Korea Eximbank's first-ever equity investment to go to Indonesian power project

Institution: 
Exim Bank of Korea

 

The Export-Import Bank of Korea (www.koreaexim.go.kr, Chairman Lee Duk-hoon, “Korea Eximbank”) announced on October 1 that the bank is providing USD 7,150 thousand in equity investment to Indonesia's Semangka Hydroelectric Power Plant Project, awarded to a consortium led by Posco Engineering.

 

For Korea Eximbank, this is the first equity investment decision it has ever made since the amendment to the Korea Eximbank Act which eased restrictions on equity investment.

 

On top of the equity investment, Korea Eximbank is also providing USD 132.9 million in project financing which includes a loan and a guarantee.

 

This project is aimed at building and operating a 54MW hydroelectric power plant in Semangka river in Tanggamus District, Lampung Province which is located in South Sumatra, Indonesia to supply power to Sumatra.

 

Estimated to cost approximately USD 190 million, the plant is scheduled for completion in 2017.

 

This project holds particular significance as an 'investment-development type project' whereby Korean players are involved in every stage of the project from early development, equity investment and construction to operation.

 

Its returns practically guaranteed by a 30-year power purchase agreement with the Indonesian government, the project is deemed a high value-added overseas project offering stable operating margins and long-term dividends to Korean companies.

 

Annual electricity demand in Indonesia is growing at an average rate of 8.6%, the third steepest rate among APEC member countries after Vietnam and China - reason to expect a continuing stream of large-scale project opportunities for Korean players in the country.

 

In this context, Korea Eximbank's project financing and equity investment to the Semangka project is likely not just to facilitate the entry of Korean companies into Indonesia's independent power project market but also to help them win more investment-development type projects.

 

“Our provision of a full financing package, including not just project financing but also an equity component that serves to mitigate the risks borne by Korean sponsors, has contributed to the successful closing of this deal," said a Korea Eximbank official. He added, "Our equity participation is also likely to encourage new investments in overseas projects by Korean companies and to entice FIs (financial investors) to expand their investments in alternative investment markets."