Private pets return

PFI Issue 461 - July 13, 2011
5 min read
EMEA

The independent petrochemical sector was a regular user of the project finance market before the financial crisis. Now it is returning, despite the widely expected increases due in local feedstock prices. By Rod Morrison.

Sipchem, having just raised US$480m for general corporate purposes through a local sukuk issue, has launched its latest project financing for a scheme at Jubail in a joint venture with South Korean company Hanwha. The deal will be funded in the local bank market. The scheme is one of the first private sector petchem schemes to seek project finance since the financial crisis.

The scheme will cost US$750m, with 70% coming from debt. The tenor is 15 years and the debt service cover ratio is more than 2x. The margin is believed to be slightly higher than on the US$3.6bn Ma’aden alumina refinery deal that is currently in the market (PFI issue 460). The Sipchem scheme has the benefit a completion support package although not the full Aramco or Ma’aden support.

Included in the financing is a loan from SIDF and probably PIF. The commercial banks will be asked to provide a bridge to the PIF loan, which will come in after financial close. The SIDF loan totals US$150m and the PIF loan will be half of the rest. Given that local banks are so liquid at the moment, one issue will be ensuring that those selected will have a large enough allocation in the deal to make it worth while. Therefore, the deal has gone to a limited number of local banks.

The scheme will use ethylene feedstock from a Sabic cracker under a tolling arrangement plus vinyl acetate from a Sipchem plant. It will produce LDPE (low density polyethylene) and ethylene vinyl acetate copolymer (EVA resin). The project has its all important 100% ethane allocation. The allocation is currently priced at US$0.75 BTU. It is widely expected this will increase at year-end for existing and new schemes (PFI issue 452) although most projects, such as this scheme, have now been factoring in a price above US$1. Hanwha will hold 25% of the scheme.

HSBC is the financial adviser. Norton Rose is advising the project company on the scheme and Allen & Overy is advising the lender. Nexant is the market and technical adviser.

Sipchem priced its debut sukuk offering just before launching its project financing. The five-year floating-rate note issue raised SR1.8bn (US$480m) and came at 175bp over three-month SAIBOR. Deutsche Bank and Riyad Capital were lead managers on the transaction.

Ultimately, the paper attracted commitments worth SR4.5bn from Saudi investors, allowing the size of the mudaraba-structured sukuk to be increased from the initial SR1.5bn target. Bids came in from a number of different sectors, including government Institutions, insurance companies, investment and money market funds, financial institutions and high-net worth individuals.

The sale of the issue came after a two-week roadshow. The proceeds from the offering will be used to fund its projects and to diversify its sources of finance.

Other potential project finance-related names in line to tap local Saudi sukuk investors include Satorp, the oil refinery joint venture between Aramco and Total. Its US$1bn sukuk issue has been on the cards since 2009 but has been delayed by problems with Sharia compliance. Banque Saudi Fransi, Deutsche Bank and Samba Capital are lined up as lead managers for the deal, which is still said to be awaiting approval from the Central Markets Authority. Obviously it has proved easier to be compliant at the corporate level rather than the project level.

Two more local private petrochemical schemes are due in the market this year. Tasnee has its acrylic monomers scheme at Jubail. This is due to be launched in September. Again, it will mainly involve a mix of SIDF, PIF and the local banks. But it is possible that it will include export credit cover from Kexim and Hermes, which will require international bank funding. A market-sounding exercise on the deal was carried out late last year.

The scheme will cost US$2bn. The debt required is about US$1.5bn, with US$700m coming from soft loan institutions PIF and SIDF. The scheme will be built by Linde and Samsung Engineering. US firm Rohm & Hass has a 25% stake in the project. Production at the 230,000 tpa plant is due to begin in Q1 2013. HSBC is advising on the scheme.

Ma’aden and Sahara are planning a US$750m, 300,000tpa ethylene dichloride and 250,000tpa caustic soda plant. The project company is called Arabian Chlor Vinyl Company, a 50/50 joint venture. Daelim is to build the plant. Again, the scheme will be funded through SIDF, PIF and the local banks. It is hoped this scheme will be in the market shortly after Tasnee.