It was oversubscribed and features the biggest Islamic debt tranche for a Saudi multisourced greenfield project to date. Ma'aden Phosphate – a joint venture between Ma'aden and Sabic – has secured $3.8 billion of project financing to fund its $5.52 billion fertiliser scheme. The financing generated a lot of interest from institutional investors, despite the liquidity consists of the credit crunch, and was oversubscribed by 20-25%.

The debt comprises a 16-year $2.06 billion syndicated bank loan, of which $1.76 billion is Islamic debt, a $200 million 16-year covered facility from the Korean Export Insurance Corporation (KEIC), a $100 million working capital facility and a $400 million 16-year direct loan from Kexim. Saudi Arabia's Public Investment fund is also lending $1.07 billion while the Saudi Industrial Development Fund is providing $135 million.

Thirty percent of the fertiliser project will be funded with equity contributions from Ma'aden and Sabic, which formed the MPC joint venture in September 2007. The venture is 70% owned by Ma'aden and 30% by Sabic.

The bank debt was lead arranged by Standard Chartered (also financial adviser), Calyon, Mizuho, Riyad Bank (also financial adviser), Saudi Fransi, Samba and Al Rajhi Bank. Other participants include Apicorp, Arab Banking Corporation, Arab Bank, Arab National Bank, HSBC, Bank Al Jazira, Bank of Tokyo Mitsubishi UFJ, Banque Saudi Fransi, BNP Paribas, Islamic Development Bank, RBS, Saudi British Bank, Saudi Hollandi Bank and Saudi Investment Bank.

Margin on the syndicated loan ranges from 80bp to 115bp over Libor, rising gradually from pre-completion to loan maturity, with fees of 60bp for a $50 million take. Margin on the Kexim facility is a flat 60bp.

As Project Finance went to press Ma'aden closed a $2.46 billion initial public offering (IPO) on the Saudi Stock Exchange to cover project costs on both its 740,000 tonnes-per-year aluminum smelter project with Rio Tinto and the Ma'aden Phosphate project. 

Launched on 6 July, the listing got off to a strong start with the institutional tranche more than twice covered. State-owned Ma'aden sold 50% of its capital to Saudi institutional and retail investors. It offered 462.5 million shares at SR20 each.

Up to 27% of the offered shares were available to institutional investors. Five percent of the offered shares were allocated to the General Organization for Social Insurance and a further 5% to the Public Pension Agency. JPMorgan was financial advisor and sole bookrunner while Samba Capital was lead manager and underwriter. Subscription for the retail tranche, which was 93% subscribed, closed  on July 14.

MPC has already broken ground on the project, through which it hopes to churn out 3 million tonnes per year of diammonium phosphate (DAP) fertiliser. The initiative calls for the development of the Al Jalamid phosphate mine in Northern Saudi Arabia and the construction of a fertiliser and chemical manufacturing plant in Jubail (the Arabian Gulf) dubbed Ras Az Zawr. The project is expected to come on stream in 2011 and Sabic has agreed to buy the majority of its output.

The project will bring significant savings in producing DAP, which is in heavy demand for farming. DAP prices have risen in line with costs for natural gas, a key feedstock, but because natural gas is abundant in Saudi Arabia, it is cheaper to produce ammonia bringing significant economies of scale to the project.

The project will also produce around 0.44 million tonnes per year of excess ammonia for export to world markets and 0.16 million tonnes per year of excess phosphoric acid for sale to the domestic market.

Over 75 % of total capital costs have been contracted at a fixed rate under signed lump sum turn-key contracts for the engineering, procurement and construction of a beneficiation plant, DAP, ammonia, sulphuric acid and phosphoric acid processing plants and supporting infrastructure.

The MPC loan drew higher pricing than the recent comparable $6 billion financing of the Saudi Kayan petrochemical project, which fetched 65bp-75bp over Libor when it signed in May. MPC's higher risk profile, coupled with the current tougher funding market, pushed up the margin.

During syndication, there was talk that MPC would pay 80bp-90bp but bankers say the 80bp-115bp range had been agreed before syndication launch. "There was never a change in the margin or the project's risk profile," says Greg Englefield, a lawyer with Clifford Chance, who advised on the transaction.

Given $1.7 billion of the $2 billion loan was structured under two Islamic facilities, with Al Rajhi having the largest take of $640 million, the deal is a measure of the growing strength of the Islamic project debt market. Like Saudi Kayan's $635 million facility, MPC's was signed under the Ijara leasing structure.

Ma'aden Phosphate
Status: Financial close June 15, 2008
Size: $5.5 billion
Debt: $3.8 billion
Sponsors: Saudi Arabian Mining (Ma'aden), Saudi Basic Industries (Sabic)
Financial advisers: Standard Chartered Bank, Riyad Bank
Lead arrangers: Standard Chartered, Calyon, Mizuho, Riyad Bank, Saudi Fransi, Samba, Al Rajhi Bank.
Legal counsel to lenders: Clifford Chance
Legal counsel to sponsors: Baker & McKenzie.