Thai experts conduct seminar on project development

Thai experts conduct seminar on project development

Published on Wednesday, 13 November 2013 01:14

NAY PYI TAW—Experts in the banking sector and consultancy services from Thailand showed Myanmar a simple way to develop projects at a closed-door seminar held in the nation's capital yesterday.

The seminar, which dealt with the legal aspects of developing projects under financing schemes, was organized by LS Horizon Limited, a Thai law firm specializing in energy and power project development, in cooperation with the Union Attorney-General's Office of Myanmar."This is the first seminar we have conducted with a committee from the Kingdom of Thailand," said Khin Maung Oo, deputy director-general of the Union Attorney-General's Office of Myanmar.

"Finance is the main cornerstone to the success of any project. No project can proceed without financing," he said in the seminar's opening remarks.

Thai experts in the banking industry spoke about project financing. Saitien Thongplengsri, senior vice president of international banking at Bangkok Bank Public Co Ltd, addressed some of the typical requirements of commercial banks for project financing.

Current bottom line versus future cash flow

"Usually if a company wants to finance a project, it has two options: one is project financing and the other is corporate financing. When we say "corporate financing", it means that the company or parent firm for the project will finance it relying on the balance sheet of the company, and the total business and financial resources of the borrower, as the source of repayment," she said.

"Project financing," on the other hand, is a funding structure that relies on future cash flow from a specific development as the primary source of repayment, with that development's assets, rights, and interests legally held as collateral security, said Thongplengsri. These assets, rights, and interests are usually structured into a special purpose vehicle (SPV) separate from project owners or sponsors. Project financing is typically structured without recourse ("non-recourse") or limited recourse to project sponsors.

Thongplengsri said the project financing approach has many advantages.

"Firstly, the project might be too large for a sponsor to invest in it. Secondly, project financing is a way to allocate waste to relevant parties that are in a position to handle the risks. The third point is that we can separate a project from other activities of the group. It means that in some cases, the sponsor may want to try something new or another line of business they structure as a separate tool," she said.

"In Thailand, when construction firms aim to invest in a power plant, they usually practise project financing. In many cases, the project can get a longer-term loan from banks."

Tax advantages of project financing

Another advantage, said Thongplengsri, is that in many cases the government will apply a special tax exemption to the projects of three to five years, and perhaps a lower tax rate after that period. Finally, project financing can help in the longer term because the life of a project is usually long.

"Projects like power plants, for example, can be [financed at] longer term to sell electricity to the government. The structure of the bank loan can be also long to match the terms of the project," she said.

But there are also complex disadvantages to project financing, added Thongplengsri, which is why a good law firm is always recommended.

"In many cases it can take time, because if it's for a solar plant, you need to collect data about the radiation and record it. In some cases, they need to do an environmental impact study as part of the regulatory requirement. So it takes a long time, and the bank itself also needs to study the project," she explained.

"Another point is risk management. In many cases, the lender asks the contractor to provide a guarantee for on-time completion of the project. Lastly, lenders have tight control for the project. Lenders don't have other sources of income. That is why they have to closely monitor the project."

New regulations make a difference

Krung Thai Bank officials discussed how some of Myanmar's new laws and regulations have already reshaped the country's regulatory framework for international financing. Changes to foreign exchange laws, banking regulations and investment regulations, combined with the easing of Western sanctions, have resulted in a more attractive and secure framework for foreign lenders to provide financing in Myanmar.

Under the double taxation agreement (DTA) between the Kingdom and Myanmar, withholding tax (WHT) on interest shall be limited to 10 percent of the gross amount of interest.

"Financing projects in Myanmar shall be based on the projected revenue of the project, not the creditworthiness of the ultimate owners of the project and their collateral. We still need to know how effective laws and regulations get implemented. There is also a need to strengthen the legal framework to give offshore lenders more confidence to provide project financing in Myanmar," said Sujira Kittidusadeekul, first vice president and manager of corporate banking (sector-4) at Krung Thai Bank Public Co Ltd.

When should the bank get involved?

Chaipat Kamjadasakorn, a partner of LS Horizon, discussed the role of project financing in a panel discussion.

"For corporate financing, we don't need to involve the bank at the initial stage. We count on the assets, rather than the activities, such as what they are doing, what kinds of business they are involved with. At that stage, we don't require the involvement of the bank," he said.

"As for project financing, if you have a bank to provide project financing then you need to involve it. You need to seek its advice on what kind of financing you need for this kind of project. If you get the bank involved at the initial stage, you can try to use the sponsor's support for the project. One of the unique features of project financing is that the sponsor will try to limit the platform of the project, and that is why the bank in a financial crisis can help you deal with proper security for the project."

The first day of the seminar was attended by key officers from all related government agencies in Myanmar involved with the development of infrastructure as well as power projects, such as the Attorney-General's Office and the ministries of Finance, Electric Power, Energy, Forestry and Environmental Conservation, and National Planning and Economic Development.

Guest speakers at the seminar were comprised of specialists in the field of infrastructure and power projects development working for Banpu Public Company Limited, the Electric Generating Authority of Thailand, and the Ministry of Energy and Mines of LaoPDR, as well as leading Thai banks (Bangkok Bank, Kasikorn Bank, KTB Bank, ThaiExim Bank), and lawyers from LSH.

Source: http://www.news.myanmaronlinecentre.com/2013/11/13/thai-experts-conduct-seminar-on-project-development/