Ala Valliappa, a well known children’s poet in Tamil, has authored more than 50 books.
Sanmarite, V Alagappan of Sanmar Engineering Corporation, is a happy man these days.
His father’s work of a lifetime is getting the due recognition it deserves.
The works of Tamil children’s poet, Ala Valliappa (Alagappan’s father) among select Tamil literary scholars, came under the umbrella of the Tamil Nadu government’s current year’s initiative to preserve and propagate Tamil literature and the contribution by Tamil scholars.
V Alagappan presenting a shawl to the Honourable Chief Minister.
Alagappan and his sisters, the legal heirs to their father’s literary works, gave their consent to the Tamil Nadu government to nationalise them,
thereby opening the doorway for a wider audience to benefit from the scholar’s works.
Until now, the poems were published by the family and its reach was limited to the extent of the family’s capability to promote these publications.
The Tamil Development Directorate recommends such scholarly works for nationalisation, publishes and distributes them across wider markets. With the nationalisation, Ala Valliappa’s works will be available across platforms from print media to the web and people will be able to access them at low cost. Valliappa’s poems are also part of the Singapore Government’s curriculum, where Tamil is one of the national languages.
Hon’ble Chief Minister, M Karunanidhi is himself a renowned poet, playwright and elocutionist. His and the government’s efforts to promote Tamil literature is a positive step in the preservation and encouragement of contemporary literature. Alagappan and his siblings, with their consent for the nationalisation have indeed contributed to the cause of promoting Tamil heritage, supporting the government in this effort.
Vijay Sankar, Deputy Chairman, The Sanmar Group, called on Mr M K Stalin the Deputy Chief Minister of the Tamil Nadu Government. The senior management team that visited Mr M K Stalin included P S Jayaraman, Chairman, Sanmar Chemicals Corporation. Vijay Sankar presented Mr Stalin with a shawl and wished him on his appointment as the the Deputy Chief Minister.
Greeting the Deputy Chief Minister: P S Jayaraman (left), Mr M K Stalin (centre) and Vijay Sankar (right).
The senior management team of TCI Sanmar had a meeting with His Excellency General Mostafa Abd El Lateef, the Hon’ble Governor of Port Said on 26 June 2009 in his office to apprise him of the company’s new projects and its progress.
Left to right: J K Menon, P S Jayaraman, H E Governor of Port Said General Mostafa Abd El Lateef, R Kalidas and Mostafa M Saad.
In the midst of one of the worst financial crises since the Great Depression, TCI Sanmar, was able to achieve a 12-year project finance to the tune of US $ 635 million. The company has embarked on ambitious expansion plans for the manufacture of VCM and PVC at Port Said, Egypt. The successful financial close of project financing for this project was a marathon feat for the Group. PFI, an international magazine on project financing, carried a special feature on the trials and tribulations that culminated in success. The article is reproduced here with permission from PFI.
TCI Sanmar’s VCM project
A View of Project Site
A legend in the book of Ramayana says that, in ancient times, Ganga, the daughter of the King of Snows, known for her independent and capricious nature, incarnated as the Ganga river, lived in the celestial regions. This divine river (known today as the Ganges) had its source in Vishnu's big toe and from there flowed forth to water the different paradises, bestowing on them richness and fertility.
King Bhagiratha, who was a great sage, was determined to bring about the descent of the Ganges upon earth. To do so, he sought to invoke Lord Shiva. Armsraised above his head, hands joined, pressing the earth firmly with his right foot, his left leg folded on his right thigh, in perfect equilibrium, straight as a tree rising skyward, he remained standing for one thousand years. Then Shiva was pleased and allowed Ganga to plunge down to earth.
No other legend better exemplifies how ambitious goals can be reached through perseverance, patience and determination, and while the Sanmar industrial group, based in Chennai, India, did not have to wait a thousandyears to attain its goal, it had to harness all its skills to achieve financial close in respect of a US$635m 12-year project finance, in the midst of one of the worst everfinancial crises.
The Sanmargroup is a leading family-owned South Indi-an conglomerate that has been active for more than 30years in the chemicals and engineering businesses, witha particular focus on PVC and chlorochemicals. In 2006,Sanmar became aware that a new caustic soda plant (TCIChemicals) was for sale in Port Said, Egypt. It was quickto identify this potential acquisition as a unique oppor-tunity that would allow it to expand its PVC business, bothin India and overseas.
All the ingredients for a major expansion were presentat the plant: 79 acres of land were available; the plant waslocated strategically, being only 4km from the Port ofSuez; there was an existing workforce available on site,caustic soda operations were up and running using stateof the art Asahi Kasei technology and generating a con-sistent flow of revenues; electricity was available at farmore competitive rates than in India; salt farms werelocated nearby; and, critically, there was a growingdemand for PVC in the region. More than anything else,Sanmar saw an opportunity to integrate this asset withits industrial network in India where it was already amajor PVC producer.
Sanmar decided to progress with the acquisition of theplant, which it concluded in March 2007 supported by itsrelationship bank ICICI, which assisted in the financingof the acquisition by providing Sanmar with a US$300mtwo-year bridge loan. Soon after the acquisition, theacquired company’s name was changed to TCI Sanmar.
An expansion programme was developed with a viewto increasing caustic soda output to 275,000 tonnes perannum and using the chlorine byproduct to feed an eth-ylene dichloride (EDC) unit, as well as three vinyl chlo-ride monomer (VCM) units and one polyvinyl chloride(PVC) unit. In total, the project is expected to produce400,000 tonnes per annum of VCM from its three VCMunits. Half of the VCM produced will be shipped to Cud-dalore on the east coast of India, where it will be used asfeedstock for Sanmar's new PVC plant. The other half ofthe VCM produced will be used to feed the PVC unit inPort Said.
The project is, therefore, a rare example of a fully integrated NaOH/EDC/VCM/PVC plant, which is self-sufficient save for the supply of ethylene, 185,000 tonnes perannum of which will be imported, predominantly from the Gulf region. Long-term contracts are not commonly available for the supply of ethylene. However, it is TCI combelieved that there is sufficient float on the ethylene trading market to ensure that there will be a reliable supply, especially given the ethylene surplus that is likely toemerge (as a consequence of the large capacities due tocome to the market in the next two to three years).
Unlike conventional projects, Sanmar's expansion strategy combines the construction of new build plants(the EDC unit and one VCM unit) with the refurbishment of second-hand plants (two VCM units from BASF and Ineos and the PVC unit from BASF). With Sanmar's successful track record of dismantling and re-erecting mothballed plants in India, the company was confident that it would be able to reduce project costs sub-stantially by implementing a strategy utilising second-hand plants, without impairing the reliability or productivity of the project. At the time this article went to press, the refurbishment of some of the units was already close to completion.
In addition, most of Sanmar's engineers have between 15 and 30 years of experience in the chlorine industry and are renowned for their expertise. Therefore, while certain aspects of the project were awarded on alump-sum turnkey basis (such as the utilities andpipelines, to Technip), Sanmar has significant resources to manage the project itself and is largely in control of construction activities.
Sanmar also displayed the ability to negotiate suc-cessfully with a number of well known suppliers in India, which meant that the total project costs remained within the original budget of US$868m. While such project costs were initially financed with equity, Sanmar was aware that soon after the acquisition of the project in Egypt it would have to address and resolve the issue of refinancing the ICICI bridge loan (and two other bridge loans provided by Bank of India and Indian Over-seas Bank) as well as the financing of the project expansion itself.
After exploring a project finance approach with BNP Paribas and a capital markets route with Bear Stearns, Sanmar decided, in February 2007, to seek to raise financing on the capital markets, which, on the face of it, was an attractive proposition at the time. However, when BearStearns became the first victim of the sub-prime crisis in July 2007, Sanmar was compelled to reconsider the project finance route and approached BNP Paribas to reopen discussions.
Once it was decided that funds would be raised through project finance, BNP Paribas, in its role as structuring bank, worked hard to complete thorough due diligenceon the project, appointed lenders' consultants (Jacobs Consultancy, ERM Paris, CMAI and Miller Insurance), and worked with White & Case to prepare a detailed term sheet on the basis of a 12-year financing with a 70:30 debt TCI to equity ratio and limited completion support from Sanmar. By December 2007, BNP Paribas was in a position to circulate an information memorandum to a selection of international banks.
However, at that point the financial crisis was taking its toll and, together with other factors such as the perception of increased Egyptian political risk (in particular, after the difficulties faced by the EAgriumproject), the unconventional nature of certain aspects of the Sanmar project financing and Sanmar lacking an international profile, syndication within the international banking community became challenging.
It was at this point that Sanmar turned to its relationship banks. A group of 10 Indian banks emerged with State Bank of India (which took the roles of facility agent, offshore account bank, offshore security agent and intercreditor agent), ICICI Bank, Bank of India, Indian Overseas Bank, Axis Bank, Bank of Baroda, Export-Import Bank of India, Indian Bank, Syndicate Bank and Union Bank of India. In addition, on the Egyptian side, Arab African International Bank (which took the roles of onshore account bank and onshore security agent),showed strong support for the project with a US$70m commitment for a working capital facility.
The road was then paved for BNP Paribas and White & Case to develop the financing and security documents, while BNP Paribas continued its extensive due diligenceon the project, closely monitoring the progress of construction, in conjunction with Jacobs Consultancy. BNPParibas and White & Case worked in concert with Sharkawy & Sarhan in Cairo (Egyptian counsel to the lenders) together with Allen & Overy (international counsel to Sanmar) and DLA (Egyptian counsel to Sanmar) to produce a suite of documentation that would be acceptable to the Indian syndicate and Arab African International Bank.
Following preparation of the initial drafts of principal financing documents, an all-parties meeting was called,to take place in Mumbai and to be attended by Sanmar and each of the banks and their respective legal counsels, with the aim of negotiating and finalising the documentation as quickly as possible. In this way, in mid-September 2008, Sanmar and BNP Paribas, together with amultitude of bankers from the Indian bank syndicate, Arab African International Bank and teams from each of White & Case and Allen & Overy, descended upon the Taj President Hotel in Mumbai.
Concurrent with the negotiation of the senior project finance facility to be provided by the Indian bank syndicate and the working capital facility to be made avail-able by Arab African International Bank, a US$80m subordinated debt facility was also negotiated in Mumbai. This facility was provided by four members of the Indian bank syndicate, which took on a dual capacity as sub-ordinated lenders and were represented separately by a different team at White & Case, using a "Chinese wall"where appropriate. Treated for the purposes of the trans-action as quasi-equity, this facility was designed as a top-up for the financing of project costs.
In addition, following discussions between Sanmar and Arab African International Bank, it was agreed that flexibility would be built into the working capital facility(which may be drawn in US dollars or Egyptian pounds),to allow an increase in the facility of up to US$30m where, among other things, Arab African International Bank enters into one or more participation agreements with third-party lenders. The working capital facility is also designed to allow a portion to be utilised to issue documentary credits in favour of Sanmar's suppliers.
The meetings in Mumbai were a great success, despite the fact that the Indian bank syndicate had only had a limited opportunity to review and comment on the documentation and some members of which had little prior experience of project finance transactions of this magnitude. Over the course of the week, the majority of all open issues had been negotiated and agreed, allowing for the lawyers from White & Case and Allen & Overy to prepare final drafts of the key financing documents, to reflect the commercial agreements reached during the Mumbai meetings.
In the weeks that followed, several calls then ensued between London, Bahrain, Cairo, Singapore, Mumbai and Chennai to address the remaining open issues. Credit is due to all parties for their constructive approach in facing all remaining concerns head-on, which allowed near final drafts to be posted to the Intralinks deal website during October 2008.
In liaison with the lender group, State Bank of India, as facility agent, quickly set about conducting a thorough review of the documentation, to achieve a timely closing of the financing. However, despite the will of the parties to achieve closing before the end of 2008, discussions with the notary in Port Said (in relation to registration of Egyptian security) and delays in the obtaining of certain project licences in Egypt, held things back. Undeterred, Sanmar, DLA and Sharkawy & Sarhan worked hard to engage with the notary and with local Egyptian officials to resolve these issues. Many meetings were held with various representatives from the Egyptian authorities in order to facilitate this. Through a combination of the determination of Sanmar and the co-operation shown by the Egyptian authorities, Sanmar found itself in a position to approach closing during March 2009.
As it had been necessary to facilitate the repayment of Sanmar's bridge lenders and the release of the bridgelenders' security at the same time that funds were to be released to Sanmar, following the Mumbai meetings an escrow mechanism was introduced to the documentation. This mechanism effected a notional conversion of each bridge lender's outstanding bridge loan into a project loan, while requiring certain bridge and other lenders in the syndicate, together with the subordinated lenders, to deposit money into escrow.
Accordingly, upon the majority of conditions precedent having been satisfied "electronically" on March 23, monies were deposited into escrow. The remainder of conditions precedent were then satisfied at the closing meeting on March 30, which was held at Sanmar's offices in Chennai and attended by State Bank of India, as facility agent, ICICI Bank and Axis Bank (which were present to oversee the release of the security relating to their bridge loans). Close to the end of the Chennai business day of March 30, State Bank of India, as facility agent, confirmed that financial close had occurred, just in time foran instruction to be given to the escrow agent in London to release monies from escrow to Sanmar.
The lenders' security package resembles a relatively traditional project financing, comprising both onshore and offshore elements and includes security over movable and immovable assets, offshore and onshore project contracts, intergroup debt, insurance and reinsurance arrangements, shares at the project company level and further up the corporate chain and over the project accounts.
In addition, the lenders will benefit from a mortgage over project land, once the registration of the land has taken place, which Sanmar is required to complete within six months of financial close. While the provision of such a mortgage as a condition subsequent is not uncommon in Egypt (being seen as largely procedural), should registration of the land and the related mortgage be delayed beyond this point, it was agreed that Sanmar would compensate the lenders with an increase in margin until registration actually takes place.
Furthermore, the lenders benefit from a direct agreement in respect of the sale of VCM to be shipped to Sanmar's PVC plant in Cuddalore, which allows traditional step-in rights and regulates the ability of Sanmar's offtaker to terminate the offtake arrangements.
Limited completion support was provided by Sanmar,supported by a standby letter of credit in favour of the lenders issued by State Bank of India, Chennai branch.
This project employed a relatively novel approach to the provision of equity by Sanmar, to reflect the fact that the existing assets that had been acquired were already generating revenues. In this way, it was agreed that such revenues that had already been generated or were projected to be generated prior to completion of the expanded project, would be deemed to be equity contributions by Sanmmar to the project, thereby reducing the amount of hard equity that would be required to be injected to satisfy the debt to equity ratio.
From the outset, Sanmar agreed to comply fully with the Equator Principles, a decision that was seen by the lenders as important given the close proximity of the plant to a populated area. ERM Paris, the lenders' environmental consultant, left no stone unturned and ultimately was happy to endorse a detailed environmental and social impact assessment together with an environmental and social management plan, both of which were reviewed and accepted by the lenders. In this respect, the plant will be a zero discharge plant, a concept that Sanmar is proud of having already implemented at its Indian plants, such as Cuddalore.
The project took many twists and turns but, while the financial crisis deepened, the Indian banks and Arab African International Bank remained committed and undeterred by the rising cost of liquidity, displaying a real sense of confidence in Sanmar's ability to deliver. In particular, ICICI and State Bank of India helped to drive the project toward financial close before the financial year-end and on the March 30 2009, exactly two years to the day after the acquisition of TCI Chemicals, financial close occurred. Sanmar had to pay more than originally expected (430bp over Libor), but the project base case economics well supported this additional cost. The expansion project is now well on course and project completionis expected in March 2010.
The successful conclusion of the financing of the TCI Sanmar project represents a considerable achievement for all parties concerned and is a just reward for the qualities of flexibility, perseverance and hard work demonstrated on all sides during this protracted process. However, in addition to such qualities, a recurring theme in project finance is a need to have luck on your side. Sanmar's case was certainly no different, with many hurdles presenting themselves along the way, not least the onset of an unprecedented economic crisis. Nevertheless, as Thomas Jefferson remarked when asked to explain his apparent good fortune in life, "the harder I work, the luckier I get", which seems to serve as a fitting appraisal of Sanmar's experiences on this project.
Indeed, significant credit goes to Sanmar for leading the project with determination and great professionalism, but in what represents the first major international project financing funded solely by Indian banks, particular praise must also be due to the syndicate of Indian banks that are emerging as new and important players in the international project finance arena. To grapple with the multitude of issues that arose along the way, many without modern precedent, was a considerable achievement and bodes well for the prospects of similar financings when normality returns to the markets.
For the Sanmar group, the reward comes with the prospect of consolidated sales breaking the US$1bn barrier once the project becomes operational, allowing Sanmar to become the second largest PVC producer in India and among the top 10 producers in the world. Long-term vision and "boundless courage", as illustrated in the story of King Bhagiratha, can produce formidable rewards.