China Eximbank contributes $130 million to $659 million syndicated loan for Port Elizabeth II Upgrading and Expansion Project (Linked to to Project ID#62222, #62223)

On March 25, 2015, the Government of the Republic of Sierra Leone signed a framework agreement with a consortium of Chinese companies — consisting of Tidfore Heavy Equipment Group Co., Ltd., China Integrity International Oceaneering, Co., Ltd., Tidfore (Tianjin) Oceaneering Equipment Co., Ltd., and Tianjin Jinhao International Trade Co., Ltd. — regarding the design and construction of the works necessary for the expansion and upgrading of Port Elizabeth II in Freetown Port (also known as ‘Queen Elizabeth II Port’). Then, on September 15, 2017, the Sierra Leone Ports Authority, the National Commission for Privatization of the Republic of Sierra Leone, the Government of the Republic of Sierra Leone, Sky Rock Management Limited, and National Port Development (SL) Ltd. signed a concession agreement in connection with the Upgrade and Expansion of the Queen Elizabeth II Port in Freetown. The agreement granted National Port Development (SL) Ltd. (塞拉利昂共和国国家港口发展有限公) — a project company and special purpose vehicle (SPV) — the right to expand, upgrade, and operate Queen Elizabeth II Port for 25 years. On November 29, 2017, the Industrial and Commercial Bank of (ICBC) and the Export-Import Bank of China signed a $659 million syndicated facility (loan) agreement with National Port Development (SL) Ltd. for the Port Elizabeth II Upgrading and Expansion Project. Of the total $659 million (captured via Umbrella Project ID#62222), China Eximbank contributed $130 million (captured via Project ID#62224) and ICBC contributed $529 million (captured via Project ID#62223). The syndicated loan carries the following borrowing terms: a 15-year maturity, a 4-year grace period, an interest rate of LIBOR plus 350 basis points, a 2% default (penalty) interest rate, and a commitment fee of 0.5%. The loan is secured by (i.e. collateralized against) project revenues/port development levy fees deposited in a lender-controlled bank account, the proceeds from the borrower’s Sinosure credit insurance policy, Sky Rock Management Ltd.’s equity stake (shares) in the project company [National Port Development (SL) Ltd.], project machinery and equipment, and all movable assets (tangible or intangible) of the concessionaire in connection with the ‘New Port’ (as defined in the concession agreement and AidData’s ‘Staff Comments’). Sierra Leone’s Ministry of Finance and Economic Development issued a sovereign guarantee for the loan, and the borrower was required to use part of the loan proceeds to purchase a credit insurance policy from China Export & Credit Insurance Corporation (Sinosure), which insures 95% of the facility plus accrued interest against political and commercial risk. The proceeds of the loan were to be used by the borrower, National Port Development (SL) Ltd., to finance a $708,295,101 commercial contract that it signed with a consortium of Chinese companies -- consisting of Tidfore Heavy Equipment Group Co., Ltd. (泰富重装集), China Integrity International Oceaneering, Co., Ltd., Tidfore (Tianjin) Oceaneering Equipment Co., Ltd., and Tianjin Jinhao International Trade Co., Ltd.-- which was signed on March 8, 2017 and amended on November 29, 2017. In order to facilitate loan repayment, Tidfore will collect a ‘development levy fee,’ which will be charged over and above the usual port handling charges. This fee is expected to generate $950 million over a 16 year period. Sierra Leone’s Ministry of Finance and Economic Development has reportedly flagged that this fee could raise the cost using the port to such a high level that shippers will avoid using it, thereby leading to an overall loss of revenue and threatening the borrower’s ability to repay the loan (thus raising concerns about the Government of Sierra Leone’s contingent liability). The purpose of the Port Elizabeth II Upgrading Project is to renovate the facilities at Queen Elizabeth II Quay in Freetown, which is operated by Sierra Leone Ports Authority. It involves the design and construction of four new terminals and yards for the quay. A formal groundbreaking ceremony took place on November 29, 2017, and construction began in December 2017. This project has become a source of local controversy and scrutiny. In 2018, the implementation of the project was reportedly halted (at least temporarily) after reports emerged that the legal entity responsible for the project—National Port Development (SL) Ltd.—was owned by Israeli businessman who had generously contributed to the President of Sierra Leone’s reelection campaign during the previous year. The IMF also sounded the alarm after learning that Sierra Leone’s Ministry of Finance issued a sovereign guarantee in support of a syndicated loan, which placed an extraordinarily large contingent liability (worth 15% of the country’s GDP) on the government’s books.

Additional details

1. This project is also known as the Queen Elizabeth II Quay Upgrading Project. The Chinese project title is 重装塞拉利昂弗里敦伊丽莎白二世港改扩建工程建 or 塞拉利昂弗里敦伊丽莎白二世港改扩建工程建 or 弗里敦伊丽莎白二世港口改扩建工程 or 非洲塞拉利昂港口改扩建项目 or 弗里敦伊丽莎白二世港改扩建 or 弗里敦伊丽莎白二世港改扩建. 2. AidData has estimated the all-in interest rate (5.126%) by adding 3.5% to average 6-month LIBOR rate during the month (November 2017) when the loan agreement was finalized (1.626%). 3. This loan is not included in the database of Chinese loan commitments that SAIS-CARI released in July 2020. 4. No sources explicitly state that this is a buyer's credit loan. AidData assumes this is the case for the following reasons: (1) The loan is provided to a foreign borrower, (2) the loan is denominated in USD, (3) the face value of the loan is explicitly identified in multiple official sources, (4) the loan is used to finance a commercial contract with a Chinese company, and (5) the loan was insured by Sinosure via its export buyer's credit insurance service, which is specifically used when banks are providing buyer's credit financing. 5. The syndicated loan agreement can be accessed in its entirety via https://www.dropbox.com/s/9s9cun72yezhkds/ICBC%20Facility%20Agreement%20with%20National%20Port%20Development%20%28SL%29%20LTD..pdf?dl=0. 6. The EPC contract can be accessed in its entirety via https://www.dropbox.com/s/vmrr5kscclmga0d/EPC%20Contract.pdf?dl=0. 7. The concession agreement can be accessed in its entirety via https://www.dropbox.com/s/asxeufc4d8ekfhp/Concession%20Agreement%20No.354.pdf?dl=0. 8. The Facility Agreement references the following Security Documents: (a) Share Pledge Agreement: Sky Rock Ltd., the foreign investor, enters a share pledge agreement ‘in respect of their shares in the Borrower in favour of the Security Agent, in form and substance satisfactory to the Facility Agent’ (p. 18). The Share Pledge Agreement is separate from the Facility Agreement and not publicly available, so it is unknown under what circumstances ownership in the project company could be transferred from the foreign investor to the creditors. (b) Mortgage over Assets: The Borrower enters a mortgage agreement over ‘equipment and other assets of the Borrower in relation to the Project […] in favour of the Finance Parties, in form and substance satisfactory to the Facility Agent’ (p. 13). The Mortgage Agreement is separate from the Facility Agreement and not public, so it is unknown which assets are pledged. (c) Other security documents which evidence or create ‘security over any asset of the Borrower to secure any obligation of the Borrower under the Finance Documents’ (p. 17). Since no other security documents are publicly available, no further details are known. In addition to the Security Documents, the Facility Agreement references an Account Agreement. Again, this is a separate document that is not publicly available. Cross references in the Facility Agreement show that ICBC and China Eximbank can designate ‘a bank outside the jurisdiction of Sierra Leone’ at which the ‘Bank Accounts are opened and maintained’ (p. 1). The conditions of utilization further reveal that the Borrower is required to transfer project revenue into this account so that the account balance at all times meets the minimum debt service coverage of ‘all principal scheduled to be paid and all interested expected to be payable under the Facility on the next Interest Payment Date’ (p. 16). In addition, the repayment of the loan is fully guaranteed by Sierra Leone’s Ministry of Finance. In particular, the Ministry ‘guarantees to ensure that if […] the balance of the Borrower Collection Account falls to an amount that is less than is required to meet the next Scheduled Debt Service payment […], the Guarantor shall pay, or procure to be paid, into that account, such amount as may be necessary to ensure that the balance of the account is equal to the amount of the next Scheduled Debt Service payment’ (p. 143). The Concession Agreement specifies that ‘the Concessionaire shall be entitled to create Security over its rights, title, and interest in the Port Development Levy Fees and the New Port Assets in favor of the Finance Parties for the purpose of the Financing provided that any such Security shall not continue for a period exceeding the Concession Term. The Concessionaire may enter into all such transactions, and may become party to the related debt obligations that may be evidenced or secured by the Finance Documents.’ Through the agreement, the Government of Sierra Leone granted the Concessionaire ‘a first ranking Security over all Port Development Levy Fees and New Port Assets.’ The concession agreement defines the ‘New Port’ as ‘four (4) Berths, and container, bulk Cargo or vehicle handling facilities (including quay walls and other infrastructure and superstructure and all fixtures, fittings and machinery, apparatus, equipment and any other moveable assets of any nature), navigation and navaid facilities, storage yards or warehouse, or any ancillary or auxiliary works relating to such Berths to be developed and constructed by the Concessionaire at the Queen Elizabeth II Quay in Freetown Siena Leone’; ‘New Port Assets’ as ‘any and all machinery and equipment attached to the land within the Exclusive Area and all movable assets (tangible or intangible) of the Concessionaire in connection with the New Port’; the ‘Existing Port Development Levy Fee’ as ‘the fees charged by the Concessionaire to the Existing Port Carriers in connection with the use of the Existing Port by the Existing Port Carriers in accordance with the terms of this Agreement and the Existing Port Development Levy Fee Act; the ‘New Port Development Levy Fee’ as the fee charged by the Concessionaire to the New Port Carriers in connection with the transhipment of containers, bulk Cargos or vehicles at the New Port by are New Port Carriers in accordance with the term of this Agreement and the New Port Development Levy Fee Act’; ‘Port Development Levy Fees’ as ‘the Existing Port Development Levy Fee and the New Port Development Levy Fee’; and ‘Security’ as ‘mortgage, charge, pledge, lien, or other security interest securing any obligation of any Person or any other agreement or arrangement having a similar effect.’ The Government of Sierra Leone granted the Concessionaire ‘a first ranking Security over all Port Development Levy Fees and New Port Assets’. The Concession Agreement also specifies that the lenders all have security over the ‘insurance proceeds until all sums due and owing by the Concessionaire to the Finance Parties shall have been paid in full.’ 9. Sky Rock Management Limited’s office is in Singapore, but it is a limited liability company incorporated under the laws of the British Virgin Islands with the BVI company number of 1911926. National Port Development (SL) Ltd is an LLC that was legally incorporated in Sierra Leone. It is owned Sky Rock Management Ltd.

Number of official sources

17

Number of total sources

31