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allen overy advises ESR and Chinachem Group on HKD 8 8 billion green loan for the development of a of a marquee logistics centre

Published Date
Mar 22, 2024
Allen & Overy has advised ESR Group Limited (ESR; SEHK Stock Code: 1821), the largest real asset manager in Asia Pacific powered by the New Economy, and Chinachem Group, a leading property developer in Hong Kong, on a HKD8.8 billion limited recourse green loan to their joint venture to develop and operate a prime cold storage and logistics facility in Kwai Chung, the largest to be built in Hong Kong in the last 20 years.

This five-year committed green loan follows the Green Loan Principles issued by the Loan Market Association and Asia Pacific Loan Market Association, which ensure that the loan proceeds are used for green projects, selected and evaluated based on clear criteria, managed and tracked separately, and reported on regularly. 

Further, the green loan has a unique structure that splits the loan facilities into two tranches. In addition to the security package over the project interests, Chinachem Group has offered to provide a corporate guarantee to those of its relationship banks under one of the tranches of the loan facilities, corresponding to its holding in the borrower and the project, to a tranche of lenders who will sit alongside an uncovered tranche of lenders. This tranche benefits from a lower interest margin, reducing the overall cost of external borrowing which ultimately benefits not only the sponsors but also (by reducing the debt burden on the project) the uncovered lenders. The bifurcation of the facilities into covered and uncovered tranches gives rise to intercreditor challenges, novel in the Hong Kong senior real estate lending market. Allen & Overy was able to design a structure, and work with the transaction parties to refine, to facilitate the parties landing in a position that is satisfactory to all stakeholders.

The A&O team is led by partner Roger Lui, with support from a core team: associates Jack Kwan and Hui Ling Yuen and Peerpoint consultant Kylie Wong. 

Roger Lui, A&O partner in Hong Kong, said: “We are proud to have advised ESR and Chinachem Group on this innovative green financing for a key infrastructure asset in Hong Kong. We are able to deploy techniques from other forms of limited recourse financings, and from other markets, to devise a financing structure that enables ESR and Chinachem Group to achieve savings for the project while landing the lenders in a place that is acceptable to them. All the more worthwhile given the size of the financing and the financing being one for the development of the logistics industry which is a strategic priority for the Hong Kong government, and for the financing to be executed under green loan principles. We are delighted that we have been able to do our bit for ESR and Chinachem Group, and also for Hong Kong.”

 

We are proud to have advised ESR and Chinachem Group on this innovative green financing for a key infrastructure asset in Hong Kong. We are able to deploy techniques from other forms of limited recourse financings, and from other markets, to devise a financing structure that enables ESR and Chinachem Group to achieve savings for the project while landing the lenders in a place that is acceptable to them.

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This content was originally published by Allen & Overy before the A&O Shearman merger