Doubts over Fortis' niche role in Asia infrastructure
07-OCT-2008 Intellasia | India Times
Oct 7, 2008 - 7:00:00 AM
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| A man passing by the logo of Fortis bank in front of the Fortis headquarters in Brussels. French bank BNP Paribas will take control of ailing finance group Fortis's operations in Belgium and Luxembourg, a source close to the Luxembourg government said Sunday.
(AFP/Dominique Faget) |
Fortis Bank's partial nationalisation should not harm existing Asia project financing deals, including a giant dam in Laos, but casts doubt on its plans to fund more infrastructure in the region.
The Benelux financial group was a small but growing player in Asian project financing, acting as the multilateral coordinator for a US$1.58 billion loan package last year to fund construction of the Nam Thuen Two hydropower project in Laos.
Fortis, in which Chinese insurer Ping An has a near 5% stake, was planning to increase its presence in Asia, opening offices in Japan this year and in Australia. The bank has lent US$363 million this year for Asian construction projects, compared to US$618.5 million last year, according to Thomson Reuters data. Its busiest year was in 2006, when it recorded US$908 million worth of loans.
Fortis has also carved out a niche in ship financing in Asia, ranking second behind BNP Paribas in the first half of this year with US$275 million worth of loans. Such loans are safer since the Dutch, Belgian and Luxembourg governments decided to bail out Fortis for 11.2 billion euros (US$16.07 billion), according to an executive at the bank.
"The funding is more secure, so for existing loans, there should be no impact," the executive said, asking not to be identified because of a shut-down on comments to the media. "The main message is we want to reassure our clients. The loans we have will continue, we're not going back on any commitments."
He added that Fortis had been "in expansion mode" in Asia, but said he had no idea how government intervention would affect the bank's strategy in the region. "Of course, it's not business as usual, but that's the same for everyone," the executive said. "In principle, any new commitments have to be analysed and reviewed because of market circumstances."
Dam safe
With trillions of dollars expected to be spent on infrastructure in China, India and other fast-growing Asian countries, several Western banks including Citigroup, BNP Paribas and Royal Bank of Scotland have jumped on the project finance bandwagon.
State Bank of India and Bank of China have also become big players, while Japan's Misuho Financial Group and Sumitomo Mitsui Banking Corp still cling to top spots, lending a combined US$131 billion last year. Project finance deals can take years to arrange and often come with commitments from government and multilateral lenders, so have been relatively cushioned from the credit crunch.
But with funding costs up anywhere between 50 and 200 basis points in the last year and construction costs rising as much as 25%, many deals have been held up by haggling between banks and prospective borrowers. Patchamuthu Illangovan, the World Bank's Laos country manager, said Fortis officials had reassured him that the bank's commitment to the 1,070-megawatt Nam Theun Two dam was safe.
Only a second tranche, of around US$200 million of the total loan package, had not yet been disbursed, and Fortis' share of that was about one seventh. "In the event they can't support the deal, the project company will have to turn to other sources," Illangovan said. "But that shouldn't be a problem as it's a small amount."
The funding for Nam Theun Two also involved BNP Paribas, ING Groep and Societe generale for a project jointly owned by Electricite de France SA, the governments of Thailand and Laos, and Thai construction firm Italian Thai Development.
As part of its Asia growth drive, Fortis wanted to tap deals from Japanese trading houses and power companies that were expanding overseas. It acquired a banking license in Japan in January and hired Hiroyuki Sakai from Standard Chartered Bank to lead its project finance division in the country and recruited Tsuyoshi Ishide from Misuho Corporate Bank to head its energy finance division.
Fortis was part of a consortium that lent US$2.6 billion for Indonesia's Tangguh liquid natural gas (LNG) project, led by energy company BP Plc, and has also given a loan to PetroVietnam for its 750 MW Ca Mau 2 power project.
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