April 24 – LAWFUEL – The Law News Network – IMPSA Group, including Corporación IMPSA S.A. and Industrias Metalúrgicas Pescarmona S.A., announced today the completion of the sale of IMPSA Group’s interests in the Caliraya-Botocan-Kalayaan power complex in Laguna, Philippines (“CBK”). IMPSA Group sold its stakes in CBK to a newly formed consortium comprised of Electric Power Development Co., Ltd. (“J-Power”) and Sumitomo Corporation. The consortium’s acquisition financing was led by Japan Bank for International Cooperation, and included Mizuho Corporate Bank, Ltd. and ING Bank, N.V., in a transaction believed to be the first time any export credit agency has provided limited recourse project debt on a structurally subordinated basis.
The April 22 closing was the second of a two-part sale, the first of which closed on January 10, 2005 with the sale by IMPSA Group to the J-Power/Sumitomo consortium of the 50% of CBK that IMPSA Group acquired from its partner, Edison Mission Energy (“EME”) of the U.S., pursuant to the exercise of a right-of-first-offer. “CBK was one of the most extraordinary power projects and project financings in Asia in the last five years,” said Christopher Stephens of Coudert Brothers in Hong Kong, counsel to IMPSA Group. “So it was only fitting that the structure and strategy of IMPSA’s divestiture plan was equally remarkable,” he said.
CBK was conceived in 1994 when IMPSA submitted to the Philippines government an unsolicited bid to develop the Kalayaan hydro plant. The concept was expanded to encompass the Caliraya and Botocan plants, and the project was awarded in 1998 and reached financial closing in 2001. CBK is a 25-year Build-Rehabilitate-Operate-Transfer project under the Philippines BOT law. It was a 50%-50% joint venture between IMPSA and EME, with IMPSA also acting as turnkey contractor. The project was originally scheduled for completion in early 2004 to produce 728MW, but was completed three months early and with an increased total capacity of 792MW. The project’s financing won numerous international awards, and is the only pumped storage hydro project in the Philippines.
“IMPSA’s multifaceted divestiture plan was extraordinarily intricate,” described Stephens. Under the pressure from the effects of the California energy crisis, EME embarked on an auction to divest its entire international network of power projects in 2004, ultimately concluding a US$2 billion deal with IPM Eagle LLP, a consortium comprised of Mitsui & Co., Ltd. and International Power plc. IMPSA Group quickly developed a plan to sell its own stake in CBK on the back of the EME sale. “By disposing of its own interest in CBK at the same time as the EME sale, IMPSA could potentially create a ‘control premium’ for its part of the transaction,” explained Stephens. “The complexity was in concluding a deal for CBK with the same buyer and in an acquisition-and-resale structure that protected IMPSA from unwarranted transaction risks and enabled it to retain that premium.” To accomplish this, IMPSA concluded an agreement to sell its 50% interest in CBK to the J-Power/Sumitomo consortium. At the same time, IMPSA Group exercised a right-of-first-offer under its joint venture with EME to acquire EME’s stake in CBK, thus enabling IMPSA Group to remove EME’s CBK stake from the IPM Eagle deal, acquire it and re-sell it J-Power/Sumitomo. IMPSA Group, therefore, needed to sign a back-to-back purchase agreement with EME that meshed with its purchase agreement with J-Power. But the EME purchase agreement was created in the context of the sale by EME of its international assets to IPM Eagle, while the J-Power purchase agreement was based on the terms already agreed in the first IMPSA Group/J-Power deal.
“A structure had to be created to match the legal and technical terms of the two purchase agreements as closely as possible,” explained Stephens, “so that representations, conditions to closing and indemnities didn’t create any unacceptable risks.” IMPSA Group could not be caught in the position of being legally required to complete the EME purchase unless it could also legally require J-Power to complete the J-Power acquisition simultaneously. Similarly, IMPSA Group had to minimize the risk that it could be pursued by J-Power under an indemnity clause for any matter for which mirror-image recourse did not exist vis-à-vis EME. At the same time strict confidentiality of J-Power’s identity, the price and other terms had to be maintained until EME acquiesced to IMPSA Group’s exercise of the ROFO and the EME purchase agreement was signed.
“The whole CBK divestiture plan was brilliantly conceived and exceptionally well executed,” said Stephens. “Seldom in the M&A area anywhere in the world does such a confluence of opportunity, ingenuity, agility and boldness combine so successfully, and it’s a credit to IMPSA and its management that they were able to complete it so smoothly,” he said.