China Eximbank suspends debt service payments on 5 buyer’s credit loans for various projects from January-June 2021 (Linked to Record ID#54087, #35266, #54423, #54415, #53820)

In response to the COVID-19 pandemic and the G20 Finance Ministers and Central Bank Governors meeting that took place on April 15, 2020 and on November 13, 2020, the Chinese Government agreed to work with other G20 members to implement the Debt Service Suspension Initiative (DSSI). Then, on November 19, 2020, China Eximbank and the Government of Pakistan signed a debt suspension agreement [No.

DSSI2021PHASE1-040].

Under the terms of the agreement, the lender agreed to suspend principal and interest payments due between January 1, 2021 and June 30, 2021 under five buyer’s credit loan (BCL) agreements that the Government of Pakistan and China Eximbank signed between 2013 and 2016: a $448 million BCL for the 969 MW Neelum-Jhelum Hydroelectric Project (captured via Record ID#35266), a $576 million BCL for the 969 MW Neelum-Jhelum Hydroelectric Project (captured via Record ID#54087), a $361,224,830.37 BCL for Sukkur-Multan Section of Karachi-Lahore Highway Project (captured via Record ID#54415), a $164,400,706.78 BCL for Phase 2 (Thakot-Havelian Section) of the KKH Highway Repair Project (captured via Record ID#54423), and a $203,250,000 BCL for the Lahore Orange Line Metro Project (captured via Record ID#53820).

The total estimated suspension amount under the BCLs was $58,352,816.07.

However, at the time that the parties signed the debt suspension agreement, they both acknowledged that the total suspension amount would ultimately be determined at the end of the suspension period (since loan disbursements could be made during the suspension period and the lender agreed to suspend the payment of interest accrued on any disbursements during the suspension period).

The lender and borrower agreed that the suspension of debt service would be undertaken on a net present value (NPV)-neutral basis.

Therefore, the borrower agreed to pay interest accrued on the amount outstanding under the total suspension amount (‘Suspension Interest’) by paying the Suspension Interest on the amount outstanding under each loan agreement’s suspension amount at the same rate of interest set forth in the original loan agreement.

The first scheduled repayment date for the total suspension amount under the BCLs was July 21, 2022 and the last scheduled repayment date for the total suspension amount under the BCLs was January 21, 2027.

Under the terms of the debt suspension agreement, the lender and the borrower also agreed that ‘[t]he suspension interest on the amount outstanding under the Suspension Amount concerning each Loan Agreement shall be calculated on the basis of the actual number of days elapsed and a year of 360 days, from and including the Repayment Date/Repayment Date of Principal and Interest falling within the Suspension Period to the date of payment in full of the corresponding Suspension Amount, and shall be paid in arrears on each Interest Payment Date under the corresponding Loan Agreement.’ The borrower also agreed that (1) ‘it shall continue to perform all its obligations […] under the Loan Agreements as supplemented and amended by [the debt suspension agreement]’; (2) ‘it shall use the created fiscal space to increase social, health, or economic spending in response to the COVID-19 crisis […]’ and ‘work closely with the International Financial Institutions who are expected to put in place a monitoring system’; (3) ‘it shall disclose to the Lender all Public Sector Financial Commitments (as defined in the Government Finance Statistics Manual 2014 (GFSM2014)), respecting commercially sensitive information’; and (4) ‘it shall contract no new non-concessional debt during the Suspension Period, other than agreements under the DSSI’.