Kwale Sugar plantation

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The project involved the development of the Kwale Sugar plantation which consists of a greenfield sugar plantation, a sugar refinery and a 18MW cogeneration plant run on baggasse, a by-product of cane. On completion the project would have a capacity of 3,000 tons of cane per day. The sponsor was a joint partnership between the sugar trading Pabari Family Investment Trusts (75%) and Mauritian sugar miller Omnicane (25%). The power plant was being built by Indian contractor Isgec. In July 2013, Kwale International Sugar Company Ltd (KISCOL) reached financial close on its US$200 million project, the first of its kind in the country. A consortium of banks led by Standard Banks Stanbic agreed financing of US$120 million, split into US$100 million over a nine-year tenor and the remaining US$20 million over a 12-year tenor. The debt to equity ratio was 60/40. Stanbic was joined by local development bank PTA. Standard Mauritius provided US$15 million, Standard Bank Kenya provided US$22.5 million, PTA provided US$20 million and the balance was divided between a combination of Mauritian and Kenyan banks. The pricing was Libor plus 700bp on the nine-year loan and Libor plus 600bp on the 12-year, with a floor of 10%. It was a dollar transaction with no real currency risk. Stanbic arranged the floating to fixed interest rate hedging. As was typical for project finance transactions in Kenya, the banks received a direct agreement and a letter of comfort from the government. Stanbic mitigated some of this risk through a cash sweep that came into place once market prices and covered ratios reach a certain level. Based on the boom-bust nature of sugar prices, the cash sweep would work when sugar prices rose as well as fall. The mechanism essentially flattened out the commodity cycle and offered protection to the lenders from the first day of operation. The risk on the sugar supply was also balanced with considerable due diligence on the sponsor. Omnicane had experience in the sugar industry but the project was its first in the Kenyan market. The lenders also built in quite a conservative model on their base case sugar supply, ensuring it was robust to market movements and shock weather conditions. The interface between the three separate project components (sugar farm, refinery and power plant) was understood to have posed some challenges to the project before Omnicane and Standard Bank came onboard two years ago. Water availability was also a crucial element to sugar production, and this required various dams to be either improved or built, along with night storage facilities, to provide water for irrigation of the estate. As a result, a lot of new documentation was needed around all the various EPC components. Freehills was adviser to the banks. About 10MW of the power produced would be used by the sugar refinery, with the remainder of 8MW to be sold to Kenya Power. Given the limited capacity of power being sold to the grid, there was no power purchase agreement (PPA) on the project. It was understood the project company planned to sell 80% of the sugar in the domestic market with rest being shipped to outlets in Comesa and international markets. However, given the unpredictable nature of sugar cultivation there was no guarantee sought on the sugar supply. Although lenders discussed using the P90 and P60 predictability scenarios commonly used in wind projects, it was decided to maintain as much flexibility as possible on supply. The start of milling operations was scheduled for this year, and it was expected that the full 5,500 hectares, when under cane cultivation, together with outside growers canes, would initially produce about 52,500 tons of sugar per year. Pabari Family Investment Trusts (75%) Australia www.pabaricapital.com.au Mauritian sugar miller Omnicane (25%)