Completed Commercial AidData Chinese Aid

China Merchants Port Holdings Company Limited provides $150 million supplier's credit for Djibouti International Free Trade Zone (DIFTZ) Expansion Project (Linked to Record ID#85139, #97763)

$150M USD

Funder	China Merchants Port (CMPort) Holdings Company Limited
Recipient Organization	Khor Ambado Free Zone Company (FZCO)
Country	Djibouti
Start Date	Nov 10, 2017
End Date	Apr 21, 2032
Duration	5,276 days
Number of Grantees	1
Roles	Recipient
Data Source	AidData Chinese Aid
Grant ID	`59393`

Grant Description

China Merchants Port Holdings Company Limited provides $150 million supplier's credit for Djibouti International Free Trade Zone (DIFTZ) Expansion Project On March 24, 2015, Hu Jianhua, General Manager of China Merchants Group (CMG), and the President of Djibouti signed a cooperation framework agreement for a free trade zone (FTZ).

Then on January 18, 2016, CMG and the Djibouti Port and Free Trade Zone Authority (DPFZA) held a signing ceremony for a framework agreement for the Djibouti International Free Trade Zone (DIFTZ) Expansion Project. CMG then signed a project contract on January 15, 2017.

Three days later, on January 18, 2017, Khor Ambado Free Zone Co. (FZCO or Djibouti Asset Company) — a special purpose vehicle and joint venture between Port of Dalian Authority Group (10% equity stake), China Merchants Shekou Industrial Zone Holdings (招商局蛇口工业区控股股份有限公司) (6% equity stake), China Merchants Investment Development Co., Ltd (CMID) (12% ownership stake), China Merchants Port Holdings Co., Ltd (12% ownership stake), and the Djibouti Ports & Free Zones Authority (DPFZA) (60% equity stake) — was established (legally incorporated) to develop commercial and infrastructure projects within the Djibouti International Free Trade Zone (DIFTZ).

Then, on November 10, 2017, China Merchants Port Holdings Company Limited (CMP) issued a $150 million supplier’s credit (‘CMP Loan Facility’) agreement with Khor Ambado Free Zone Co. for the Djibouti International Free Trade Zone (DIFTZ) Expansion Project.

📋 Loan / Grant Terms

📅 Maturity1.25 years

💹 Interest Rate5%

The Government of Djibouti — through the state-owned Djibouti Port and Free Trade Zone Authority (DPFZA) — issued a sovereign guarantee for repaying the supplier's credit.

The loan was collateralized by a share pledge over 15.3% of the shares held by Great Horn Investment Holdings SAS (a subsidiary of DPFZA) in a China-Djibouti joint venture called Port De Djibouti S.A., which is co-owned the Government of Djibouti (76.5% equity stake) and China Merchants Port Holdings Company Ltd. (23.5% equity stake).

Khor Ambado Free Zone Co. used the supplier's credit (loan) facility to on-lend to Port De Djibouti S.A. (PDSA).

Then, in 2019, China Development Bank and Khor Ambado Free Zone Co. signed a $240 million loan agreement (ID#4430201901100002407) for the Djibouti International Free Trade Zone (DIFTZ) Expansion Project.

📋 Loan / Grant Terms

📅 Maturity13 years

⏳ Grace Period3 years

China Merchants Shekou Industrial Zone Holdings Co., Ltd. provided a loan guarantee worth $14.4 million (6% of $240 million CDB loan). The Government of Djibouti provided a sovereign guarantee for 60% of the face value of the loan ($144 million).

The DIFTZ is a 40-hectare zone that consists of three functional blocks located close to all of Djibouti’s major ports.

The purpose of the DIFTZ is to support industries such as the logistics, marine, construction, automotive, and home electrical industries.

It is equipped with advanced facilities including high-speed telecommunications, power and water supplies, roads and parking lots.

The pilot zone has four industrial clusters which focus on trade and logistics, export processing and business support: (1) Logistics Industry Cluster: transportation, bonded warehousing, logistics and distribution; (2) Business Industry Cluster: bulk bonded goods transactions, merchandise display, duty-free merchandise retail; (3) Business Support Cluster: financial services, information services, hotel dormitories, office buildings, training, intermediary services; and (4) Processing Manufacturing Cluster: packaging production, light processing of incoming materials, food processing, marine products, auto parts assembly.

China Merchants Holdings (Djibouti) FZE (“CM Djibouti”) was the company responsible for project implementation.

On January 16, 2017, Djiboutian President Guelleh and General Manager of China Merchants Group Hu Jianhua unveiled the launch area and laid a foundation stone for the DIFTZ expansion project.

The first phase of the project, which involved upgrading and expanding the port facilities of DIFTZ, was officially opened on July 5, 2018.

There are some indications that the $150 million CMP loan for the DIFTZ expansion project financially underperformed vis-a-vis the original expectations of the lender. In September 2018, the Government of Djibouti nationalized the Dolareh Container Terminal (DCT), an asset held by PDSA.

The change in DCT ownership affected PDSA's expected profits because PDSA's profits included dividend receivables from DCT.

As a result, the potential chargeable interest on the CMP loan facility, which would be determined in part by PDSA profits, was rendered invalid. The DCT nationalization also affected DPFZA's share pledge value. On November 9, 2018, CMP extended the loan's final maturity date by another 6 months (as captured via Record ID#97763).

📋 Staff Comments

This project is also known as Phase 1 of the Djibouti International Free Trade Zone (DIFTZ) Project and Phase 1 of the DIFTZ at PK 23 Project. The Chinese project title is 吉布提国际自贸区于 or 布提自贸区建设项目.
The Djibouti Port and Free Trade Zone Authority (DPFZA) is the sole government authority in charge of the administration and the control of all the free zones and ports in Djibouti.
On March 28, 2019, Khor Ambado Free Zone Co. (FZCO or Djibouti Asset Company) — a special purpose vehicle and joint venture between Port of Dalian Authority Group (10% equity stake), China Merchants Shekou Industrial Zone Holdings (招商局蛇口工业区控股股份有限公司) (6% equity stake), China Merchants Investment Development Co., Ltd (CMID) (12% ownership stake), China Merchants Port Holdings Co., Ltd (12% ownership stake), and the Djibouti Ports & Free Zones Authority (DPFZA) (60% equity stake) — entered into a land lease agreement (the “Land Lease Agreement”) with China Merchants Holdings (Djibouti) FZE (“CM Djibouti”), a subsidiary of China Merchants Port Holdings Company Limited, pursuant to which the Djibouti Asset Company as lessor would sub-lease a parcel of land with an area of 137,801.63 square meters within the Djibouti International Free Trade Zone (the “Djibouti Lease Land”) to CM Djibouti as lessee, for a term commencing on the date of the Land Lease Agreement and ending on August 14, 2116. The Lease Land shall be used for the purposes of carrying out logistics, commerce and trade activities within the Djibouti International Free Trade Zone. CM Djibouti shall pay to the Djibouti Asset Company (i) an aggregate amount of $27,756,004.31 (equivalent to approximately HK$216,497,000) for the full term of the Lease, (ii) a deposit of US$200,000 (equivalent to approximately HK$1,560,000) in addition to the rent and (iii) property management fees at an annual rate of US$1.00 (equivalent to approximately HK$7.80) per square meter of the surface area of the Djibouti Lease Land. The Djibouti Asset Company is an associate of CMG, the ultimate holding company of China Merchants Port Holdings Company Limited.
Under the BRI banner, Chinese SOEs, especially China Merchants Group (CMG), have been attempting to replicate elements of its “port in front-(industrial) park in the middle-city behind” or Port-Park-City (PPC) model in Africa. The model is based on the Shekou Industrial Park in Shenzhen city in China’s Guangdong Province, established in 1979. It was the country’s first special economic zone, and it sparked Shenzhen’s growth as a commercial and industrial hub. CMG’s efforts to build the village of Shekou into a world-class industrial zone resulted in an area without basic infrastructure being transformed into a modern metropolitan center. The Shekou Model “entails developing adjacent industrial parks, commercial buildings, highways, free trade zones, residential areas, and power plants.” With the focus on the port, the model does not aim only to facilitate the transportation of goods but to “develop a larger, integrated system that helps sustain the port and is sustained by it in turn”. In 2017, Li Xiaopeng, president of CMG, mentioned that his company is using the Shekou Model as a template or a concept that can be applied and tweaked to adjust to its port projects worldwide.
For the time being, AidData has estimated the annual interest rate that applied to the November 2017 CMP facility (loan) as 5%. However, the interest rate was in fact to be determined by the highest of two rates: (1) a 5% per annum interest rate on the outstanding loan amount, or (2) 50% of the interest payable by PDSA to Khor Ambado Free Zone Company (FZCO) in the relevant year.

📚 Sources & References

China in Africa: Phoenix nests versus Special Economic Zones
Ports Chinois et Nouvelles Routes de la Soie
Why Djibouti’s China debt is raising the alarm
国家开发银行副行长袁力一行访吉
葛华参赞出席吉布提自贸区先导区开工典礼仪式
吉布提总统盖莱出席吉布提自贸先导区合作框架协议签约仪式
招商国际与吉布提自贸区签署“吉布提自贸区项目合作框架协议”
Thanks to China
Africa’s largest free trade zone has launched in Djibouti
Djibouti Inaugurates Africa's Largest Free Trade Zone
RE- Query re- Chinese lending to Djibouti
Chinese engagement in Djibouti's economic transformation in a nutshell
吉布提的中非自贸区
中企参建的吉布提国际自贸区开园
Overview
Djibouti International Free Trade Zone Single Window Platform
吉布提国际自由贸易区：打造“一带一路”在非建设支点
Djibouti launches China-built free trade zone
China Mer Port (00144) to form JVs with parent & partners
Djibouti Nationalizes Port Company Stake in DP World Dispute
Djibouti International Free Trade Zone
Infrastructure & Investment of Ports and Free Zones
Silk Road to the Sahel: African ambitions in China’s Belt and Road Initiative
IMF Correspondence re- Djibouti-Galileh Road
Damejog Port Crud…l Airport in Obock
新华网：国开行：向非洲提供投融资超过500亿美元
Chinese Loans to Africa Database
Djibouti Needed Help
China Had Money, and Now the U.S. and France Are Worried
LOAN FACILITY TO KHOR AMBADO FREE ZONE COMPANY FZCO
Daily Briefing 21 August 2017
CHINA MERCHANTS PORT GROUP CO.
LTD. ANNUAL REPORT 2018
Port Report: China Merchants rejiggers debt for Djibouti free-trade zone after Doraleh Container Terminal seized
China Merchants Shekou: Announcement on Providing Associated Guarantee for Equity Subsidiaries
招商局蛇口工业区控股股份有限公司关于与关联方共同投资设立招商澎湃系列股权投资基金的关联交易公告
Sovereign guarantee for 2016 ICBC Loan
Annual Report 2019
Africa: Why Djibouti’s China debt is raising the alarm
FINANCIAL STATEMENTS FOR THE PERIOD FROM 1 JANUARY TO 30 JUNE 2021
China Merchants Port : CONNECTED TRANSACTION - EXTENSION OF LOAN FACILITY TO KHOR AMBADO FREE ZONE COMPANY FZCO
Le président de l’Autorité des ports et des zones franches de Djibouti(APZFD) reçoit une délégation de la Banque Chinoise de Développement (China Development Bank)
DRS Official Commitments from China through 2020
Construction begins on Djibouti International Free Trade Zone (DIFTZ)
China Merchants Group Exporting Its Shekou Model of Port-industrial Development to Africa
吉布提国际工业园区运营有限公司与北京氢纪元能源科技有限公司签署合作备忘录
China Loans to Africa
Annual report 2017 Loan applications and disbursements are still being received and processed as the projects continue to evolve. Ongoing monitoring and evaluation are in place to ensure project continuity.