Busy first half for Gulf bankers

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Finance will be in strong demand in the first half of 2006 as several IWPPs look to close. Fortunately banks are easier to find than EPC contractors.

Regional and international banks are preparing to finance the next wave of IWPPs starting with Saudi Arabia’s landmark Shoaiba project. This will be followed towards the end of the first quarter by Qatar’s Ras Abu Fontas B2 project and, at the start of the second quarter, by the Hidd IWPP in Bahrain. Financial close of the brownfield Fujairah IWPP in the UAE is also scheduled for the second quarter.

The financing documents for Shoaiba were signed on 21 December and financial close of the project is expected during the third week of January. The original group of five mandated lead arrangers (Riyad Bank, Saudi Hollandi Bank, Arab Bank, ABN Amro and Korea Exim Bank) has been joined by over 20 other banks which are underwriting the project’s commercial debt portion.

International banks signing up with the MLAs include Bayerische Landesbank, HSBC, HSH Nordbank, KBC Bank, Mizuho, Natexis Banques Populaires, NordLB, Société Générale, Standard Chartered Bank (SCB), Sumitomo Mitsui Banking Corporation (SMBC), and WestLB. These have been joined by Saudi, regional and Malaysian banks.

The commercial bank portion comprises an $875 million conventional loan ($947 million including standby facility) and a $210 million Saudi Riyal equivalent Islamic tranche. Both facilities have 20-year maturities. A further $855 million export credit portion comprises a $400 million guarantee facility provided by Germany’s Euler Hermes and a direct loan of $455 million from the Korea Exim Bank. Both facilities have 17½-year maturities. Total project debt, including the standby facility, is $2,012 million. The 20-year loan tenors are a Saudi record and a joint GCC record.

The Shoaiba financing package also includes a $530 million equity bridge loan ($548 million including standby facility) which has been arranged by Mizuho and Gulf International Bank. The facility has a six-year maturity, which is a first for Saudi Arabia and a GCC record tenor.

A number of factors have enabled the deal to reach this stage, not the least the legal and regulatory framework which has enabled lenders to carefully assess and mitigate the risks. Standard Chartered Bank played a key role on the transaction, advising on the power and water purchase agreement (PWPA) negotiations, enforceability issues under the PWPA, and on the export credit and commercial bank facilities. On a project where the total debt financing is around $2 billion, it was important to secure commitments from a mix of domestic and international lenders, according to Abhay Ketkar, director of SCB’s project and export finance group. “We got a strong commitment from all parties, including the Saudis”, he said. “This was important on a deal of this size. The export credit agencies were also extremely cooperative”.

Riyad Bank was singled out for particular praise by a number of project sources for its commitment to the deal on the MLA side. Shoaiba is the bank’s first significant private water debt financing (see Bank of the Year nominations, p.31). It has committed $100 million to the commercial debt facility and $25 million of Islamic finance.

The banking sector’s appetite for Middle East IWPPs will be further tested in the coming months by three other deals, all of which have tight deadlines.

Qatar’s Ras Abu Fontas B2 project is already in the market. Developer Qatar Electricity & Water Company (QEWC) is being advised by HSBC which has approached a number of banks including the MLAs of the Ras Laffan B project financing which closed in May 2005. The debt portion will be around $500 million and financial close is due during the first quarter.

Six MLAs have signed up for the much bigger Hidd IWPP, which involves the acquisition of a 910MW power plant and 136,500m3/d (30MIGD) desalination facility as well as construction of an additional 272,765m3/d (60MIGD) of desalination capacity. The six banks are Gulf International Bank, KfW, Mizuho, Royal Bank of Scotland, SMBC, and Standard Chartered Bank. Total project costs are in excess of $1 billion comprising $738 million to purchase the existing assets and around $350 million of EPC costs. The debt to equity split will be 85:15. Bankers contacted by GWI are confident that both deals will be financed with few problems.

Hidd project agreements are due to be signed on 17 January with financial close targeted for the end of March or start of April. Fujairah has a May deadline for financial close although ADWEA is still to shortlist bidders. Sembcorp Utilities has submitted the best price for the project although it is only $5 million above an offer from Suez Energy Middle East.