Napocor plans $350-million bond flotation

The National Power Corp. (Napocor) plans to undertake a $350-million bond float in the fourth quarter of the year to fund its development program for another major transmission line.

Napocor vice president for finance Merlita Pajarillo said the lead creditors will be the Asian Development Bank (ADB) and the Japan Bank for International Cooperation (JBIC). They will offer a repayment rate of three to four percent per annum.

"That is better than the commercial rate of 6.5 percent to eight percent although it is higher than the 2.5 percent offered by the Overseas Economic Cooperation Fund (OECF)," Pajarillo said. However, the OECF funds normally have shorter repayment periods than the proposed bond float.

The $350-million float will be used to fund the Leyte-Mindanao transmission project which is part of the drive of Napocor to link all the major grids (Luzon Grid, Visayan Grid and Mindanao Grid) to form a national grid.

The Leyte-Mindanao link will initially favor Mindanao as it would get additional energy from the Leyte geothermal plant. The Leyte power plants are now being connected to the Cebu area which has a huge demand for energy.

Earlier, Napocor received $449 million from a bond offering it undertook early this year. The amount came from a number of creditors spearheaded by Citibank and ABN Amro.

The loan will be used to retire, through a loan substitution process, some of its existing loans with the Japan Export and Import Bank (Jexim). Another portion of the loan will be used to fund its capital outlay for the year amounting to P20 billion.

Napocor has started utilizing bond floats and loan substitutions last year in a bid to lower losses either through early retirement or lower interest payments.

It entered into a ¥2-billion (approximately $200 million) loan substitution arrangement last year with leading creditor the Jexim bank as well as a pool of creditors.

The loan will be "substituted" by an earlier loan with the exact amount but with an annual interest rate of only three percent versus the 6.5 percent, resulting in a savings of $11 million for Napocor.

The government-run corporation is also awaiting the release of the second tranche of a loan from the Asian Development Bank (ADB) amounting to $900 million. The second tranche amounts to $300 million. Its release is dependent on the passage of legislation effecting the privatization of Napocor and far-reaching reforms in the electricity sector.