Paris-Sorbonne Abu Dhabi: PPP gets real

Dubbed the first true education PPP financing in the Gulf, the Paris-Sorbonne University Abu Dhabi financing is a step forward for sponsor Mubadala from its Al Ain University PPP, which kick-started the emirate's PPP education pipeline in 2007.

"On the Paris-Sorbonne transaction, Mubadala not only achieved a 20-year financing [five years longer than Al Ain], but also managed to set several new structural benchmarks, even in a challenging market," says Derek Rozycki, executive director project corporate finance, Mubadala. "The validation that the UK PPP model can be implemented in Abu Dhabi was important for Mubadala."

There are two key differences between the projects – on Sorbonne there is no explicit government guarantee of payment obligations, and on Sorbonne lenders are taking performance risk on the contractors.

The project is Paris-Sorbonne University's first campus outside France and the first French higher education institution in the Gulf region. The new campus on Al Reem Island will feature approximately 93,000m2 of teaching and recreational facilities and accommodate up to 2,000 students. The project will be built over two years. Construction started in May 2008 and he first phase is expected to be complete in 2009 with full completion by the third quarter of 2010.

Mubadala was awarded the 25-year (plus three-year construction) PPP concession by grantor Abu Dhabi Education Council (ADEC), while John Buck International Properties – a JV between Mubadala and John Buck Company – has the non-academic facilities management contract. ADEC's payments are availability-based.

Paris-Sorbonne sets a number of benchmarks for the development of future UAE social infrastructure projects. In addition to lacking a direct guarantee from the government, the deal marks the first time an Abu Dhabi government-owned institution has closed long-dated financing on the strength and transparency of budgetary allocations.

"Following on from the UAE University [Al Ain] success we wanted to move the PPP financing agenda forward to create more value to government from this important form of PPP procurement," says Rozycki. "At the time we started shaping the structure, the government had already started several initiatives such as the rating and publication of the Policy Agenda 2007-2008. These helped to create the right kind of transparency in government to allow Abu Dhabi government institutions to be banked on a stand-alone basis."

The deal is also the first UAE social infrastructure financing where international banks are taking performance risk on a contracting entity with a local partner – Al Habtoor-Murray & Roberts. There is no completion guarantee from Mubadala and risk allocation is as per the usual UK PPP/PFI framework. "We chose the strongest design and build contractors and FM operators in the region so banks could get comfortable taking construction performance risk," adds Rozycki.

Despite banks cutting back on long-term tenors, the financing obtained a 20-year maturity and was oversubscribed, with five international banks – Calyon, Bank of Tokyo Mistubishi UFJ, Sumitomo Mitsui Banking Corporation, Royal Bank of Scotland and BNP Paribas – and First Gulf Bank joining the deal.

The total project facility comprises $326 million of debt and $57.52 million of equity. Of the debt, First Gulf Bank was sole provider of an $81.5 million local tranche in Dirhams, which includes an AED8 million debt service facility, whilst the international banks put up $244.5 million, which also includes a $6.5 million debt service facility. The debt priced at 200bp over Libor, rising in steps over the 20-year term to 275bp.

Rozycki is enthusiastic in his praise for the financing. "The Sorbonne deal was financed in incredibly challenging markets. The deal teams did a fantastic job optimizing the commercial and financial structures to ensure the project got through to financial close. We had to convince banks on the robustness of the Executive Council's budgetary process that allocated government funds to the project over the 28-year concession. Based on the increasing transparency within the government of Abu Dhabi, banks endorsed the structure and Abu Dhabi got its first true PFI structure banked."

Much of the structure is already being replicated on the much larger $1 billion Zayed University PPP, on which Mubadala is again sponsor and Calyon is financial adviser.

The project involves the design and construction of a new university campus on a plot of approximately 75 hectares and a built-up area of 200,000 square metres to provide educational facilities for 6,000 students as well as related faculty and support staff. The new campus will be located in New Khalifa City, near Abu Dhabi International Airport, and will be part of the Capital District.

EPC contractor is again a Al Habtoor-Murray & Roberts joint venture and Abu Dhabi Islamic Bank has just extended a AED1.45 billion loan to the venture to fund construction prior to project financing by Mubadala.

Paris-Sorbonne University Abu Dhabi
Financial close: 18 December 2008
Description: First true education PPP in the UAE
Sponsor: Mubadala Development Company
Concession grantor: ADEC
Total project cost: $412 million
Financial adviser: Calyon
Lead arrangers: Calyon; Bank of Tokyo-Mitsubishi UFJ; SMBC; Royal Bank of Scotland; BNP Paribas; First Gulf Bank
Sponsor legal counsel: Allen & Overy
Lender legal counsel: White & Case; Hadef (local law)
Consultants: Gleeds (technical); Willis (insurance); Marsh (insurance)
EPC contractors: Al Habtoor; Murray & Roberts