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Coal loans battle Green tide

Coal loans battle Green tide

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Infrastructure and logistics company Titan Infra Energy and coal-mining contractor Bukit Makmur Mandiri Utama (Buma) have struggled to syndicate recent loans despite juicy pricing and rarity value

HONG KONG: Indonesian coal miners are finding it more difficult to attract lenders as prices fall and banks cut their exposure to carbon-producing industries.

Infrastructure and logistics company Titan Infra Energy and coal-mining contractor Bukit Makmur Mandiri Utama (Buma) have struggled to syndicate recent loans despite juicy pricing and rarity value.

Titan Infra Energy’s US$450m five-year loan crawled to a close this month, seven months after it was launched into general syndication. It is not clear how many banks joined the deal – a poor debut for the borrower despite rich top-level all-in pricing of 602.47bp based on an interest margin of 575bp over Libor and an average life of 3.64 years.

Buma’s US$150m three-year facility launched in mid-February, its first in eight years, has also received a tepid response despite its rarity value.

Buma’s loan pays a top-level all-in pricing of 225.1bp based on a margin of 200bp over Libor and an average life of 1.9 years. The deadline for closing has been extended indefinitely.

The cool response to the two deals highlights the challenges facing fossil fuel producers at a time when lenders are increasingly keen to promote their own environmental credentials.

“Coal mining is a challenging industry and not an easy sell,” said a Singapore-based loan banker. “Deadlines have been extended as some banks need more time to convince their credit committees.”

However, the resistance faced by Titan Infra Energy and Buma marks a change from only last year, when other mining sector borrowers successfully concluded loans with a dozen or more banks.

In October, Indonesian mining contractor Pamapersada Nusantara (Pama) wrapped up a US$1bn five-year 12-bank club loan that pays a margin of 105bp over Libor and has an average life of 3.25 years.

Two months earlier, coal-mining contractor Saptaindra Sejati, a unit of Indonesian coal giant Adaro Energy, signed a US$350m self-arranged two-year financing with 14 banks.

Since then the outlook for the sector has cooled.

Falling coal prices for Asian producers, as well as the structural shift away from coal toward abundant and affordable natural gas have impacted the sector, S&P said in a May 16 report. The rating agency expects coal prices to be around 10% lower in 2019, and a further 10% lower next year as supply outpaces demand.

Benchmark Newcastle coal prices have slid from over US$99 to less than US$84 a tonne since the start of the year.

“While we observe a structural shift away from coal in Asia – which is similar to the US – demand from thermal power and the production of steel are still growing,” said S&P analyst Vishal Kulkarni in the report. “However, this growing demand will be more than met by rising coal production in Indonesia, China, and India – to some extent. This contributes to our expectation of a softer pricing environment over the next couple of years.”

GOING GREEN

Increasingly, governments, companies and financiers are shifting away from coal. Some European banks have cut funding for the coal sector entirely, and last August, Anglo-Australian miner Rio Tinto exited the coal business.

On May 15, MUFG, which is leading Buma’s facility, also joined the sustainable finance bandwagon, setting new goals and revising its environmental and social policy framework. The bank will no longer provide funding for new coal-fired power projects, and coal-mining deals will be added to restricted transactions once the framework takes effect on July 1.

“One of MUFG’s missions is to support the sustainable growth of our customers and society,” said Kana Nagamitsu, a spokeswoman for MUFG in Tokyo. “We aim to provide a cumulative total of ¥20trn (US$181bn) in Sustainable Finance (of which ¥8trn is allocated for the environment) between FY2019 and FY2030”.

The environmental allocation includes loans and project financings for renewable energy producers, as well as underwriting and distribution of Green bonds.

The shift to green financing is gaining traction, with over US$1.5bn of Green and ESG-linked loan financings completed in Asia-Pacific in this year’s first quarter. That represents a 22% increase over the same period in 2018, which was a record year, according to LPC data.

In March, the Loan Market Association, the Loan Syndications and Trading Association and the Asia Pacific Loan Market Association launched a framework for loans pegged to the sustainability performance of borrowers that commit to operating in a more environmentally sustainable manner.

The Sustainability-Linked Loan Principles build on the Green Loan Principles adopted by the three industry bodies in March 2018.

“Green loans are a hot topic at the moment and we are keen to explore opportunities with our clients with such financing,” said a second Singapore-based syndicated loans banker. “We are in the process of educating ourselves as well as our clients.”

Source: reuters
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Anand Gupta Editor - EQ Int'l Media Network