China Eximbank provides $480 million loan for China-Laos Railway Project (Linked to Record ID#85304)

¥480M RMB

Funder	Export-Import Bank of China (China Eximbank)
Recipient Organization	Government of Laos
Country	Lao People's Democratic Republic
Start Date	Sep 08, 2016
End Date	Jul 11, 2029
Duration	4,689 days
Number of Grantees	1
Roles	Recipient
Data Source	AidData Chinese Aid
Grant ID	`33726`

Grant Description

China Eximbank provides $480 million loan for China-Laos Railway Project In December 2016, Lao-China Railway Company (老中铁路有限公司 or LCRC) — a joint venture between three Chinese state-owned enterprises that collectively hold a 70% ownership stake and one Lao state-owned enterprise that owns a 30% ownership stake — signed a build-operate-transfer (BOT) concession agreement with the Government of Laos for the China-Laos Railway Project.

The total cost of the project was $5.9 billion (RMB 37.4 billion) and it was financed according to 60:40 debt-to-equity ratio ($3.54 billion of debt and $2.36 billion of equity).

LCRC directly secured $3.54 billion (RMB 22.45 billion) of debt financing from the Export-Import Bank of China in June 2019 (as captured via Record ID#85304), and the Government of Laos and the Chinese Government jointly contributed $730 million and $1.63 billion of equity financing, respectively, for the project.

The $3.54 billion debt financing package was reportedly secured by (collateralized against) an equity pledge, an asset mortgage, and a franchise pledge.

In order to make its $730 million equity contribution to the project, the Government of Laos secured a $480 million loan from China Eximbank (as captured via Record ID#33726) and it agreed to provide $250 million of its own funding (in annual installments). China Eximbank and the Government of Laos signed the $480 million loan agreement on September 8, 2016.

📋 Loan / Grant Terms

💰 Loan Amountcarried the following borrowing terms: an interest rate of 2

The Government of Laos did not issue a sovereign guarantee in support of the loan, but it did pledge revenues from a bauxite mine and three potash mines in Laos as sources of collateral to secure the loan. An intergovernmental framework agreement on November 13, 2015 preceded the signing of this loan agreement.

The purpose of the project was to construct a 418 mile long railway segment that connects Kunming, the capital city of southwestern China’s Yunnan Province, with Laos’ capital city of Vientiane.

This railway segment passed through the capital of Vientiane and the four Laotian provinces of Luangnamtha, Oudomxay, Luang Prabang, and Vientiane.

It was part of a larger Kunming-Singapore Railway Project (also known as the Kunming-Singapore Trans Asian Railway Corridor), which starts from Kunming and ends in Singapore after passing through Laos, Thailand, and Malaysia.

The single-track electrified rail line has a designed speed of 160 km/hour and it is being built in standard gauge. 47% percent of the railway passes through 75 tunnels and 15% passed over viaducts spread over 167 bridges.

There were 32 planned stations along the route, and according to the Ministry of Public Works and Transport of Laos, 50 meters of land on either side of the tracks was reserved for the railway's developers. The final station was Thanaleng station. Xay Village in Xaythany District was to be the site of Vientiane Station, the largest station on the railway.

Upon completion, the Laos-China Railway was expected to reduce the time necessary to travel from Mohan-Boten to Vientiane from three days to less than three hours. According to a 2012 feasibility study, the internal rate of return (IRR) of the project was projected to be 4.56%.

Sinohydro Corporation, Power Construction Corporation of China, China Railway No. 5 Group, China Railway No. 2 Group, and China Railway No. 8 Group were the contractors responsible for implementation. The formal start of works was announced in December 2015. However, progress was initially slow due to unresolved property issues as well as detailed design works.

A groundbreaking ceremony did not take place until December 25, 2016. (Note: An earlier groundbreaking ceremony was abandoned in 2011 after reports emerged that China was demanding large land concessions along the railway line in return for funding its construction.) Large scale implementation began in the summer of 2017.

By mid-2018, the project had achieved a 20% completion rate. Then, on March 27, 2020, the first 500-meter-long track segment was successfully laid in Vientiane. Construction of the Vientiane Railway Station commenced on July 3, 2020. Railway infrastructure was reportedly 90% complete as of July 2020.

On October 6, 2021, the China-Laos railway station opened in Vientiane. The project was completed on October 12, 2021, and was put into commercial use later in December 2020. Then, on October 16, 2021, the first train made its public debut in Vientiane, ahead of a test run. The originally expected project completion date was December 2, 2021.

The opening ceremony for the China-Laos Railway Project, which was attended (via video link) by Chinese President and President of Laos Thongloun Sisoulith, was held on December 3, 2021.

There are multiple indications that the China Eximbank loan for this project may have financially underperformed vis-a-vis the original expectations of the lender. In 2020, the Laotian authorities urgently sought debt relief from China Eximbank.

At that time, the gross reserves of the Bank of Laos stood at only 1.5 months of import cover and credit rating agencies warned of a high default probability.

In 2020, China Eximbank also agreed to reprofile multiple loan agreements that it had previously signed with the Government of Laos (as captured via Record ID#96464).

These debt service payment deferrals lasted for approximately 4-years (2020 and 2023) and provided approximately $1.892 billion of cash flow relief ($1.422 billion in deferred principal payments and $470 million in deferred interest payments). Deferred principal and interest repayments in 2020 were worth $202 million.

Deferred principal and interest payments were worth $426 million in 2021. Deferred principal and interest payments were worth $594 million in 2022. Deferred principal and interest payments were worth $670 million in 2023.

📋 Staff Comments

This project is also known as the Construction of the Lao Section of the Kunming–Singapore Railway Project, the Boten-Vientane Railway Project, the Mohan-Vientiane Section of China-Laos Railway Project, and the Kunming-Vientiane High-Speed Railway Construction Project. The Chinese project title is 中老铁路 or 中老铁路项目. The Lao project title is ທາງລົດໄຟ ລາວ-ຈີນ.
The China Eximbank loan that was issued to the Government of Laos in support of the China-Laos Railway Project is included in the Overseas Development Finance Dataset that Boston University’s Global Development Policy Center published in December 2020. However, the China Eximbank loan that was issued to the Lao-China Railway Company, which is partially owned by the Government of Laos, in support of the China-Laos Railway Project is not included in the Overseas Development Finance Dataset that Boston University’s Global Development Policy Center published in December 2020.
One source (https://www.dropbox.com/s/4vkfs6kiqdbfwtf/Deals%20of%20the%20year%202019%20_%20China%20Business%20Law%20Journal.pdf?dl=0) refers to the face value of the China Eximbank loan that was issued in June 2019 as $3.65 billion USD rather than $3.54 billion USD. Also, IJGlobal (https://ijglobal.com/articles/132371/belt-and-road-the-next-phase and https://ijglobal.com/data/transaction/36637?name=Boten-Vientiane%20Railway%20Line%20(414KM)&link=%2Farticles%2F132371%2Fbelt-and-road-the-next-phase) identifies the date of financial closure for the China Eximbank loan as October 25, 2019 rather than June 2019. These issues warrant further investigation.
JunZeJun Law Offices advised the Export-Import Bank of China on its 2019 loan agreement with Lao-China Railway Company, and ZICO Law advised on Laos law.
One source (https://www.junzejun.com/News/1756599ff35dfe-d.html) suggests that the $480 million loan agreement with China Eximbank was signed in January 2017 rather than September 2016. This issue warrants further investigation.

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