Summit Power International, the largest independent power producer in Bangladesh, has played a crucial role in the nation's energy sector by ensuring a reliable electricity supply to millions of people. With a strategic vision to expand and attract foreign investors and partners, Muhammed Aziz Khan, Summit's founder and chairman, headquartered SPI in Singapore, a decision designed to bolster its credibility in global financial markets.
By adhering to international standards of financial transparency and regulatory compliance, Summit has successfully drawn foreign direct investment from major global players, strengthening its position as a key energy provider in South Asia.
Summit's leadership considers the 2016 founding of SPI by Muhammed Aziz Khan, a native of Bangladesh, a critical turning point in Summit's history. The deal, which included financing from the International Finance Corporation, gave Summit access to a wider range of financing options. Companies based in Singapore attract large amounts of foreign direct investment to South Asia, and the country is a leader in the powerful and growing Association of Southeast Asian Nations.
Ayesha Khan, SPI's managing director and CEO, says the move to Singapore is "one of the most important things that defines us." She adds that some within Bangladesh may not fully understand the implications of the move to Singapore.
"One of the reasons that we did this structure—and IFC helped us to do this structure—is really to help us access the governance of Singapore, the laws of Singapore, and the financial markets of Singapore," she says. "What Bangladesh has is a lot of opportunities and a lot of growth. But what it lacks is governance, and what it lacks is a mature financial market, both of which are very much necessary to do long-term infrastructure projects, which is what we want to do for Bangladesh."
Summit Group Attracts Foreign Investors Looking for Stability and Growth
Foreign investors prioritize transparency, compliance, and corporate governance. SPI's commitment to high standards in these areas has been instrumental in securing long-term partnerships. Operating within Singapore's financial regulatory system, the company adheres to international best practices in areas such as corporate governance and reporting standards. This makes SPI more attractive to investors looking for growth opportunities and stable income.
"The idea is to set up Summit Power International as a platform for attracting both investments and funding to new projects in Bangladesh, as well as to grow this platform to look at projects outside Bangladesh," says Wu Yan Bin, SPI's chief financial officer.
He notes that the power market in Bangladesh is different from commercial markets in developed countries such as the U.S. or Australia. Power plants in Bangladesh come with a power purchase agreement with the government utility, called the Bangladesh Power Development Board. Electricity tariffs, or rates, are negotiated and locked in for the duration of a multi-year power purchase agreement.
"This means that a lot of the financiers are able to take comfort that there is certainty in terms of the cash flow through this pre-agreed tariff structure that is also indexed to USD," Yan Bin says. "And that is why we have been able to unlock long-term USD financing from the international financiers."
Part of the equation is also the ability of SPI to lower its weighted cost of capital. This refers to a company's average after-tax cost of capital from all sources—stocks, bonds, and other forms of debt. It represents the average expected cost for a company to finance its business.
Foreign direct investment helps in this area, as well. A key way to lower the weighted cost of capital is to attract the best financing rates. By basing out of Singapore, SPI has access to USD-denominated loans at lower interest rates than what's currently offered in Bangladesh.
"I'm not saying it is impossible to attract USD financing sitting in Bangladesh," says Ayesha Khan. "But the loan tenure becomes much shorter and the cost of borrowing becomes much higher. Our aim is to bring our weighted average cost of capital down. That is what makes it possible to provide a low price for electricity."
Examples of Summit Group's Foreign Direct Investment and Partnerships
A prime example of Summit's success in attracting foreign direct investment is its collaboration with General Electric for the Summit Meghnaghat II power plant. Located near Bangladesh's capital city of Dhaka, this 583-megawatt combined cycle gas power plant stands as a testament to Summit's ability to forge strong international partnerships. The project managed to secure one of the largest project finance loans in Bangladesh at highly competitive rates.
GE's involvement in this project extends beyond financial investment. The multinational conglomerate signed a 20-year agreement with Summit that includes engineering and construction services, as well as maintenance and repair support. The plant is equipped with one of GE's most efficient combined cycle gas turbines.
Summit leadership views the plant project as an example of the company's ability to attract investment and the importance of leveraging advanced technology to enhance Bangladesh's power generation capacity.
Another example is the decision by Japan's Jera Co. to acquire a 22% stake in SPI in 2019 for $330 million.
Yan Bin noted that working with international financiers brings another benefit: a high level of due diligence. He gave the example of paying an invoice to a contractor, which cannot happen without the lender's technical adviser ensuring that all project milestones to that point have been met.
As another example, he said any dividend payments to shareholders from a project are typically made at the lowest tier of the cash flow waterfall. Before any dividend distributions to shareholders, the project's cash flow must first meet all debt covenants and stringent debt service requirements verified via audited financial statements. Essentially, shareholders are the last parties to be paid after all other obligations are met.
"At the end of the day, whatever is available to be paid to the shareholders is at the bottom of the cash flow waterfall," says Yan Bin. "There are a lot of checkpoints."
Ayesha Khan points out that Summit is uniquely qualified as a power provider in Bangladesh. "We have been trying and working toward a strategy where we have the best of both worlds," she says. "The growth opportunities of Bangladesh, the close understanding of a Bangladeshi market by being a company that is originally from Bangladesh, but also being an international company having access to a mature financial market."
"We are really trying to bring a marriage of the best of both worlds and bring the benefits of that product to the people of Bangladesh."
