RAF A1: Benchmark beater

Although the financing for the Ras Abu Fontas A1 (RAF A1) water deal closed once the world knew of the toxic asset-backed debt swilling around banks' balance sheets, the deal priced below its nearest benchmark, the $467 million term loan backing the Ras Abu Fontas B Power Plant Expansion II (RAF B2).

This is in part due to fortunate timing – the debt pricing would have increased as the crunch became more serious and the syndications markets seized – and in no small part due to decent structuring. Its predecessor, after all, was priced during the credit boom.

The RAF B2 debt, which closed in June 2006, was split between a $467.5 million 25-year term loan and an $18 million 25-year standby facility, with BTM, Calyon, Commercial Bank of Qatar, GIB, HSBC and Qatar National Bank as the mandated arrangers. The term loan margin was 65bp, ratcheting to 150bp.

The RAF A1 financing comprises $432.2 million in 20-year debt and $144 million equity (a debt/equity ratio of 75/25). The pricing came in close to model pricing, which began at 60bp and finished at 120bp.

The debt splits into a $288.2 million 20-year commercial term loan and a $144.1 million 20-year Islamic tranche. The lead arrangers are Bank of Tokyo-Mitsubishi (also financial adviser), Doha Bank, Gulf International Bank (GIB), Royal Bank of Scotland, Standard Chartered and Qatar Islamic Bank (QIB).

QIB was sole underwriter of the Islamic facility – the first Islamic transaction into which Qatar Electricity and Water Company (QEWC) has entered. The facility was structured as a 20-year Istisna-Ijara scheme (lease-to-own), through which QIB will finance the construction of three multi-stage flash-type desalination units, with a capacity of 15 million gallons per day each.

Qatar's current requirement of 170 million gallons of water per day is being met by the current water supply network, with RAF A1 intended to meet future demand in the next three to four years, since real estate and industrial development is creating a 9% year-on-year increase in the demand for water.

Unlike most of Qatar's recent IWPP transactions, the developments at the Ras Abu Fontas site are sponsored without private developers as shareholders, principally because QEWC owns the land. RAF A1 benefits from strong government support through a series of contractual agreements which fall just short of a guarantee.

QEWC is the sponsor and the deal is backed by a 25-year full offtake agreement with the Qatar General Electricity & Water Corporation (KAHRAAMA). The plant is being constructed under a turnkey, fixed-price EPC by Fisia Italimpianti.

Ras Abu Fontas A1
Status: Signed 13 March; financial close 27 March 2008
Description: $432.3 million commercial and Islamic finance for 45 MIGD water desal project in Qatar
Sponsor: Qatar Electricity and Water Company (QEWC)
Mandated lead arrangers: Bank of Tokyo-Mitsubishi; Doha Bank; Gulf International Bank; Qatar Islamic Bank; Royal Bank of Scotland; Standard Chartered
Financial adviser: Bank of Tokyo-Mitsubishi
Legal counsel to sponsor: Shearman & Sterling
Legal counsel to banks: Simmons & Simmons
Technical adviser: Stone & Webster
Insurance adviser: Jardine Lloyd Thompson
Model audit: Operis
EPC: Fisia Italimpianti