EAgrium: Local support

EAgrium is one of the largest petrochemicals project financings in Egypt to date and was done with no export credit agency or EIB support. The deal set a new benchmark for the participation of local banks in oil and gas projects in Egypt and illustrates the growing liquidity of the local market – the banks matched the 15-year tenor on the international tranche, albeit at slightly higher pricing, and for a significant portion of the debt (40%).

Furthermore, although the financing was competing for liquidity with a number of other major Egyptian projects launched at the same , the deal was closed quickly with 10 mandated lead arrangers committing to $125 million tickets in November 2006 and full financial close by July 2007.

EAgrium is a joint venture between Canada's Agrium (60%), state-owned companies Echem and EGAS (24%), the national operator of the gas distribution grid GASCO (9%) and Arab Petroleum Investment Corporation (Apicorp) (7%). The project is a nitrogen facility located in Damietta and is scheduled to be completed in 2010. The plant will be designed and built under a lump-sum-turn-key by Uhde GmbH and consist of two ammonia and urea trains with a combined capacity of 1.3 million tonnes of urea and 100,000 tonnes of net ammonia.

Agrium had expected the original EPC costs to come in under $1 billion, but with EPC inflation the overall project cost increased to $1.2 billion and the financing increased from $750 million to $1 billion.

The $1 billion financing splits 60-40 between an international tranche and a local tranche, both with a 15-year tenor. The international debt priced at 110bp pre-completion and 100bp-130bp during operation, and the local debt priced at 90bp pre-completion, then 115bp-150bp during operation. The deal comes with no guarantee, however it does feature a cost overrun facility and Agrium as 100% offtaker for 25 years. The average debt service coverage ratio (ADSCR) is 1.5x.

The lead arrangers on the international tranche were: SG, BNP Paribas, EDC, Intesa Sanpaolo, Arab Bank and Apicorp. And CIB, Banque Misr, NSGB and National Bank of Egypt came in on the local tranche.

Much of the strength of deal rests on Agrium's experience as a marketer of fertiliser products and the upstream integration experience it has globally: before EAgrium it completed the financing of Bahia Blanca, a plant in Argentina that it owns 50-50 with Repsol. It has a production capacity of 1.1 million tonnes per year of urea and 70,000 tonnes per year of ammonia.

The fertiliser story is compelling for banks. The world's population is currently 6 billion and is expected to grow to 9 billion by 2050, and it is this increase, particularly in India and China, that is pushing up the need for more intensive farming and consequently the demand for fertiliser. Another driver for fertiliser demand is the increased interest in biofuels.

It is unclear whether the EAgrium deal will be followed anytime soon. Although it is a stated intention of the Egyptian government to monetise its gas fields upstream through derivative plants – there are plans to build 14 new fertilizer plants by 2020 – the petrochemical deal flow could be stymied by government policy and the slower than expected rate at which reserves are being proven.

The Egyptian government's strategy is to supply one-third of gas discoveries to the domestic market at subsidised rates, keep one-third as reserve and export a third. But the domestic price of gas set by Egas is not adequately encouraging new discoveries, so if Egas wishes to promote future projects such as EAgrium it may need to raise prices domestically first.

EAgrium

Status: Financial close July 2007
Description: $1 billion financing for the construction of a world scale nitrogen facility to be located in Damietta, Egypt
Sponsors: Agrium (60%), EChem and EGAS (24%), GASCO (9%), Arab Petroleum Investment Corporation – Apicorp (7%). EGAS also has the gas supply agreement for the project
Financial adviser: RBC
Mandated lead arrangers (international tranche): SG, BNP Paribas, EDC, Intesa Sanpaolo, Arab Bank, Apicorp
Mandated lead arrangers (local tranche): CIB, Banque Misr, NSGB, National Bank of Egypt
Legal adviser to sponsors: Allen & Overy
Legal adviser to lenders: Baker & Mackenzie
Legal advisers to borrower: Clifford Chance (international), Sharkwy (local)
EPC: Uhde GmbH