OCTOBER 2019

PROJECT FINANCE IN
VIETNAM
Focus on Renewable Energy
PRINCIPLES OF PROJECT FINANCE
Overview of Project Finance

Project Finance Structure

ECAs / Multilaterals / Corporate(s) or
DFIs Sponsor (s)
Guarantor of
selected risks Limited Recourse

Project Project Specific Purpose

Lenders Finance Loan Special Purpose
Project Assets
Vehicle

Repayment is primarily from Project’s cashflow Financing structure and finance documentation is tailored to the Project

▪ Limited recourse to corporate and sponsors ▪ Structuring of the project asset to achieve financing objectives such as:
▪ Guarantee only in certain events such as delay in ▪ Specific conditions to enable dividends distributions to Parent Co
project commissioning
▪ Tailoring of finance/project documents to achieve proper risk
▪ Assets are ring-fenced from Sponsors allocation amongst project entities
▪ Analysis focus on debt servicing capability of ▪ Different covenants depending on asset class/type and/or location
asset’s cash flow
▪ Lenders hold security of underlying assets
▪ Long-tenor achievable in comparison to corporate lending
▪ Higher leverage (70 to 80%) can be achieved

2
KEY RISK ALLOCATION IN RENEWABLE PROJECTS

SPONSORS
Wind/solar resource risk,
Reliability past warranties,
Back-end power price risk,

CONTRACTOR/EQUIPMENT
SUPPLIER
DEVELOPER
Cost overrun, Delay,
Construction risk,
Equipment performance,
Development risk
Project performance (excl
PROJECT resource)
Allocates major risk to
different stakeholders via
contracts

POWER PURCHASER
OPERATOR
Inability to pass cost to end
Cost overruns, Plant
customers, Power pricing
performance
risk, Demand risk
LENDERS
Loss through massive
underperformance, Interest
rate risk (hedging)

3
VIETNAM
RENEWABLE
LANDSCAPE
VIETNAM POWER MARKET

Vietnam Energy Mix Forecast

2018 (47GW) 2020 (60GW) 2025 (96GW)
3% 1% 2% 2%

Hydropower 2% 11% 12%

21%
Coal-fired power plants 30%
21% 38%
Gas-fired power plants 15% 16%
Renewable energy
Oil fired power
Imported power 49%
34% 42%

Vietnam Power Capacity Expansion (in MW) Vietnam Power Capacity Expansion (in Billions kWh)

60,000.00 700
50,000.00 2020 2025 2030
600
40,000.00
30,000.00 500
20,000.00
400
10,000.00
- 300
Biomass
Wind Power

Import
Pump Storage

Coal-fired Thermal Power

Large & Medium Hydro

Small Hydro Power Plant

Solar Power

Gas Turbine

200
Power Plant

100
Plant

0
2020 2025 2030

Low Forecasts High Forecasts

Source: EVN Annual Report, Direction du Trésor au Vietnam, Power Development Plan VII revised, Reuters

5
OVERVIEW OF RENEWABLES FINANCING IN VIETNAM

Financing Dynamics for Renewables in Vietnam

▪ Limited number of Project Financing in Vietnam. Notable private financed power generation projects include Phu My 2.2 Gas-fired CCPP, Phu My 3 CCPP,
Mong Duong Coal-Fired Power Project, Vinh Tan Coal-Fired Power Project, Van Phong Coal-Fired Power Project and Da Mi Floating Solar

▪ Till date, there has been no non-recourse project financing in the renewable sector

▪ Dependence on domestic commercial and development banks

▪ The electricity sector in Vietnam is mainly financed by the domestic banks, typically on a recourse basis and/or with a guarantee provided by the
Sponsors

▪ Domestic banks are limited by their experience in Project Financing and ability to provide long tenor loans

▪ Increasing interest by international banks, but limited by structural issues

▪ International banks have the appetite to provide longer tenor loans and undertake construction risk. All previous long-term international
commercial financings have mostly been done under the cover of ECAs or multilaterals

▪ Appetite limited by issues in the PPA

▪ Bond market – a long term consideration?

▪ First project bond issuance with a 10-year tenor from Vietnam was issued by Mong Duong 2 Project in Jul-19

6
LIQUIDITY SOURCES IN PROJECT FINANCING

Domestic
Multilaterals Development
Untied ECA Tied ECA Commercial
A/B Loan + EPRG Agencies
Banks

◼ Up to 21 years in ◼ Max 14 year repayment ◼ Up to 20 years, ◼ Up to 20 years, ◼ 7 to 12 years

Tenor neighbouring countries (7.25 average loan life) dependent on PPA dependent on
PPA

◼ Could consider with no ◼ Comprehensive cover ◼ Umbrella/EPRG effect ◼ Strong PF ◼ Could consider
MOF guarantee (but increases commercial increases commercial experience uncover loans
prefer to be in line with bank capacity bank capacity ◼ Moderate
other ECAs) ◼ Appetite and experience ◼ Lending experience in experience in PF
Pros ◼ Large capacity in Vietnam Vietnam but improving on
◼ Increased flexibility and renewable
significant interest from projects
commercial banks

◼ E&S requirements ◼ Smaller ◼ Shorter tenor.

◼ Limited flexibility individual ticket ◼ Smaller individual
◼ Long execution process & extensive due diligence process ◼ Long execution ticket.
process and ◼ Expected high
extensive due cost of USD
Cons ◼ Upfront premium for ECA ◼ Upfront premium. ◼ Capacity constraint by diligences funding
cover ◼ OECD guidelines limiting internal rules
eligibility and tenor ◼ May want to involve
commercial lenders

7
PROBABLE PROJECT FINANCE STRUCTURE IN VIETNAM
VIETNAM OFFSHORE

Sponsors

ECAs/ MLAs / Private insurers

Insurance Agreement
Insurers Reinsurers

Land lease
Agreement Land Lease
Agreement

Project
Company

EVN
Power Purchase Lenders
Agreement Loan

EPC
contracts
Onshore EPC Offshore EPC

8
BANKABILITY CONSIDERATIONS FOR VIETNAM PPA

Risk Factors Potential Mitigants

No deemed dispatch if COD delay due to EVN’s ◼ Insurance

Deemed Dispatch &
delay, or curtailment by EVN due to EVN’s grid ◼ Provisioning of a reserve account
Curtailment
issues ◼ Extensive technical due diligence

◼ ECA/MLAs cover
Credit support Counterparty risk on EVN ◼ Private insurance for lenders
◼ Government support

Termination payment amount to one year of ◼ ECA/MLAs cover

revenue.
Termination Payment ◼ Private insurance for lenders
In the latest PPA revision, wind PPAs are silent
on termination payment ◼ Government support

Governing Law and ◼ Improvement of relevant clauses in the PPA to

PPA governed by Vietnamese law
Dispute Resolution avoid arbitration

9
OTHER BANKABILITY CONSIDERATIONS IN VIETNAM

1 Currency convertibility risk

Currency mismatch between VND PPA payments and USD debt service payment. The larger the debt, the
greater the risk for the lenders

2 Construction Risk
Lenders would require the risk to be sufficiently transferred to EPC contractors via liquidated damages

3 Operation and Maintenance

Level of warranties, liquidated damages and performance guarantees would be scrutinized by lenders.

4 Environmental considerations
Lenders would require the project to adhere to international standards such as equator principles. ECAs or
multilateral agencies might have more stringent requirements.

10
DISCLAIMER

This document has been prepared at your specific request by Societe Generale Corporate & Investment Banking, a division of Societe Generale (“SG”),
exclusively for the benefit and internal use of its client.
In preparing this document, SG has used information available from public sources. No express or implied representation or warranty as to the
accuracy or completeness of such information is made by SG, or any other party. The contents of this document are subject to amendment or change
at any time and SG will not notify the Company of any such amendment or change. SG has neither performed nor obtained any independent
verification of information obtained from external sources. No responsibility or liability (express or implied) is accepted for any errors, omissions or
misstatements by SG except in the case of fraud or any other liability which cannot lawfully be excluded.
Any views, opinions or conclusions contained in this document are indicative only, are not based on independent research and do not represent any
commitment from SG. This document and any expressed interest of SG in providing advisory services or arranging or of SG in providing finance, or
entering into any other transactions do not constitute any offer of such services or such finance or any commitment from SG to enter into any other
transactions, such an offer being subject to contract, the completion of satisfactory due diligence and all necessary credit, management and other
approvals being obtained.
The commercial merits or suitability or expected profitability or benefit of any transaction described in this document to the Company's particular
situation should be independently determined by the Company. Any such determination should involve an assessment of the legal, tax, accounting,
regulatory, financial, credit and other related aspects of any such transaction, based on such information and advice from the Company's own
professional advisers and such other experts as the Company deems relevant. SG shall not be liable for the content of, or any failure by the Company to
obtain, such information and advice.
This document has been prepared solely for persons it has been distributed to directly by SG CIB. This document is to be treated in the strictest
confidence and is not to be disclosed directly or indirectly to any third party. It is not to be reproduced in whole or in part, nor used for any purpose
except as expressly authorized by SG CIB.
This document is issued by Societe Generale Singapore Branch. Societe Generale is a French credit institution (bank) authorised by the Autorité de
Contrôle Prudentiel et de Résolution (the French Prudential Control and Resolution Authority).

11
THE FUTURE
IS YOU