Thursday, 17 January 2019

Middle East & Africa Awards

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Middle East Power Deal of the Year – Sakaka  The 300MW Sakaka solar project set a range of important precedents in the global project finance market. The deal was won at a record low tariff at the time of bidding, US$0.02341/kWh, it was the first deal in the potentially huge Saudi renewables programme, and it was one of the first sole underwrites in the Gulf market for some time.

The loan has a soft mini-perm structure to year six and a 26-year tenor, with pricing on the soft mini-perm at 130bp and then 260bp thereafter. The power purchase agreement (PPA) runs for 25 years.

ACWA Power is the lead sponsor on the deal. It has 70% of the equity, with local power contracting company AlGihaz Holding having the rest. Natixis provided US$225m of project debt on the US$315m scheme, with Bank of China and Norinchukin initially joining the deal. Arab National Bank provided the equity bridge loan.

Mahindra Susten is the contractor and CHINT is supplying the panels. SMBC, DLA Piper and Fichtner advised the client – the Ministry of Energy, Industry & Mineral Resources’ (MEINR) Renewable Energy Development Office (REPDO). Hogan Lovells advised the lenders.

The kingdom is targeting 9.5GW of renewable energy capacity by 2023 as part of its National Renewable Energy Programme. The Sakaka deal is therefore significant as the front-running transaction in this important new renewables market.

It had some issues. The cheapest bid was ruled out as non-compliant and then there was a delay as the future direction of the programme was debated inside the kingdom. But the developer, the advisers and REPDO stuck to the project and worked on firming up the all important risk allocation template for future deals in the sector.

The deal has a newly formed Saudi offtaker, the Saudi Procurement Company, and a localisation requirement in the contract at 30%.

Middle East Petrochemical Deal of the Year – Duqm

The Duqm Refinery & Petrochemical Industries Company (DRPIC) financing was the major project deal in the Gulf region this year at US$4.6bn. The deal in some ways is a good old-fashioned multi-sourced project financing but it has a range of deal firsts.

In addition, the competitive financing – 16 years priced at 225bp to 350bp – was achieved against the background of pressure on sovereign ratings. The deal was oversubscribed. While the pricing was increased during the syndication phase the clean commercial tranche was upsized from 50% to 60% given the demand for the uncovered piece.

Firsts include the fact that the scheme is a cross-border project, with Oman Oil Company and Kuwait Petroleum International sharing the equity on the US$8bn project, that it will use crude from another country, Kuwait, and that it is the first scheme in the new SEZAD industrial hub.

The deal is a truly multi-sourced financing. There is a US$2.8bn commercial tranche split into an international US$1.4bn tranche, a US$900m Islamic tranche and a US$500m local tranche. The export credit agency (ECA) tranches are split into UKEF with US$700m, CESCE with US$500m and Kexim with US$600m.

The commercial banks on the deal are Ahli Bank Oman, Bank Dhofar, Bank Muscat, Bank Sohar, National Bank of Oman, Apicorp, Ahli United Kuwait, Boubyan Bank, Kuwait Finance House, Warba Bank, Banca IMI, Santander, BNP Paribas, Commercial Bank of Kuwait, Credit Agricole, Credit Suisse, HSBC, ICBC, Intesa Sanpaolo, KfW IPEX, Korea Development Bank, MUFG, National Bank of Kuwait, Natixis, Qatar National Bank, Societe Generale, Standard Chartered, SMBC and UBI Banca.

Credit Agricole was the financial adviser on the deal while Greengate advised the ECAs. Allen & Overy and Latham & Watkins were the lawyers. Jacobs Consultancy and ICIS were the technical and market consultants. JLT was the insurance adviser.

Middle East Clean Energy Deal of the Year – Sharjah WtE

The Sharjah waste-to-energy (WtE) project is the first WtE scheme to be financed in the Gulf region. A range of other schemes are being worked on in places such as Dubai, Abu Dhabi, Kuwait and Oman, but Sharjah got there first. Gulf states are moving away from landfill to more environmentally friendly disposal solutions. Another first for this deal – the financing is the first long-term project financing signed in Sharjah.

Mubadala’s renewables subsidiary Masdar and local company Gulf environmental management company Bee’ah put in place a US$164m financing to back their 300,000 tonnes-per-year, 27MW waste-to-energy scheme. Equity totalled US$60.4m.

Financial adviser SMBC, Siemens Bank, Abu Dhabi Commercial Bank, Abu Dhabi Fund for Development and Standard Chartered are in the bank syndicate. Islamic Development Bank’s ICIEC covered SMBC’s construction financing. This was the first syndicated loan deal for the Abu Dhabi Fund for Development.

CNIM is the contractor. The scheme is backed by a power offtake agreement from Sharjah Electricity & Water (SEWA) and the gate fee from Bee’ah, which has the contract to dispose of Sharjah’s waste.

Both payment streams are backed by a Sharjah Department of Finance guarantee, not a full UAE government guarantee. The revenue from the power sales is said to be the largest component of project income by far. The deal takes structuring methods from other WtE schemes in countries such as the UK and adapts them to the Gulf setting. Shearman & Sterling advised the sponsors and Clifford Chance advised the lenders.

The scheme will help Sharjah reach its zero waste to landfill target by 2020, with commercial operations date (COD) due in Q4 2020, and UAE to deliver its 2021 goal of diverting 75% of sold waste from landfill. The project will displace nearly 450,000 tonnes of CO2 emissions per year and save 45m cubic metres of natural gas every year.

Middle East Refinancings of the Year – Al Dur/Al Ezzel

Bahrain has had a challenging year in the international capital markets but it has been able to raise long-term project finance for a range of deals – including the Bapco refinery and Al Dur 2 independent water and power project (IWPP). Engie was involved in refinancing two of its IWPPs in the space of a month despite the market conditions – Al Dur 1 IWPP and Al Ezzel.

The US$1.3bn refinancing of the 1,234MW and 48m gallons per day Al Dur 1 scheme saw a new 10-year US$1.3bn deal priced above 300bp. It contained many of the banks in the current syndicate, plus BNP Paribas. Standard Chartered advised on the deal. The four main Saudi banks are joining the deal and will take around half the loan with a slightly longer tenor.

The deal was financed via a hard mini-perm in 2009 after the global financial crisis. Various issues meant the deal could not be refinanced and the loan entered a cash-sweep mode in 2014. Now the project and its financing are back on track. Latham & Watkins, Clifford Chance, Shearing & Sterling and Hassan Radhi & Associates advised on the deal. The scheme is sponsored by Engie and GIC.

The Al Ezzel refinancing for the same sponsors was more straightforward and took out debt from a 2004 deal via a new US$243m local bank deal. The new deal lengthens the debt financing on the project to the end of the power purchase agreement (PPA) in 2027. The new debt was provided by ABC, National Bank of Kuwait, Mashreq, National Bank of Bahrain and Ahli United. Covington advised on the deal.

The banks on the Al Dur deal are Alhi United, Al Rajhi, Arab Bank, ABC, ABC Islamic Bank, MUFG, Fransi, BNP Paribas, Credit Agricole, EDC, KfW IPEX, Mashreqbank, Societe Generale, Standard Chartered, NCB, KFH, Apicorp, GIB, Riyad and NBK.

Middle East Oil & Gas Deal of the Year – Energean Oil & Gas

Energean Oil & Gas had a transformative year in 2108 with its US$1.275bn 3.75-year bullet construction financing to fund its Karish and Tanin gas fields off Israel at the heart of its progress. The company took over the assets from the Delek Group in late 2016 and then moved steadily to develop and finance them.

It was a major step-up in scale for the formerly Athens-based company. By March 2018, it had secured the debt finance and then raised US$460m on the London Stock Exchange via an IPO.

The debt package was put together by Morgan Stanley as financial adviser. The other mandated lead arrangers were Natixis, Hapoalim and Societe Generale.

Local investors in the deal included Clal Insurance, Midgal Insurance, Psagot Investment, Harel Insurance Investments, Phoenix Holdings and Mizrahi Tefahot Bank. White & Case and Meitar advised Energean and Shearman & Sterling and HFN advised the lenders. Nauta Duttilh and D Law were Luxembourg counsel and Dr K Chrysotomides and Polakis were Cypriot counsel.

The deal is expected to be refinanced in the international bond market when construction of the fields is complete. The gas fields are due online in early 2019, giving a near one-year tail on the loan.

The company has signed firm gas sales agreements for 4.1bn cubic metres with domestic buyers, more than in the bank base case on the deal. The average life of the gas contracts is 16 years with a US$4/btu price floor and 75% covered by take-or-pay provisions.

The IPO was led by Citigroup and Morgan Stanley as global coordinators, plus RBC and Stifel Nicolaus as joint bookrunners, and Poalim IBI and Natixis as co-lead managers. Rothschild advised.

Energean is headed by chief executive Mathios Rigas. Former Kazakhmys chairman Simon Heale is the non-executive chairman and former Standard Chartered oil and gas project finance head Andrew Bartlett is a senior independent director. The company’s chief financial officer is Panos Benos, a former director in the StanChart oil and gas team.

Turkish Deal of the Year – Çanakkale 1915 Bridge

This summer, Turkey completed its largest project finance deal in recent history on one of the most high-profile construction projects undertaken by the state.

The closing of a €2.3bn debt-raising for the Çanakkale 1915 bridge is significant as one of the few internationally funded and developed infrastructure PPPs since the operational Eurasia Tunnel and Bosphorus Bridge.

A consortium of South Korea’s Daelim and SK, together with Turkey’s Limak and Yapi Merkezi, were awarded the concession for the toll-road project in February 2017.

The scheme consists of an 88km three-lane motorway between Malkara and Çanakkale, 48km of connection roads, and the €1.68bn bridge, which spans 2,023m, making it the world’s longest and Turkey’s second tallest upon completion. In total, capex is expected at up to €3bn.

Loans were provided by a group of 24 lenders from 10 countries, divided into eight tranches, over a 15-year tenor plus a five-year grace period for construction.

The Turkish bank tranche was €683m, around 30% of the total debt, and features Akbank, Finansbank, Garanti Bank, Is Bank, Vakif Bank and Yapi Kredi.

Under a €300m Islamic tranche, Kuwait Finance House provided €200m, joined by Kuwait Türk.

Bank of China and ICBC provided uncovered loans, while South Korea’s KEB Hana Bank, Shinhan Bank, and the Korean Development Bank all pitched in.

Four export credit agencies, K-Exim, K-Sure, EKF, and Islamic Corporation for the Insurance of Investment & Export Credit (ICIEC), a subsidiary of the Islamic Development Bank, provided various levels of cover, with K-Exim understood to have provided a €300m direct loan on top.

European banks coming in under cover from the South Korean ECAs and EKF include Standard Chartered providing just over €50m, ING, Natixis, Deutsche Bank, Siemens Bank, Intesa and DZ Bank.

This deal was also the first time international banks dealt with Turkey’s new debt assumption model, yielding a state-guarantee with 85% cover.

Standard Chartered was the financial adviser on the deal, with Shearman & Sterling advising the sponsor on legals, Clifford Chance and Verdi the legal advisers for the lenders, and Mott MacDonald the technical adviser.

African Renewable Programme of the Year – REIPPP 4

Round four of South Africa’s Renewable Energy Independent Power Producer Programme (REIPPP) experienced years of controversy and delays over the signing of 20-year power purchase agreements for 27 wind, solar, hydro and biomass projects.

Despite these trials and tribulations, the sponsors’ belief that they would get their projects over the line never seemed to waver, and their patience was rewarded in April when they were able to join state-utility Eskom in putting pen to paper.

With all but two projects left to reach financial close, Jeff Radebe and the Ministry of Energy’s tenacity in advancing the Eskom talks has seen over 2GW of clean energy financed. All projects are expected to be fully operational by 2022.

A number of international sponsors participated in the programme, including Norway’s Scatec Solar with three 75MW projects, Italian groups Building Energy with a 140MW wind farm and Enel Green Power with five 140MW projects, and Ireland’s Mainstream Renewable Power with two projects combining for 250MW.

Scatec, one of the first to reach financial close following the PPA signing, provided US$91m in equity and raised debt worth US$303m from Standard Bank, the Development Bank of South Africa (DBSA) and local asset managers.

Building Energy followed shortly afterwards, raising a US$183m financing with Rand Merchant Bank providing more than 50% of the circa US$135m debt and DBSA and institutional lender Old Mutual providing the remainder.

Mainstream Renewable Power’s project financing, which closed in June, featured an Absa debt package of US$390m syndicated to a consortium of institutional investors, Liberty, Sanlam, FutureGrowth, MMI Holdings and Prescient.

Finally, Enel Green Power, in one of the more interesting deals of the year, arranged a portfolio project financing at holdco level.

This was surprising given its tendency to finance projects on-balance sheet, but further demonstrates its ability to secure competitive project finance when it is advantageous to do so. In this case, the need to protect the position and reduce the exposure of its black economic empowerment owners – Pele Green Energy and Khana Energy – were sufficient justification.

Ultimately, it provided €250m of its own equity and secured €950m in debt from Absa and Nedbank on an 18-year plus construction tenor, one of the longer tenors from the round. The debt facility’s interest rate is floating, swapped at a fixed rate, with an option for syndication at a later date.

The actions of South Africa’s Ministry of Energy and the project sponsors have helped deliver a substantial boost to the country’s renewable energy mix, as well as restore confidence in the programme to deliver projects under a reliable PPA.

African Petrochemical Deal of the Year – Indorama Eleme

The Indorama Eleme expansion project in Nigeria saw the fertiliser scheme move into the international export market with the doubling of capacity from 1.4m tpa to 2.8m tpa. The deal was put together in challenging conditions for the Nigerian market but it was well structured and had the backing of revenues from the first phase financed in 2013. The financing was a multi-sourced deal led by the IFC calling on a wide range of development finance institutions (DFI) and banks.

The IFC directly lent US$100m and mobilised an additional US$850m of loans. Joint mandated lead arrangers and lenders were the European Investment Bank, Yes Bank, CDC Group, African Development Bank, Bank of Baroda and Standard Bank. In addition the deal involved Standard Chartered, Bangkok Bank, FMO, DEG, PIDG Company, the Emerging Africa Infrastructure Fund, Proparco, ICICI Bank and Citibank.

The line two financing structure is said to be on a more corporate basis, given the existing revenues from line one, which was financed in 2013. The tenor on the debt is said to be 11 years door-to-door, based on a four-year principal grace period and a seven-year repayment period. The commercial tranche is eight years door-to-door.

Pricing on line two has been reduced to about 400bp, compared with 496bp on line one during construction and 470bp during operation for the development banks, and 475bp during construction and 450bp during operations for the commercial banks.

The reduction in debt pricing was made possible by the lender group’s existing relationship with the sponsor. No MIGA cover or partial risk guarantee were required. The foreign exchange risk is more limited on the expansion as the majority of sales are expected to be made in international markets.

Parent company Indorama, based in Singapore, is one of Asia’s leading chemical holding companies. White & Case and Templars advised on the deal.

To see the digital version of this yearbook, please click here .

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