Hana becomes first Korean debt arranger for US power plant

Jan 24, 2017 (Gmt+09:00)

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Hana Financial Investment’s participation in the recent $1 billion debt financing for a US gas-fired power facility as a lead arranger has made it the first South Korean institution to underwrite a tranche of debt facilities for a US power plant.

Hana’s commitment of $200 million in direct loans to the energy project comes as domestic investors are making a dash for offshore infrastructure, seeking a more active role in the infrastructure financing market.

“Unlike Japanese and Chinese financial services companies, South Korean brokerage houses had not been able to participate in financing arrangements (of US power plants) up to now,” a domestic investment banking source said on Jan. 23. “With this transaction, South Korean financial services companies will actively participate in US infrastructure investment projects.”

Hana plans to sell down its interest in the energy project to other domestic institutional investors, mostly insurers, via a private equity fund vehicle.

The brokerage unit of a leading South Korean financial holding firm acted as a coordinating lead arranger, jointly with Commonwealth Bank of Australia and ING Capital LLC, according to a press release of Invenergy, a US energy developer. Invenergy and First Reserve, a private equity firm, are co-owners of the Lackawanna Energy Center.

Adding to Hana’s direct lending for an annual fixed rate of 5%, Prudential Investment Management Services LLC lead managed $260 million of debt facilities for the power plant, according to the sources. BNP Paribas, MUFG and GE EFS handled the arrangement of $337 million floating-rate notes.

The energy center is a 1,485 MW gas-fired combined cycle power plant being constructed in the Borough of Jessup, Lackawanna County, Pennsylvania. The Lackawanna plant will deliver power to the Pennsylvania-New Jersey-Maryland (PJM) energy market.

The sources said the Lackawanna power plant would make a distinction from other traditional US infrastructure projects, citing low risks in relation to permits and licenses, opportunity costs and expected returns.

The power plant had won approvals for construction and operation, and its construction began in early 2016. The bulk of natural gas, the fuel of the plant, will be supplied at a price linked to electricity prices, ensuring steady incomes from the power generator.

Further, the debt financing of the Lackawanna Energy Center will be provided in a lump-sum, lowering opportunity cost risks arising from a possible payment delay. In comparison, investment in development-stage infrastructure is made on capital calls in general, where capital is deployed at the request for capital.

Kiewit Corporation, a US contractor, takes care of the engineering, procurement and construction (EPC) of the power facility, and Invenergy will operate and manage the plant expected to be operational from 2018.

By Daehun Kim

daepun@hankyung.com