Narrative
Full Description
Project narrative
On October 26, 2015, Bank of China Limited sent a set of indicative terms and conditions (classified as 'strictly confidential') to Ecuador's Ministry of Finance for a Sinosure-backed buyer's credit facility for the 200 Prefabricated Millennium Education Units Project. Then, on December 22, 2016, the Government of Ecuador signed a $167,371,800 syndicated term loan facility agreement with five banks — Bank of China Limited, Beijing Branch, Bank of China Limited Liaoning Branch, Bank of China Limited, Panama Branch, and Deutsche Bank AG, Hong Kong Branch — for the 200 Prefabricated Millennium Education Units Project. Bank of China Limited — through three different branches — contributed $117,160,260 to the loan. The Panama Branch of Bank of China Limited contributed $58,580,130, while the Beijing Branch of Bank of China Limited contributed $48,540,130, the Liaoning Branch of Bank of China Limited contributed $10,040,000, and the Hong Kong Branch of Deutsche Bank AG contributed $50,211,540. The loan carried the following borrowing terms: a 12-year maturity, a 2 year grace period, a variable annual interest rate of 6 month-LIBOR plus a 3.5% margin, a 7.18% Sinosure buyer's credit insurance fee (worth $18,748,064) and a 2% default (penalty) interest rate, a 1% arrangement (management fee), and a 0.75% commitment fee. The borrower was responsible for making 20, equal, semi-annual repayments. The borrower was expected to use the proceeds of the loan to finance 85% of the total cost of a $196,908,000 commercial contract between Ecuador’s Ministry of Education and China Railway N.9 Engineering Group Co. Ltd. (CREC9), which was signed on August 18, 2015 [contract ID#056-MINEDUC-2015] and amended on April 12, 2016 [contract ID#004-MINEDUC-2016]. The Government of Ecuador was responsible for paying the remaining 15% ($29,536,200.00) through advance payment to CREC9, which was made by Ecuador’s Ministry of Education on May 18, 2016. The purpose of the project was to procure, assemble, and install 200 prefabricated Millennium schools (educational units). Project implementation commenced on or around June 20, 2016, shortly after the advance payment was made. Then, on March 27, 2018, Ecuador’s Ministry of Education announced that it planned to take legal action against CREC9 to recover its advance payment worth 15% of the commercial contract value. On July 13, 2018, Ecuador’s Ministry of Education unilaterally terminated its commercial contract with CREC9 and attempted to assess a fine worth $29,116,785, citing technical breaches, cost overruns, and untimely installation of the units within the period stipulated in the commercial contract. At the time of contract termination, 50 prefabricated education units were installed and at least 11 loan disbursements had taken place. CREC9 reported at the time of contract termination that the monetary value of the work that it had performed was $78 million. Bank of China Panama Branch's contributions to the syndicated loan are captured via Records ID #92567 (estimated disbursement) and #110045 (estimated cancellation). Bank of China Beijing and Liaoning Branches contributions are captured via Records ID #110056 (estimated disbursement) and #58859 (estimated cancellation).
Staff comments
1. The Spanish project title is La adquisición de 200 unidades educativas provisionales tipo milenio (prefabricadas) incluido su ensamblaje, instalación y puesta en operación, a nivel nacional or El Proyecto «Nueva Infraestructura Educativa» or La construcción de 200 escuelas del milenio en Ecuador. The Chinese project title is 厄瓜多尔教育部 200 所“千年学校”临时学校项目 or “千年学校”建设项目. 2. The loan agreement can be accessed in its entirety via https://www.dropbox.com/scl/fi/699dsnitirg9wjzdncw77/Ecuador-2016-Bank-of-China-and-Deutsche-Bank-Syndicated-Loan-Agreement-for-the-200-Prefabricated-Millennium-Education-Units-Project.pdf?rlkey=ju8yabt8tr4oxu8vgh5yzc5te&dl=0 3. AidData has estimated the all-in interest rate by adding 3.5% to the average 6-month LIBOR rate in December 2016 (1.306%). 4. The 'strictly confidential' indicative terms and conditions that Bank of China Limited transmitted to Ecuador's Ministry of Finance on October 26, 2015 can be accessed in their entirety via https://www.dropbox.com/scl/fi/smcncj2fowbk2k2v63vll/ANEXO-5-Indicative-Terms-and-Conditions.pdf?rlkey=douwxbh9eq44o6xylv67dh6ly&dl=0 5. A detailed (ex ante) amortization table for the loan can be accessed on pg. 8 of https://www.dropbox.com/scl/fi/smcncj2fowbk2k2v63vll/ANEXO-5-Indicative-Terms-and-Conditions.pdf?rlkey=douwxbh9eq44o6xylv67dh6ly&dl=0 6. In order to estimate the value of the loan disbursements that took place prior to the cancellation of the commercial contract, AidData subtracts the value of the advance payment ($29,536,200) from the value of the work that had been performed as of July 13, 2018 ($78 million). It then multiples this value ($48,463,800) by the percentage of each bank's contribution to the syndicated loan. The total value of the loan commitment was $167,371,800. The Panama Branch of Bank of China Limited contributed $58,580,130 (35% of the total loan commitment), while the Beijing Branch of Bank of China Limited contributed $48,540,130 (29% of the total loan commitment), the Liaoning Branch of Bank of China Limited contributed $10,040,000 (6% of the total loan commitment). AidData has estimated therefore that the Panama Branch disbursed $16,962,330, the Beijing Branch disbursed $14,055,170.3, and the Liaoning Branch disbursed $2,907,159.7. The undisbursed (cancelled) amounts from each branch are estimated to be $41,617,800 from the Panama Branch, $34,484,960 from the Beijing Branch, and $7,132,840 from the Liaoning Branch.