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32| pfi | Middle East Report 2010 Emirates Steel

ing the conventional loan to local and regional lenders that had developed strong relationships with both Emi- rates Steel and GHC enabled Emirates Steel to take advantage of favourable terms and conditions offered by close relationship banks. The final group of six MLAs included National Bank of Abu Dhabi, as global co-ordi- nating bank, together with Union National Bank, First Gulf Bank, Bank of Baroda, Arab Banking Corporation and Al Khaliji Bank.

The Islamic facility was structured as a standard forward lease (Ijara). The Islamic institutions acquired the assets (already constructed in the case of the Emirates Steel financing) and leased them back to Emirates Steel. Islamic finance is increasingly sought by borrowers in

the UAE and the wider Middle East region. Emirates Steel and GHC were no exception and consequently chose to maximise the size of the Islamic tranche, which supported the national objective of promoting Sharia- compliant borrowing. The facility was fully subscribed by the local institutions and MLAs on the transaction, Abu Dhabi Islamic Bank and Al Hilal Bank.

The syndication of these two facilities proved to be extremely successful and the total project finance facil- ities of US$1.1bn were more than two times oversub- scribed.

Supporting the project finance facilities was a US$500m SACE-covered facility at the GHC corporate level. This was offered to international lenders and was more than four times oversubscribed. Competition for this portion of debt was intense and bids were extremely competitive, with the result that GHC was able to obtain particularly attrac- tive terms from HSBC, which was appointed sole MLA. The SACE facility pricing helped minimise the project’s all-in financing cost. Finally, a further US$600m of bilateral subordinated working capital facilities, sized upon the combination of the current trends in the steel industry and the scale and integrated nature of the expanded plant, were negotiated directly between Emirates Steel and its core local banks, to ensure that, despite the significant working capital requirement, the most competitive terms could be achieved.

Commenting on the deal Stephen Pope, CFO of Emi- rates Steel, said: “This is a real vote of confidence by the local, regional and international banks in Emirates Steel and in Abu Dhabi’s wider ‘Vision 2030’ initiative. This suc- cessful financing represents a true coming of age for our company and it was achieved through strong support from GHC, excellent relationship with our banking group and a state of the art steel making facility based in Abu Dhabi.”


The final funding structure is unrecogn- isable from that

originally envisaged.

Financing for the Emirates Steel expansion project was first launched in 2006 and the final funding structure is unrecognisable from that originally envisaged. Howev- er, the project clearly demonstrates the values of perse- verance and flexibility. The sound underlying business rationale of Emirates Steel and its expansion project – to turn a simple low value-added rolling mill into a world- scale high value-added integrated steel complex – was widely acknowledged. However, the announcement of a second phase expan- sion, the global financial crisis and the restructuring of the global steel industry, all of which occurred during the financing process, resulted in a delay in closing the financing and a more innovative and multi-sourced financing than originally expected.

The willingness of GHC to support Emirates Steel with guarantees for the bridge financing confirmed to lenders the strategic nature of the project and persuaded them to stay with the transaction over the course of almost four years. In negotiating the financing terms, Emirates Steel acknowledged the need for a traditional project finance structure that would appeal to lenders in a more capital- constrained world and lenders responded with compet- itive pricing that acknowledged the strength of both the underlying business and of the multi-sourced finance structure.

The funding mix – conventional and Islamic project finance, SACE-covered corporate financing and bilater- al working capital facilities – ensured sufficient liquidi- ty for a financing of US$2.2bn in a notoriously cyclical sector and was key to the success of the transaction.

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