Bangladesh’s public-private partnership (PPP) project, the Dhaka Bypass Expressway, is invested, built and operated by Sichuan Road & Bridge and two local companies in Bangladesh through the jointly established Dhaka Bypass Expressway Development. It is designed to expand Dhaka Bypass Expressway No. 105 to four lanes.
In this consortium loan project, the Sichuan branch of China Development Bank (overseas lender) and a local infrastructure construction fund company in Bangladesh (domestic lender) led to the formation of a consortium to finance the project company. The total amount of overseas loans was USD184.3 million and the total amount of domestic loans was BDT10.8 billion (USD122.9 million). The loan term is 18 years. The financing model and the consortium formation method were monumental, with an unprecedented syndicate consisting of a domestic bank in Bangladesh and a Chinese bank that jointly provided loans for a PPP project in Bangladesh.
The Chengdu office of Kangda Law Firm worked with the Beijing office to provide the client with comprehensive legal financing services for this project. Immense project difficulties had to be overcome, such as the participation of multiple parties and understanding the special legal environment of Bangladesh. Kangda was the Chinese law firm representing the Sichuan Road & Bridge and Dhaka project company. They formed a team comprising Deng Zhenhua from the head office in Beijing and Tian Yuan from the Chengdu office as lead lawyers, complemented by Duan Zuoli, Yu Han, and other members. Since accepting the commission in 2019, the team has fully participated in the project and provided legal services throughout the process, including delegating local lawyers in Bangladesh to understand local laws, participating in the review of a full set of the consortium, financing agreements, participating in the negotiation between the borrower and the consortium, co-ordinating law firms in Bangladesh, the UK and China, and drafting relevant supporting documents.
The main challenges in the performance of legal services for this consortium loan were as follows:
Impact of the local epidemic and the global covid-19 pandemic. This project began at the end of 2019, as Bangladesh witnessed the peak of its dengue fever outbreak. This was followed by the outbreak of the covid-19 pandemic shortly after the project reached a critical stage when conditions were confirmed. Under back-to-back disease outbreaks, the financing period had to be prolonged, and communications became difficult. Furthermore, the financing under the original PPP contract failed to materialise, and startup preparations were not made on schedule, leading to legal issues such as if the PPP contract would be terminated or the pandemic constituted force majeure under the PPP contract. After various communications and legal opinions from the team, the authorities of the Bangladesh government and the consortium eventually recognised that the failure to perform the PPP contract as scheduled was caused by an unforeseeable event, the covid-19 pandemic. Thus, the consortium financing and the PPP project were able to proceed.
Need to play multiple roles. After accepting commission for the PPP project financing, Kangda’s team not only provided legal services in Chinese law, but also acted as the general coordinator of legal services for the project, responsible for coordinating two local law firms in Bangladesh and a British law firm (the contract stipulates that English law shall be applied). The team played its coordinating role to positive effects in the whole process of consortium financing.
A change of lender in the middle of a project. The overseas lender was changed from Industrial and Commercial Bank of China to China CITIC Bank upon mutual consultation of the parties. Due to this change, the transaction scheme and the term sheet needed to be renegotiated. Some loan terms previously negotiated with participating banks had to be renegotiated when a new participator was appointed, all of which posed considerable challenges for the parties.
Taking out overseas investment insurance. Sichuan Road & Bridge, as the bidder, was required to take out the overseas investment insurance policy from China Export & Credit Insurance Corporation (Sinosure) for this consortium loan. To obtain insurance approval and successfully execute the policy, Kangda’s lawyers communicated with Sinosure on behalf of the client regarding prerequisites for obtaining the policy. After finally obtaining the approval of insurance terms from Sinosure, transaction lawyers also needed to coordinate the parties to reach an agreement before the Sinosure approval expired, to avoid the invalidation of such approval due to progress delay caused by the covid-19 pandemic, which would have significantly increased the cost of communications.
Obtaining approval from local authorities. The Bangladesh Investment Development Authority (BIDA) must approve overseas bank loans per the local laws of Bangladesh. This approval was essential to the consortium loan. With the help of Bangladeshi lawyers and continuous communication with BIDA, the project company successfully obtained approval from BIDA.
With the joint efforts of Kangda’s lawyers, the financing parties and related institutions, and after several rounds of negotiations, communications, and revisions over two years, the contract was successfully executed, and an unprecedented financing model and financing administrative approval in Bangladesh was completed for this project. The success owes much to the concerted efforts of the consortium parties, the borrower, Sichuan Road & Bridge, and lawyers from China, Bangladesh, and the UK.
Tian Yuan is an associate at Kangda Law Firm. He can be contacted at +86 28 8774 7485 or by email at firstname.lastname@example.org
Deng Zhenhua is an associate at Kangda Law Firm. He can be contacted at +86 10 5086 7666 or by email at email@example.com