HSBC Global Markets, structures a US$ 34.05 mn derivative deal for Sri Lanka’s ACE Power Embilipitiya

HSBC Global Markets, a unit of HSBC Group, structured a derivative instrument for Sri Lanka’s ACE Power Embilipitiya in a deal worth US$ 34.05 mn. HSBC Global Markets, a unit of HSBC Group, structured a derivative instrument for Sri Lanka’s ACE Power Embilipitiya in a deal worth US$ 34.05 mn. ACE Power will hedge its exposure to rising US dollar interest rates for six years, while HSBC will reimburse the power producer if the three month London interbank offered rate (LIBOR) exceeds a certain level, explained Senarath Seneviratne, Treasurer HSBC Sri Lanka.

“The trade is for a notional amount of US$ 34.05 mn and is a significant first step towards interactive risk management from the Sri Lankan market’s perspective,” he said on Monday.

“We will protect ACE Power against future upward movements of LIBOR within a band of 2.5 percent,” he said, but declined to give further details.

A joint-venture with US based Caterpillar Inc., the US$ 60 mn 100 MW project is expected to connect to the national grid on April 4.

ACE Power officials declined to divulge the selling price of each electricity unit. But given the scale of the projects, tariffs are expected to be below US$ 0.06 (Rs. 6.00) per unit, industry sources said.

Power producer Heladhanavi last June, signed up for an interest rate swap for US$ 36.5 mn with Hatton National Bank Ltd.

In Sri Lanka, the demand for electricity has been growing at an average rate of about eight percent each year over the past 20 years, with a 10 percent growth forecast.

In order to meet the demand, the country needs to generate an additional 1,530 MW by the year 2008, CEB studies indicate.

-LBO Newsdesk: LBOEmail@vanguardlanka.com