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26| pfi | Middle East Report 2009 Project finance

Project finance takes stock

he deal that has been signed was the US$100m five-month bridge loan to fund initial construction on the Abu Dhabi Sewerage Services Company (ADSSC) sewage treatment plant being built in joint venture with Veolia and Besix. The deal is priced at 190bp with fees at around 100bp. The funding banks are Calyon, NBAD and Natixis. The funding is following a similar template to the larg- er Shuweihat 2 independent water and power project (IWPP) scheme in Abu Dhabi, being developed by ADWEA and Suez. A bridge loan first, given the need to raise money quickly, then a longer-term project finance take- out. The Shu 2 loan was put in place late last year with six banks.


Both the ADSSC and Shuweihat 2 long-term loans are now being pitched to banks – ADSSC is a US$400m nine-year mini-perm that terms out into a long-term 20-year financing. Shuweihat 2 is a US$2.2bn 22-year deal half funded by JBIC with commercial banks being asked to stump up the rest. ADWEA, the state power and water utility, is running both fundings. Marubeni is expected to join the Shu 2 team, hence the involvement of JBIC.

Both these deals will test the market and provide new benchmarks in the recovery. There is some guidance from the market activity this year as to whether they will be successful. The project finance market globally has been taking stock in 2009. Last year saw record volumes transacted but sentiment dropped dramatically after the Lehman collapse on 9/15. Liquidity disappeared for all but the shortest tenored deals and, of course, project finance is a long-tenored business. Some deals were still finalised – such as Mubadala's Sorbonne uni- versity in Abu Dhabi and the Sanmar petrochemical deal in Egypt (profiled in this supplement) – but these were mainly legacy deals pre-9/15.

There has only been one project

finance deal transacted this year in the Gulf and that was a cor- porately backed bridge loan. Yet actu- al activity in the market has been far from muted and some has set the groundwork for a recovery. By Rod Morrison.

The activity this year has been very much "new era". Sponsors and government-linked entities have been test- ing what is available from the market and concentrating on getting deals done – rather than aggressively seeking finance. It is in the spirit of bookbuilding and consensus building that both ADSSC and Shu 2 will go out. The two big Gulf project finance deals thus far this year – Ad Dur and the Dolphin refinancing – have proceeded successfully. But they have proceeded slowly, certainly a lot more slowly than they would have done even a year ago. In addition, the terms and condi- tions of the loans have changed remarkably. The fees and margins are much higher and the tenors are limited. The deals that follow these two will hope tenors can be lengthened, now the concept of longer-term lending has been re-introduced. As for margins and fees, perhaps they will fall too but no-one is expecting a big re-correc- tion downwards.

Ad Dur has been very much a book and consensus exer- cise and it has taken nearly all year to put together. But the finishing line is in sight. The US$1.7bn deal will fund an independent water and power project (IWPP) in Bahrain won by Suez and its local partner GIC last year. The French giant had proposed a long-term financing but had to alter its plans following 9/15 and, after a mar- ket sounding, offered the banks market an eight-year mini-perm in January with high pricing, compared with what could have been achieved a year ago. To compen- sate Suez for the extra financing costs, the Bahrainis have increased the power and water purchase agreement (PWPA) by five years in return for a share of the gains from refinancing the loan that is now being put in place. However, no tariff increase has been agreed. The pricing initially offered to banks was 250bp flat but even this had to be increased during the spring to 290bp during construction, 315bp for the 2.5 years post-con- struction then 365bp. The fees remain the same at 200bp

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