Narrative
Full Description
Project narrative
In 2011, Sea Ports Corporation (SPC) — a Sudanese state-owned company — and China Harbour Engineering Co. Ltd (CHEC) signed an EUR 67.2 million deferred payment ("延期付款”) agreement for the Marsa Shaikh Ibrahim Livestock Port Construction Project. The loan carried an 10-year maturity and the borrower (SPC) was expected to make monthly repayments with the retained (ring-fenced) portion of its monthly operating income. The other borrowing terms of the loan are unknown. However, is is known that SPC used the deferred payment arrangement to finance an EUR 70.24 million commercial (EPC+F) contract that it signed with China Harbour Engineering Co. Ltd. The purpose of the project was to construct a 20,000-ton (DWT) livestock wharf berth, measuring 241 meters in length, in South Suakin (Sawakin) — known as the Marsa Sheikh Ibrahim (or Marsa Shaikh Ibrahim or Mersa El-Sheikh Ibrahim) livestock terminal — capable of export 7 million livestock per year. The project scope also included water works, dredging works, some civil engineering works and other supporting facilities. CHEC was the contractor responsible for implementation. Phase 1 implementation commenced in 2011. However, due to SPC’s financial difficulties, construction was temporarily suspended. Construction restarted in May 2015. Phase 1 was officially completed on December 7, 2017. The Shaikh Ibrahim livestock terminal went into operation in 2019. However, the deferred payment (lending) arrangement between SPC and CHEC appears to have underperformed vis-a-vis the original expectations of CHEC. Sudan’s Ministry of Finance initially set up a special bank account into which SPC deposited its monthly operating income (worth approximately $200 million a year), and SPC was allowed to retain some but not all of these funds for its own purposes (such as construction and maintenance of port facilities and servicing its debts to CHEC). However, Sudan’s Ministry of Finance subsequently took away SPC’s ability to retain a portion of its monthly income around 2011 (when the Sudanese Government faced an acute foreign exchange shortage), which made it substantially more difficult for SPC to honor its monthly repayment obligations. CHEC later disclosed that SPC was in arrears but continued to make interest payments. Then, in July 2018, the parent company of CHEC (China Communications Construction Company, Ltd.) disclosed that a debt-to-equity swap would be undertaken to address the financial (repayment) difficulties of SPC. Under the terms of the debt-to-equity swap arrangement, a special purpose vehicle known as Sudanese & Chinese Marine Services, LLC (苏丹牲畜码头项目公司) would be established as a joint venture of SPC (51% equity stake) and CHEC (49% equity stake). Then, after the completion of the Marsa Shaikh Ibrahim Livestock Port Construction Project, part of the creditor's rights of CHEC (worth EUR 20.3 million) would be purchased from CHEC and converted into equity.
Staff comments
1. This project is also known as the Port Sudan Livestock Wharf Project. The Chinese project title: 苏丹牲畜码头项目. 2. In a typical receivables financing agreement (or deferred payment agreement), the company that the project owner in the host country has selected as its engineering, procurement, and construction (EPC) contractor is also a lender to the project owner. The company assigns receivables under its EPC contract with the project owner to one of or more banks. Upon assignment of receivables, the bank or banks will release funds to the company so it can discharge its obligations under the receivables financing agreement as a lender. Receivables financing is also known as accounts receivable financing (finance) or A/R financing (finance) or 应收账款融资 (in Chinese). These other terms are used because the accounts receivable of a company (i.e., unpaid invoices) are being used as collateral to unlock working capital—typically in the form of a bank loan (‘receivables loan’). Sellers often face cash flow problems when their buyers do not make full payment at the due date of the invoice. A receivables financing arrangement addresses this problem by allowing them to sell their outstanding invoices to a bank at a discounted rate. This approach allows the seller to receive the remaining invoice amount before the due date of the invoice. The bank either gets its money back at invoice maturity through the seller (acting as a collecting agent) or directly from the debtor. 3. In Chinese, a deferred payment agreement is known as《延期付款协议》. 4. SPC Contact: Mr. Jalal Eldin. M.A. Shelia (General Manager) Tel: +249912308514 Email: spcp@sudanmail.net; Spcp21@sudanports.gov.sd; spc_dmea@yahoo.com. 5. Sea Ports Corporation (SPC) is an independent state corporation of Sudan that governs, constructs and maintains the ports, harbors and lighthouses of Sudan. The company was founded in 1974 by the government of Sudan to be the national port operator and port authority. 6. This loan is not included in the SAIS-CARI database of Chinese loan commitments that was released in 2020 and re-released in 2021.