Project financing in Asia took a step forward this month as one US and three English law firms celebrated the completion after six years of the first agreement to build and operate an Asian pulp mill using limited recourse loans.
The massive $1.2bn wood pulp mill in southern Sumatra, Indonesia, is being funded by commercial banks and export credit agencies from four countries, which will only get their money back if the mill makes a profit.
This type of funding is extremely rare for projects in Asia, particularly in politically unstable countries such as Indonesia, said Norton Rose partner Stephen Parish, who acted for Swedish bank SE Banken on the project. Market scepticism about this type of funding caused massive delays, he said.
US firm White & Case's Bangkok partner Brian Miller acted for the Musi Pulp Project company, a special purpose vehicle set up to build and operate the pulp mill, which is owned by four companies – Nippon Paper Industries and Marubeni, of Japan, and Indonesian companies Barito Pacific Timber and Tridan Satriaputra.
Clifford Chance's Singapore partner Carol Roberts acted for the commercial banks, which are providing $341m in loans. Export credit agencies from Germany, Canada, Finland and Sweden and the shareholders are providing the rest.
The Musi Mill will plant and manage its own timber plantation in Sumatra, so virgin rainforest will not be exploited – a factor vital in securing funds from the export credit agencies.