Bank of Communications participates in $975 million syndicated loan for Phase 1 of Chancay Multipurpose Port Terminal Construction Project

Project narrative

On February 10, 2021, Peru's National Port Authority (Autoridad Portuaria Nacional or APN) signed a concession agreement with COSCO SHIPPING Ports Chancay Perú S.A. (CSP Chancay), granting it the exclusive right to operate a new, multipurpose seaport in the small coastal city of Chancay (located 78 km north of Lima). Then, on March 28, 2023, a syndicate composed of Bank of China (Hong Kong) Limited, the Shanghai Branch of Bank of China Limited, the Grand Cayman Branch of Bank of China Limited, Bank of Communications Co., Ltd, the Shanghai Pilot Free Trade Zone Branch of China Minsheng Banking Corp., Ltd, and Shanghai Rural Commercial Bank Co., Ltd, signed a $975 million syndicated term facility (loan) agreement with CSP Chancay -- a special purpose vehicle that is 60% owned by COSCO SHIPPING Ports, a Hong Kong listed company, and 40% owned by Volcan Compañía Minera S.A.A. (Volcan), a Peruvian listed company — for Phase 1 of the Chancay Multipurpose Port Terminal Construction Project. The loan carried a 15 year maturity and an interest rate of SOFR rate (simple daily average) plus 1.93% margin. It was secured by (i.e. collateralized against) shares of CSP Chancay, an all-assets pledge, an accounts pledge, a land and concession mortgage, and direct agreements with project contractors. The loan proceeds were to be used for by the borrower to cover 72.22% of the $1.3 billion cost of Phase 1. The Port of Chancay is located about 58 km north of Lima. It is a natural deep-water harbour, which will allow the handling of cargo through a port operational zone, an entrance complex and an underground viaduct tunnel. It is intended to be Peru's first private port for public use. It is a deep water port, with a maximum water depth of 17.8 meters and will be able to handle ultra-large container ships. It will be multipurpose, able to handle all types of cargo: containerized, general, non-mineral bulk, liquid, and rolling. The overall project contains three major sections: the port operational zone where the port activities themselves occur, an entrance complex, and an underground 1.8km viaduct tunnel that connects the two. Phase 1 is expected to take up 141 hectares and have a total designed annual throughput of 1 million TEUs. It will include, in the port operational zone, the maritime approach and maneuvering channels for ships; the shelter breakwater south of Punta Chancay; and the first 4 berths (docks). Berths 1 and 2 will be part of the Bulk, General Cargo and Rolling Terminal. More specifically, Berth 1 will be a multipurpose dock to handle solid/liquid bulk and rolling cargo, while Berth 2 will focus on general cargo and non-containerized loose cargo ships, as well as Ro / Ro type ships for rolling cargo. Berths 3 and 4 will be specialized to serve container ships. Per the project website, ‘they will have modern high-tech equipment for loading, unloading and transfer of containers, storage yards, administrative areas, service areas and the workshops that are required for the efficient operation of the terminal.’ Phase 1 will also include the construction of the 1.8 km underground viaduct tunnel and an access road interchange from the Pan-American highway to the entrance complex's vehicular foreport. Shanghai Zhenhua Heavy Industries Co., Ltd (ZPMC) was contracted to provide port machinery equipment for Phase 1, three portal cranes for Berth 1 and 2 and six remote-controlled STS cranes and 15 double cantilever automated stacking cranes (ASCs) for the container berth. The Chancay Port terminal has gone through several iterations. Preliminary design and feasibility studies began as early as May 2008, with designs changed in January 2013 and July 2015. Preliminary works and earthworks began in May 2016 but stopped in April 2018. Shortly after, in June 2018, the project was redesigned, with a larger capacity port envisioned. Then, in January 2019, COSCO signed the investment agreement to acquire its 60% stake in the project's SPV, officially becoming the majority owner on May 13, 2019. In June 2019, construction on the tunnel portal and a camp for 1500 project workers began, completed by December 2020. This was followed by the beginning of construction of the tunnel and access roads in March 2021 and the port's operational zone itself in May 2021. Peru's National Port Authority granted the Port Qualification on February 11, 2021. The terminal is expected to be fully operational by November 2024 — ahead of Xi Jinping’s expected visit to Peru for the Asia-Pacific Economic Cooperation (APEC) summit that month. Five double-cantilever automated rail cranes (ARMGs) from ZPMC were delivered in June 2024. Three bulk cargo portal cranes and three portal cranes from ZPMC were delivered in July 2024. Three rail-mounted gantry cranes and six portal crane hoppers from ZPMC were delivered in August 2024. The port was officially inaugurated on November 14, 2024. The project has also been subject to some controversy. Despite an initial Environmental Impact Study (EIS) being approved in December 2013 and an amendment to the EIS (referred to as MEIA-d for its Spanish-language name) for the updated port design being approved on December 22, 2020, concerns about potential environmental impacts were voiced by local residents. Additionally, several social and environmental organizations have argued that many issues raised (by both authorities and civil society groups) prior to the approval of the updated MEIA-d were not adequately addressed by the company. Concerns from residents and civil society groups include the contamination of the nearby Santa Rosa wetlands, negative impacts on air quality via the expulsion of toxic PM10 and PM2.5 dust, effects of dredging and sediment discharge, and noise pollution. A group of citizens appealed the updated MEIA's approval by the National Environmental Certification Service for Sustainable Investments (SENACE), but SENACE rejected the appeal in March 2021. As early as March 2017, residents additionally reported damage to their homes as a result of vibrations from pre-construction and earthworks activities. CSP Chancay reportedly has paid for some minor repairs to local homes following complaints, but, as of a May 2021 report, residents indicated that the damage was continuing. In March 2024, APN asserted that CSP Chancay was mistakenly granted exclusivity to operate the Chancay multipurpose port terminal, which in turn led to a proposal to open the facility to other companies offering similar operational services. Carlos Tejada, the Adjunct General Manager of CSP Chancay, responded by conveying the concerns of CSP Chancay shareholders to a congressional committee. He warned that regulatory and policy uncertainty could jeopardize financing for future stages of the port development project. He also noted that CSP Chancay's Chinese lenders had registered concern because the exclusive operator status of CSP Chancay is crucial for the port's business model (as it would allow the company to generate revenue by charging for services such as loading and unloading shipping containers). Chinese lenders also reportedly warned that a shift to a multi-operator model, as proposed by Peruvian authorities, could reduce the revenues of CSP Chancay, thereby impacting the project's financial viability and the return on investment for CSP Chancay's shareholders. Then, in June 2024, ahead of Peruvian President Dina Boluarte's five-day tour of China (that includes a meeting with Xi Jinping in Beijing), the Government of Peru formally withdrew its legal petition to block CSP Chancay from having exclusive rights to operate the Chancay Multipurpose Port Terminal. The Government of Peru attributed the dispute to an 'administrative error.'