure assets with a loan of A$500m-equivalent (US$393m), following the successful foray of peer AquaSure last year. SDP, which has been out of commission since 2015, has mandated MUFG to underwrite an 11-year Ninja loan as it looks to take advantage of the long-term liquidity in the Japanese market to extend its debt profile. Ninja loans, denominated in any currency, are syndicated financings for overseas borrowers in Japan. Japanese trust banks, regional banks and insurers were invited to attend a bank meeting in Tokyo last month for the Ninja borrowing, split into Australian and US dollar portions.
Royal Bank of Canada is advising on the capital structure and refinancing process, which started last October, when the sponsors invited existing and new lenders to submit proposals for various tenors ranging from three to over 10 years to gauge appetite and pricing levels.
The same month, AquaSure, another Australian desalination company, closed a A$766m 15-year dual-currency refinancing loan, tapping yield-starved Japanese banks and financial institutions. Japanese trading house Itochu Corp was among the project sponsors. Seven of the 10 participating lenders were Japanese.
"The success of the AquaSure deal made a huge impact in the market. The deal proved they can raise long-term funds in Japan for Australian projects," said one of the sources. "Japanese lenders have also become comfortable extending loans to Australian projects."
Other Aussie infrastructure borrowers to have sold Ninja loans previously, include Victorian gas distributor Multinet Gas and Western Australia's Dampier to Bunbury National Gas Pipeline, both of which raised A$300m each through seven-year refinancings in 2016.
Boosting the demand is the fact that many of these Japanese institutions are able to absorb unhedged or partially hedged Australian dollar exposure without having to bear the high costs of swapping it back to yen, the sources have said.
STRONG INTEREST SDP's Ninja facility is drawing strong interest from potential lenders, despite the lack of a Japanese sponsor. However, they will have to contend with other challenges. SDP's plant has been offline after suffering considerable storm damage in December 2015, with repairs expected to be completed later this year.
As the storm triggered a force majeure clause, the plant's contractual obligations under its water-supply agreement with state utility Sydney Water were put on hold until the rebuilding was completed. The plant has not delivered any water since its testing phase as water levels in Sydney have been high, triggering criticism from opposition politicians. The sponsors Hastings Funds Management and Ontario Teachers' Pension Plan bought it in 2012 from the New South Wales government for A$2.3bn on a 50-year lease. The lease ties the government to availability payments while the plant is on standby, as well as usage payments for any water produced.