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| Sunday, 27 June 2004 |
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HNB succeeds in USD 36.5 m interest rate swap By Elmo Leonard Hatton National Bank (HNB) last week announced that its treasury had successfully completed the structuring of a USD 36.5 million Interest Rate Swap (IRS) for a power generating company, Heladhanavi Ltd. Heladhanavi is a joint venture between Hemas Holdings (Pvt) Ltd and Lakdhanavi Ltd, formed to undertake a 100 megawatt power plant in Puttlam on a Build Own Operate (BOO) basis. When completed, the company will sell electricity to the national grid. According to Heladhanavi's finance controller, Ravindra Pitigalage, the project promoters mandated HNB as the lead bank and arranged to raise USD 47 million of debt in US dollars and rupees for the project. The money was obtained from the Foreign Currency Banking Units of the local commercial banks and foreign credit lines available to DFI's, HNB Chairman Rienzie Wijetilleke said. With the improvement in the US economy and the possibility of the dollar interest rates rising following its 40-year low, the company felt it necessary to hedge its interest rate risk by way of an IRS, Hemas Power (Pte) Ltd, director Kishantha Nanayakkara said. Through their original loan obligation (consortium of banks) the company was paying interest on a floated rate of three months LIBOR. This, in effect negates Heladhanavi's floating rate loan payment (i.e. paying a floating rate on the original loan and obtaining a floating rate through (IRS) which converts the obligation to a fixed rate loan). This derivative deal is an off-balance sheet transaction and does not change the balance sheet structure of the company Hema's Investment Manager Aroshan Serasinghe said. HNB's Chief Dealer, Treasury, said that all possible risks to the bank were mitigated as HNB had covered themselves back-to-back with an international counter party. He said that it was prudent for HNB to concentrate on expanding and growing derivates business, as it provides a means of mitigating exchange and interest rate risk for its customers. HNB would also benefit from structuring these deals in an environment where margins from traditional treasury related businesses are narrowing. HNB called this a mega IRS deal, by far the biggest of its type transacted in Sri Lanka. In international terms this is a large ticket deal and in large markets like Singapore, Hong Kong and India USD 36.5 million would be termed a large deal Wijetilleke said. Summming it up, Wijetilleke said that this deal benefited both Heladhanavi and HNB. |
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