Asian Sunset: Mirant's Philippine Power Sale

It is a stark reminder of the impact of the California energy crisis on the global power industry that the shockwaves are still being felt seven years later and 7,000 miles away

When energy traders were shown to have manipulated an already poorly structured market, other US states reversed liberalisation plans and wholesale power prices plummeted - along with the shares of merchant power providers who had built positions on a free market.

The fate of the most notorious California veteran - Enron -  is well known, but the fortune of other IPPs provides a more varied story.

Some like NRG Energy have fought their way back to solvency - the firm emerged from Chapter 11 in March 2006 through a record US$9.2 billion rescue package and has already purchased Texas Genco.

Others like Williams have abandoned the business altogether - in May the company sold a 7,500 MW generating arm to a Bear Stearns subsidiary for a base purchase price of just US$512 million.

The story for Atlanta-based Mirant has been more complex still. But with private equity now driving a resurgence in asset prices the company has worked hard to make itself an attractive proposition.

In July 2003, saddled with US$11.4 billion in debts, the company filed for Chapter 11, only emerging in December 2005 with US$2.4 billion in exit financing and a plan to convert a further US$6 billion of debt into equity.

As part of the plan, the company sold a group of US gas-fired assets to LS Power in a US$1.6 billion deal, and will soon finalise the sale of Caribbean assets to Marubeni for a further US$700 million.

But the joker in Mirant's pack has been its strong position in Asia - much of it built after the financial crisis when assets could be bought for a song. The jewel in the crown was ownership of three regulated power plants supplying a resurgent Philippine economy.

The price it could achieve for these would be crucial for Mirant's restructuring.

The Portfolio

Mirant's three Philippine assets consist of two traditional coal-fired power stations developed by the IPP and an equity stake in the more modern Ilijan gas plant purchased from KEPCO, Mitsubishi and Kyushu for US$35 million in 2000.

All of the plants are on the island of Luzon, the most densely populated island in the Philippines with a population of 40 million. Together they account for 20 per cent of the island's generation capacity.

The Philippines' electricity demand has also risen substantially since the late 1990s as the country has recovered from the Asian financial crisis. The demand forecast released by the government in August 2006 projected a 46 per cent increase in Luzon's demand for electricity from 2005 to 2014.

The three Mirant plants also benefited from long term offtake agreements and fuel supply agreements from Philippine state utility NAPOCOR (National Power Corporation).

Figure 1: MAPL Assets


In Summer 2006 Mirant mandated Credit Suisse to auction off the portfolio in a procedure slated for 17 November.

The auction predictably saw a strong Japanese presence, with JBIC's willingness to provide political risk insurance a key background factor. Mitsui, Mitsubishi and Marubeni all led bidding groups, with AES and KEPCO reportedly also taking part in the early stages.

The two shortlisted consortia emerged as :

  • TeaM (a consortium of Marubeni and TEPCO)
  • A Mitsubishi and Tanjong JV

Eventually TeaM proved more eager to build its position in the emerging energy market, outbidding Mitsubishi with a US$3.43 billion offer.


The financing

Marubeni and TEPCO's acquisition vehicle CrimsonPower Holdings Company financed the purchase through an acquisition amount of MAPL US$3,424 million and working capital of US$150 million.

The financing package consisted of:

  • 50:50 shareholders' equity and loan totalling US$750million
  • JBIC direct loan of US$1,600 million
  • An international tranche o US$1,100 co-financed by JBIC and 5 MLAs (ANZ, Calyon, ING, Mizuho Financial Group and SMBC)
  • A mezzanine loan of US$230 million provided by Nomura

As expected the co-financed tranche received a full political risk guarantee from JBIC.

Pricing on the initial tranche was 90-120bps.

Figure 2: TeaM Energy Corporation (CrimsonPower Holdings Company)

Conclusion - The Sun also rises

The disestablishment of the overseas empire of an American energy utility which once controlled US$20 billion in assets might not appear to be a triumph, but there are possible silver linings for Mirant.

The deal represents an impressive return on the initial investments made by Mirant - with the US$35 million paid for the Ilijan stake now seeming a very shrewd move.

Moreover, with US private equity firms targeting the high returns from American coal generation, a streamlined Mirant now seems well placed for a wholesale sell-off to private equity or partnership on the LS Power:Dynegy model.

In Asian terms, the deal confirms the Japanese resurgence in the former Asian tigers with the formidable backing lent by JBIC.  As the latter has just signed agreements to guarantee projects in Indonesia and is expected to play a key role in Vietnam in the longer term, Japanese engineering firms will have an immense advantage.

Expect American firms to have a battle on their hands to recover market share in the region if and when they return to full health.  

The project at a glance

Project Name  Mirant Asia Pacific Limited
Location  Three locations on the island of Luzon in the Philippines 
Description  Acquisition of a 2,203MW conventional power portfolio
Sponsors  TeaM Energy Corporation (50:50 JV between TEPCO and Marubeni)
Operator  TeaM Energy Corporation
Fuel supply agreement  Contract with NAPOCOR for 15-18 years
PPA  Contract with NAPOCOR for 15-18 years
Total Project Value  US$3,680 million
Total equity  US$750 million
Equity Breakdown

 Marubeni US$375 million
 TEPCO US$375 million

Total senior debt  US$2.7 billion
Senior debt breakdown

 US$1.6 billion 18-year direct loan from JBIC

 US$1.1 billion 17 year loan split between:

  • ANZ Investment Bank US$220 million
  • Calyon US$220 million
  • ING US$220 million
  • Mizuho Financial Group US$220 million
  • SMBC US$220 million
Senior debt pricing  LIBOR plus 90-120bp
Junior debt  US$230 million subordinated debt provided by Nomura
Debt:equity ratio  80:20
Political risk guarantees  US$1.1 billion guarantee on the senior debt from JBIC
Legal Adviser to sponsor  Latham & Watkins
Financial adviser to sponsor  SMBC and ING
Legal adviser to banks  Allen & Overy
Financial adviser to divestor  Credit Suisse 
Date of financial close  22/06/2007