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Financing of KIT's Basslink project goes into technical default due to fee delay

KEPPEL Infrastructure Trust (KIT) said on Tuesday that a delay in facility fees to its Australian electricity interconnector subsidiary Basslink has triggered a technical default on the project financing behind Basslink - a default that comes only as the shortfall in fees has meant that Basslink's project financing structure technically failed to meet the required debt service coverage ratio

The delay reflects disagreement over a two-month service outage this year between Basslink and Hydro Tasmania (HT), which is run by the Australian state government and that pays the facility fees now in question.

KIT said that the outage, first announced on March 28 this year, occurred as a third-party contractor had damaged a piece of equipment during routine maintenance. The Basslink interconnector, which links the Tasmanian state’s electricity grid to the Australian mainland, returned to service on June 5.

But Basslink did not receive facility fees for the period of the 2018 outage, as HT “does not accept” that the 2018 outage was a “force majeure” event. HT did not pay Basslink the full facility fees from July to August 2018.

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Consequently, Premier Finance Trust Australia, the finance company for the Basslink group of companies, is unable via its trustee to meet the minimum debt service coverage ratio (DSCR) under the project financing for the Basslink Interconnector, thus resulting in a default.

“Following HT’s resumption of payment of the full facility fees from September 2018, the borrower expects to meet the minimum DSCR under the project financing by September 2019 as the DSCR is computed on a trailing 12-month basis,” KIT said in a press statement.

It added that an advance payment of A$4.1 million (S$4 million) had been made by the insurer to Basslink in July 2018 for business interruption loss.

KIT has said that discussions remain ongoing with banks on the subsisting defaults under the project financing for the Basslink interconnector. To date, Premier Finance Trust Australia remains current on the debt service and all payments due under the project financing have been fulfilled.

KIT expects no material financial impact on the distribution per unit of KIT for the financial year ending Dec 31, 2018, from this.

The 2018 outage is unrelated to the outage of the Basslink Interconnector that occurred on 2015. But Basslink remains locked in dispute with the state of Tasmania over the 2015 incident.

Units of KIT closed on Tuesday at S$0.46, down half a Singapore cent.