Mega Deal

Hatton National Bank on Thursday inked a deal to execute a US$ 36.5 mn interest rate swap for power generator Heladhanavi Ltd.
Heladhanavi, a joint venture between the Hemas Group and Lakdhanavi, had last July signed up for US$ 47 mn in debt, payable over a seven-year period at three-percent over LIBOR (London Interbank Offered Rate).rn

rnThe loan was structured on a floating rate basis, giving the promoters a two-year grace period before repayments kicked in.rn

rnBut Heladhanavi, had second thoughts after US dollar rates began to spike up.rn

rnHeladhanavi had the option of repaying the loan and moving into a fresh agreement or go for an interest rate swap to cover the dollar component of their loan.rn

rnThe swap would hedge Heladhanavis interest rate risk, by converting its US$ 36.5 mn floating rate loan, which is pegged to the three months LIBOR debt, into a fixed rate. rn

rnHeladhanavi opted for the move, after US dollar interest rates began to move up following 40year lows, explains Dudeepa Ratwatte, Chief Manager, HNB Treasury.rn

rnThe company hopes to guard itself against future rate hikes by fixing the rate through the swap. The debt will also carry an eight year tenure. HNB in turn has got a foreign counter party bank to cover its risks. rn

rnDerivative deals, even though very popular in the developed markets, have failed to take off in Sri Lanka except for a few isolated deals in the past.rn

rnHNBs Senior DGM (Treasury) Gamini Karunaratne says the mega deal, is so far one of the largest issues carried out in the country.rn

rnIn international terms, he says, this is a big ticket deal. In larger markets like Singapore, Hong Kong and India, a US$ 36.5 mn interest rate swap would be termed as a lquote large deal.rn

rnHeladhanavi is in the process of building its 100 MW in Puttalam and complete the project by January 2005. rn

rnLakdhanavi Ltd, fully owned by Lanka Transformers (a CEB subsidiary), is the first and only locally owned independent power producer operating at present. rn

rnThe Hemas Group, is currently the largest private sector importers of pharmaceutical products. The group has diversified into personal care, leisure and the apparel sector. Heladhanavi, is Hemas first foray into the power sector. rn

rn

-Mel Gunasekera: melg@vanguardlanka.comrn