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Middle East Report 2010| pfi| 29 Emirates Steel

Innovative Emirates Steel


n August 2010, Emirates Steel closed the financing of its US$2.5bn expansion project, with US$1.6bn of senior debt facilities and US$600m of subordi- nated working capital facilities making this the sin- gle largest steel financing ever closed in the Middle East and one of the largest project financings closed in the region this year. The debt was raised through a three-stage funding programme, which re- financed US$1.2bn of bridge loan facilities that were raised in 2008 at both the Emirates Steel and GHC level. The financing comprised of: 0A US$733m conventional project financing raised at the Emirates Steel level; 0A US$367m Sharia-compliant Islamic project financing raised at the Emirates Steel level; 0A US$500m SACE-covered term loan raised at the GHC level; and 0 US$600m of subordinated working capital facilities arranged on a bilateral basis.

The financing structure incorporates a combination of tried and tested precedents, together with innovative vari- ations, which were necessary to achieve a successful financing.


Originally established in 2001 as Emirates Iron & Steel Fac- tory (EISF), Emirates Steel is indirectly wholly-owned by the government of Abu Dhabi, through GHC, and is strategically located at the recently developed Industrial City of Abu Dhabi (ICAD). The company acts as the plat- form for the Government of Abu Dhabi’s initiative to estab- lish a leading local and regional integrated steel producer. Emirates Steel is a key element in the development strategy of the Emirate, which involves the industriali- sation and diversification of its economy, with strong fun- damentals underpinned by an access to abundant and low-cost energy resources.

Jean-Marc Mangiavellano, Ian Cogswell and Antoine Trieuxof Natixis,

financial adviser to both Emirates Steel Industries and its parent company General Holding Corporation, explain the financing of Emirates Steel’s US$2.5bn expansion project.

The original factory was already the largest steel plant in the UAE, utilising the latest rolling mill technology to produce reinforcing bars (rebars) for the construction industry. It remains the only significant domestic supplier of rebars and the original rolling mill had a design capac- ity of 600,000 metric tons per annum (tpa). In 2006, Emirates Steel announced a significant expan- sion of its activities, to be undertaken in two phases. The Phase 1 Expansion comprised a 1.6m tpa direction reduction plant (DRP), a 1.4m tpa steel melt plant (SMP), a 0.62m tpa rebar rolling mill (RM2) and a 0.48m tpa wire rod and coil rolling mill (RM3), together with associated infrastructure and facilities, which was completed in December 2009.

The Phase 2 expansion will comprise a 1.6m tpa DRP, a 1.4m tpa SMP, a 1m tpa heavy sections rolling mill (RM4) and associated infrastructure and facilities. The DRP and the SMP of the Phase 1 and Phase 2 expansions pro- grammes are sister plants and are scheduled to be com- pleted by December 2012. Construction of both Phase 1 and Phase 2 (jointly, the expansion project) is being undertaken by Italian firm Danieli & C Officine Spa . While the expansion project is not yet fully complet- ed, Emirates Steel is already now one of the leading steel producers in the Middle East. The output capacity currently stands at 2m tpa and should reach 3m tpa by 2011, moving the company closer to becoming the Mid- dle East region’s largest steel manufacturer.

The financing

The financing needs of Emirates Steel (debt amount to be raised) were substantial, amounting to US$2.2bn includ- ing subordinated working capital facilities. This represents the largest ever steel industry financing in the Middle East region. In structuring the project financing there were a number of key considerations to be taken into account, which included:

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