BAKAD: European transport deal of the year

In 2020, the EBRD led a club of lenders, including the Islamic Development Bank, the Eurasian Development bank and a number of commercial financial institutions, in raising funds for a consortium to build and operate a toll-road bypass around Almaty, the largest city in Kazakhstan.

International funding for an international consortium

The EBRD-led club of lenders raised US$ 585 million of debt for the special purpose vehicle established to design, build, operate and maintain the Big Almaty Ring Road (BAKAD) under a 20-year concession contract.

The consortium, BAKAD Investment and Operation LLP, comprises Turkish business conglomerate Alarko, Turkish construction contractor Makyol, Korean construction company SK E&C and toll-road operator Korea Expressway Corporation (KEC).

An award-winning client solution

The EBRD Treasury department orchestrated a comprehensive US dollar-denominated interest-rate hedging programme for the EBRD’s US$ 350 million A/B Loan to the consortium. Signed on 12 February, this was the EBRD’s largest client hedging transaction for a Banking project in 2020.

After many months of negotiation, structuring and pricing to address the highly challenging requirements of a flexible disbursement schedule and to take into account the project’s B-lenders, the EBRD Treasury arranged a US$ 350 million interest-rate cap and forward-starting swap to cover the interest-rate risk on the entire A/B loan.

The hedging instruments allowed the B-lenders to participate in the loan on a floating-rate basis (linked to USD LIBOR), while capping and fixing the rate for the borrower to mitigate the project’s interest-rate exposure. The hedging incurred no upfront costs for the sponsors, as the cap premium was embedded in the forward-starting swap rate. The additional credit exposure incurred by the mechanism was negotiated and included in the rate, as well as in a revised credit value adjustment.

Project Finance International (PFI) magazine recognized the transaction with its Transport Deal of the Year award for 2020.