China Merchants Port Holdings Company Limited provides provide 6-month maturity extension on $150 million supplier's credit for Djibouti International Free Trade Zone (DIFTZ) Expansion Project (Linked to Project ID#85139, 59393)

On March 24, 2015, Hu Jianhua, General Manager of China Merchants Group (CMG), and the President of Djibouti signed a cooperation framework agreement for a free trade zone (FTZ). Then on January 18, 2016, CMG and the Djibouti Port and Free Trade Zone Authority (DPFZA) held a signing ceremony for a framework agreement for the Djibouti International Free Trade Zone (DIFTZ) Expansion Project. CMG then signed a project contract on January 15, 2017. Three days later, on January 18, 2017, Khor Ambado Free Zone Co. (FZCO or Djibouti Asset Company) — a special purpose vehicle and joint venture between Port of Dalian Authority Group (10% equity stake), China Merchants Shekou Industrial Zone Holdings (招商局蛇口工业区控股股份有限公司) (6% equity stake), China Merchants Investment Development Co., Ltd (CMID) (12% ownership stake), China Merchants Port Holdings Co., Ltd (12% ownership stake), and the Djibouti Ports & Free Zones Authority (DPFZA) (60% equity stake) — was established (legally incorporated) to develop commercial and infrastructure projects within the Djibouti International Free Trade Zone (DIFTZ). Then, on November 10, 2017, China Merchants Port Holdings Company Limited (CMP) issued a $150 million supplier’s credit (‘CMP Loan Facility’) agreement with Khor Ambado Free Zone Co. for the Djibouti International Free Trade Zone (DIFTZ) Expansion Project. The CMP loan, captured via Project ID#59393, carried the following borrowing terms: a 5% annual interest rate, a 1.25-year maturity (with the option to extend the maturity by 8.75 additional years), and no grace period. The Government of Djibouti — through the state-owned Djibouti Port and Free Trade Zone Authority (DPFZA) — issued a sovereign guarantee for repaying the supplier's credit. The loan was collateralized by a share pledge over 15.3% of the shares held by Great Horn Investment Holdings SAS (a subsidiary of DPFZA) in a China-Djibouti joint venture called Port De Djibouti S.A., which is co-owned the Government of Djibouti (76.5% equity stake) and China Merchants Port Holdings Company Ltd. (23.5% equity stake). Khor Ambado Free Zone Co. used the supplier's credit (loan) facility to on-lend to Port De Djibouti S.A. (PDSA). Then, in 2019, China Development Bank and Khor Ambado Free Zone Co. signed a $240 million loan agreement (ID#4430201901100002407) for the Djibouti International Free Trade Zone (DIFTZ) Expansion Project. The CDB loan, which is captured via Project ID#85139, carried the following borrowing terms: a 13 year maturity and a 3 year grace period. China Merchants Shekou Industrial Zone Holdings Co., Ltd. provided a loan guarantee worth $14.4 million (6% of $240 million CDB loan). The Government of Djibouti provided a sovereign guarantee for 60% of the face value of the loan ($144 million). The DIFTZ is a 40-hectare zone that consists of three functional blocks located close to all of Djibouti’s major ports. The purpose of the DIFTZ is to support industries such as the logistics, marine, construction, automotive, and home electrical industries. It is equipped with advanced facilities including high-speed telecommunications, power and water supplies, roads and parking lots. The pilot zone has four industrial clusters which focus on trade and logistics, export processing and business support: (1) Logistics Industry Cluster: transportation, bonded warehousing, logistics and distribution; (2) Business Industry Cluster: bulk bonded goods transactions, merchandise display, duty-free merchandise retail; (3) Business Support Cluster: financial services, information services, hotel dormitories, office buildings, training, intermediary services; and (4) Processing Manufacturing Cluster: packaging production, light processing of incoming materials, food processing, marine products, auto parts assembly. China Merchants Holdings (Djibouti) FZE (“CM Djibouti”) was the company responsible for project implementation. On January 16, 2017, Djiboutian President Guelleh and General Manager of China Merchants Group Hu Jianhua unveiled the launch area and laid a foundation stone for the DIFTZ expansion project. The first phase of the project, which involved upgrading and expanding the port facilities of DIFTZ, was officially opened on July 5, 2018. There are some indications that the $150 million CMP loan for the DIFTZ expansion project financially underperformed vis-a-vis the original expectations of the lender. In September 2018, the Government of Djibouti nationalized the Dolareh Container Terminal (DCT), an asset held by PDSA. The change in DCT ownership affected PDSA's expected profits because PDSA's profits included dividend receivables from DCT. As a result, the potential chargeable interest on the CMP loan facility, which would be determined in part by PDSA profits, was rendered invalid. The DCT nationalization also affected DPFZA's share pledge value. On November 9, 2018, CMP extended the loan's final maturity date by another 6 months (as captured via Project ID#97763).

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