The prestigious International Financial Law Review (IFLR) has awarded its honorable Project Finance Deal of the Year for 2009 to Lee & Ko, in recognition of Lee & Ko’s work as lenders’ legal counsel in connection with the Busan New Port Project Phases 2 and 3. This recognition further bolsters Lee & Ko’s reputation for excellence in providing legal advice on numerous large-scale project finance cases. Past recognition awarded to Lee & Ko in this area has included recognition for Lee & Ko’s role as legal advisors in connection with the Uijeongbu Light Rail project in 2007 (project/transaction advisor category) and for the firm’s role as legal advisors in connection with the Incheon Bridge project in 2006 (project finance category).
By way of further background in connection with this year’s award, Lee & Ko acted as lenders’ legal counsel in relation to limited recourse financing provided in connection with the Busan New Port Project Phases 2 and 3 in the City of Busan. The Busan New Port Project entails the construction of four 50,000-ton berths in a 1,400 meter-long terminal with an annual capacity of 2.7 million teu. The project constitutes part of the Korean government's strategic plan to develop the Busan port as the hub for North Asia shipping traffic. When the Busan New Port goes into operation in 2012, it will compete with major Chinese ports, which in 2007 moved a total of more than 100 million teu.
The lenders in this project finance deal were Kookmin Bank, Shinhan Bank and a syndication of other financial institutions led by Kookmin Bank (as arranger and sole bookrunner). The sponsors for this project include Bouygues Travaux Publics S.A. (a French construction company), CMA-CGM Group (a French shipping company), Hyundai Development Company, KCTC Co., Ltd. KMTC Co., Ltd., Kukje Transportation and Busan Port Authority with equity participation by Macquarie Korea Infrastructure Fund.
The form of financing implemented was, as indicated above, limited recourse financing and was based on a government concession with no revenue guarantee. This financing structure required a comprehensive legal risk analysis, particularly since the structure also called for different loan tranches to be created to reflect different risk profiles of the financial institutions involved.
In its capacity as lenders’ legal counsel, Lee & Ko also carried out a critical role in negotiating with the in-house legal counsels of the non-Korean parties who were unfamiliar with Korean public-private infrastructure (PPI) projects. Such cross-border aspects added considerable complexity to the legal advisory role carried out by the firm.
As the port terminal is being built in two stages financed under one comprehensive financing structure, the financial documentation was required to incorporate a commensurate level of detail and complexity in order to reflect the multi-phase character of the project and the intricate interrelationships, timetables and short and long term risks involved. Additional complexity resulted from the mezzanine lender (also a sponsor) requirement for the creation of a second-priority security interest in its favour, while the participation of a hedging party in the structure
triggered the need for further layer of detailed inter-creditor documentation.
In addition to legal advisers, numerous other professional advisors were involved in the project, including insurance consultants, financial advisers, market (traffic) consultants, project feasibility consultants, project technical advisers, and modeling auditors. Sponsors for the project were from Korea, France and Australia.
The deal went through several delays. One project delay occurred when one of the original sponsors opted out and moved to the competing Pusan New Port as it offered a more competitive tariff. A financing delay occurred when the Korean lending market suffered a serious liquidity crunch and the syndication process was stalled for a few months. These delays required major changes in project parameters, which in turn required substantive revisions of the project finance documentation and project risk analyses. Lee & Ko had major responsibility as legal advisors at every stage of the project financing, beginning with negotiation of the preliminary term sheet and covering all other steps up to and including the coordination of the signing and closing of the deal.
The Busan New Port project is expected to be the last of the international sponsored projects for the foreseeable future as additional planned major Korean infrastructure projects are currently on hold due to uncertain global financial markets.