Queen Alia Airport: First to fly

The financing of the 25-year concession for the first limited recourse airport project in the Middle East – Queen Alia International Airport (QAIA) – is expected to pave the way for more private investment in the region's airports. The deal is also notable for being the largest private investment in Jordan to date and features one of the first Middle East PPP-style dual tranche conventional and Islamic facilities.

Parties to the deal acknowledge the role played by the Jordanian government (the government negotiation was handled personally by the Secretary General of the Ministry of Transport) and its commitment to the deal, which was instrumental in getting it banked.

The concession is backed by a limited recourse financing of $675 million, which was delivered just seven months after the selection of AIG (Airport International Group) as the preferred bidder. The winning consortium spoke to banks in the period January to April, submitted a bid in April and was effectively awarded the project less than a week later because the single determinant, beyond prequalification, for the bidders was the revenue share accruing to the government.

Situated in Amman, QAIA is the gateway airport for Jordan. Following strong performance by flag carrier Royal Jordanian, QAIA has shown solid passenger growth which is expected to continue. Passenger numbers are forecast to triple from four million in 2007 to over 12 million in the next 25 years.

The project involves the rehabilitation of the existing terminal at QAIA and the construction of a new terminal, which will provide facilities for up to nine million passengers per year. The project company is expected to expand the capacity as needed to maintain IATA Level C airport facilities. AIG will also be required to rehabilitate the existing terminal to enhance traffic flow and efficiency, and then demolish it when the new terminal comes into operation.

Under the concession agreement, the government will receive 54.5% of total revenues in the first six years, then 54.6% thereafter. The concession was formally awarded and concession agreements signed on 19 May and financial close was reached 15 November.

The financing package is banked on a conservative 56/64 debt-equity split (excluding internal cash flow leverage increases to 70:30) and comprises $380 million of debt with the balance coming from shareholders and funds generated during the three-year construction period. The debt consists of IFC facilities of $280 million and a $100 million 17-year Istisna'a (Islamic Manufacturing) and Ijarah Mawsufa Fi AL Zimah (Islamic forward lease) facility provided by the Islamic Development Bank (IDB) ranking pari passu.

The IFC facilities comprise a 17-year IFC A Loan of $70 million, an IFC C Loan of $40 million with an 18-year tenor with a 15-year grace period, and an IFC B Loan of $160 million, with a 16-year tenor, underwritten by Calyon, Europe Arab Bank and Natixis. The B loan carries a margin of 175bp, with underwriting fees of 50bp.
IFC also provided a $10 million standby loan for the construction phase and an interest-rate swap to Airport International Group.

Many options were explored with regard to political risk mitigation once it became clear that banks were not prepared to lend uncovered into Jordan and because of the lack of project finance history. Financial adviser Ernst & Young explored using a MIGA cover, ECAs, multilateral facilities, as well as local banks (as they would not require political cover). On a competitive basis IFC and IDB were chosen in a dialogue with banks to ensure they were comfortable with the umbrella guarantee. Commitment to the tight timeline was a key consideration in selection of all lenders.

Because the concession agreement between the government and the project company predated the financing documentation, the beneficial right of land under a lease could not be transferred to the IDB for a standard Shariah facility. Rather the project company pays advanced rent on excluded assets (those assets not yet built) under a forward lease structure. After the maturation of the Islamic facility at 17 years, under a new concept IDB's interest in the airport transfers back to the project company without the need for a separate agreement.

The debt is dollar dominated because the debt capacity of the local market is estimated to be only $100 million. The Jordanian dinar is pegged against the dollar, but there is a lot of speculation among Middle Eastern economies that they will drop the peg as the dollar continues to weaken.

The currency risk in the deal – the mismatch between revenues in Jordanian dinar, such as airport charges, and servicing the dollar-denominated debt – is partially taken by the project company, with contractual provision in the bid concession contract that the government will offer protection if an extreme devaluation of the dinar occurs. Under local law the largest portion of the project's revenues must be denominated in Jordanian dinars, however, the IFC negotiated terms whereby if the dinar is devalued by more than 10%, equilibrium will be reached in the project economics through the government's acceptance of a smaller share of revenues.

Also, currency risk is mitigated by the duty free revenues that are dollar denominated and are expected to cover around 30% of the debt service requirement.

Queen Alia International Airport
Status: Financial close 15 November 2007
Description: $380 million debt package backing the QAIA, Amman, Jordan
Sponsors: AIG consortium comprising Aeroports de Paris (5%); J&P Overseas (10%); J&P Avax (10%); and three financial investors, EDGO (10%), ADIC (40%) and Noor (25%)
Multilaterals: IFC; IDB
Commercial arrangers: Calyon; Europe Arab Bank; Natixis
Sponsors' financial adviser: Ernst & Young
Sponsors' legal counsel: Ashurst
Lenders' legal counsel: Norton Rose
Government of Jordan's legal counsel: White & Case