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Mizuho Bank withdrew from Chilean hydroproject with $20 million write off

Reuters/Ivan Alvarado

Workers of Alto Maipo hydroelectric project gather close to the town of El Alfalfal, in a pre-mountain range area on the outskirts of Santiago, Chile August 9, 2017.

By Gram Slattery

Petroleumworld 09 14 2017

Japan's Mizuho Bank [MZFGAE.UL] quietly withdrew from the Alto Maipo hydroelectric project in Chile earlier this year, writing off about $20 million it had disbursed, amid concerns over the project's financial viability, three sources told Reuters.

The decision to back out of AES Gener's $2.5 billion Alto Maipo project near Chilean capital, Santiago, is not financially significant for the project or the bank. However, it underscores the severity of the issues facing the U.S. government-backed venture and the risk that more creditors will withdraw.

Alto Maipo - which includes two power plants and a vast array of tunnels running deep under the Andes Mountains - slid into technical default in July after it dismissed one of its contractors, leading to cost overruns.

AES Gener has since stated publicly it may scuttle the half-completed project if it cannot secure favorable refinancing terms.

Mizuho's loan to Alto Maipo - a project opposed by many environmentalists and politicians - was never publicly revealed as it formed part of a larger $200 million loan package from the Inter-American Development Bank (IADB). The portion of that loan package financed by Mizuho is unclear.

But two sources said the bank had dispensed around $20 million before deciding to pull the plug and will recoup none of its investment.

Three other banks involved in Alto Maipo have assumed the rest of the financing responsibilities that Mizuho backed out of, the sources said. As part of the deal, they will be paid back on more favorable terms assuming the project proves solvent, they added.

AES Gener, Mizuho and the IADB all declined to comment.

In August 2016, AES Gener said Alto Maipo would go significantly over budget because of construction difficulties, and in January, Chilean mining company Antofagasta - which held a 40 percent minority stake in Alto Maipo - exited the project.

To cover the cost overruns, a broad consortium of banks backing Alto Maipo agreed to refinance the project earlier in 2017, boosting their commitment. At that juncture, Mizuho decided that the risks of keeping the loan on its balance sheet outweighed the benefits, the sources said. In June, AES Gener dismissed contractor CNM, leading to more cost overruns and the July default. A second round of re-financing is underway.

The friction over the project comes as the Overseas Private Investment Corporation, a U.S. government agency backing the project with over $250 million of loans, undergoes a government audit for financially shaky investments throughout Chile.

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