ICBC provides $30.9 million loan for Design and Construction of the Link Road Connecting Hulhulé and Hulhumalé (Linked to Project ID#38082, #38037)

On December 7, 2017, during the state visit of Maldives President Abdulla Yameen to China, the Housing Development Corporation (HDC) and the Industrial and Commercial Bank of China (ICBC) signed a facility agreement for the Design and Construction of Link Road Connecting Hulhulé and Hulhumalé Project. The $30,951,638 term loan agreement was finalized by the parties on January 8, 2018. The loan carried the following borrowing terms: a 10-year maturity, a 1-year grace period, and an interest rate of 6-month LIBOR plus a 3% margin. The Government of Maldives provided a sovereign guarantee for the loan. The borrower was expected to use the proceeds of the loan to finance 85% of the cost a commercial contract between HDC and Hunan Construction Engineering Group, which was signed on April 19, 2017. The first ICBC loan disbursement took place on March 5, 2018. Total loan disbursements as of December 31, 2018 amounted to $24,584,350. HDC made loan repayments to ICBC worth $1,719,536 in 2018, $3,439,071 in 2020, and $1,862,830 in 2021. According to the Maldives Ministry of Finance, the loan’s amount outstanding was $1,719,536 as of December 31, 2017, $22,864,814 as of December 31, 2018, $25,793,032 as of December 31, 2019, $22,353,961 as of December 31, 2020, and $20,491,131 as of December 31, 2021. The purpose of the project was to to link Hulhulé and Hulhumalé, adding road transport that would allow people to travel between the capital, the airport, and the suburbs by road with ease; currently, ferries are the primary mode of transport between the three islands. The current causeway that linked Hulhulé and Hulhumalé ran from Hulhulé’s southern end to the eastern coast of Hulhumalé; this project was to expand it and reinforce the new highway. The link road was to be 4 kilometers long and have four lanes. In order to build the road, land reclamation of some of Hulhule’s lagoon was necessary, as was sheet piling, coastal reinforcement, the laying of water pipes, and pavement. Hunan Construction Engineering Group was the contractor responsible for project implementation. In December 2016, it was expected that the project would commenced in January 2017 and reach completion by April 2018. Land reclamation began on September 11, 2017. Then, on August 14, 2018, the Maldives Times reported that the construction of the road had achieved an 82% completion rate. The project was ultimately completed in October 2019. There are some indications that the ICBC loan has underperformed financially and that the borrower (HDC) has had difficulty meeting its repayment obligations to the lender. On June 20, 2019, HDC entered into a short-term loan agreement with the Maldives Ministry of Finance and Treasury amounting to MVR 84,764,552 for the purpose of refinancing the interest payment obligation falling due in the month of June 2019 under the ICBC loan agreement for the Design and Construction of the Link Road Connecting Hulhulé and Hulhumalé Project (and a separate loan agreement with Seylan Bank). The disbursement of the loan was made on June 20, 2019. The loan was obtained for a duration of 24 months, and it was repayable in monthly installments from the date of disbursement; interest was charged and payable on a monthly basis at a rate of 10% per annum. Then, on December 26, 2019, HDC entered into a short-term loan agreement with the Maldives Ministry of Finance and Treasury amounting to MVR 11 for the purpose of refinancing the interest payment obligation falling due in the month of December 2019 under the ICBC loan agreement for the Design and Construction of the Link Road Connecting Hulhulé and Hulhumalé Project (and a separate loan agreement with Seylan Bank). The disbursement of the loan was made on December 26, 2019. The loan was obtained for a duration of 24 months, and it was repayable in monthly installments from the date of disbursement; interest was charged and payable on a monthly basis at a rate of 10% per annum.

Additional details

1. The project was developed in connection with the construction of the China Eximbank-financed Sinamalé Bridge (China-Maldives Friendship Bridge) between the southern end of Hulhulé and the southeast coast of Malé (see Project ID#38082 and #38037). 2. This project is also known as the Airport Link Road Project, the Hulhulé-Hulhumalé Link Road Project, and the Hulhule-Hulhumale Link Road Project, and the Airport Link Road Project. 3. AidData has estimated the all-in interest rate by adding 3% to the average 6-month LIBOR rate in January 2018 (1.907%). 4. Some reporting suggests that the contractor was to bear all the costs of the project, and then be reimbursed by the Government of Maldives at a later date. This issue requires further investigation. 5. The loan repayments were scheduled to commence upon the date falling on the first day after the expiration of the grace period, and the principal of (and interest on) the loan was to thereafter be payable for a period of 9 years in 18 bi-annual, equal, consecutive installments coinciding with each interest period (of 6 months). 6. The amounts outstanding and repayments data are drawn from https://www.dropbox.com/s/q82x5hte85kc20e/105._Statement_of_Government_Guarantees_Audit_Report_2021.pdf?dl=0 and https://www.dropbox.com/s/rik8ynrjweat5aw/StatementOfGovernmentGuaranteesFinancialYear2020%20%281%29.pdf?dl=0

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10

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23