Al Ain University: Tripartite strength

In April 2007 lead arrangers Societe Generale, Royal Bank of Scotland, Barclays Capital and National Bank of Abu Dhabi closed the financing of the first PPP in Abu Dhabi. The deal, which was sold unadjusted and successfully syndicated despite being underwritten before the summer liquidity crunch, represents a key step towards the development of a wider PPP programme in the region.

The United Arab Emirates University (UAEU) is the oldest and largest of three higher education institutions in the UAE. The University decided to consolidate its premises in Al Ain, the second largest city in Abu Dhabi, onto a single campus. The new campus, in the Al Maqam area of Al Ain, aims to replace the old and deteriorating facilities.

In 2004 Mubadala, one of the principal investment arms of the Government of Abu Dhabi, entered into a 30 year build, own, operate and transfer (BOOT) agreement with the UAEU for the proposed new campus.

The agreement was novated to ProjectCo, Al Hikma Development Company, a wholly-owned SPV by Mubadala via direct and indirect interests. Mubadala is required to maintain a controlling interest in Al Hikma for the term of the concession unless the University consents to new ownership.

In 2007 Mubadala appointed Barclays Capital, National Bank of Abu Dhabi, Royal Bank of Scotland and Société Générale as its Mandated Lead Arrangers. Financial close was confirmed on 4 April 2007 by the Sponsors. The MLA group equally underwrote a 15 year $410 million facility with the following key terms: Financial gearing 86:14; availability period to 21 February 2010; maturity date 28 February 2022; minimum ADSCR 1.28x and minimum LLCR 1.37x.

The new campus site covers an area of 80 hectares and will contain all academic buildings, recreational facilities and residential accommodation. It will provide educational facilities for more than 15,000 undergraduate and graduate students, as well as related faculty and support staff.

The campus will be built in four distinct phases over a period of three years and will cost AED1.63 billion ($443 million). Construction started in December 2006 and is scheduled to complete in November 2009.

Given the strategic nature of the project to the Emirate of Abu Dhabi, the Government of Abu Dhabi entered into a tripartite agreement with the UAEU and Al Hikma under which the government will provide monthly availability payments directly to Al Hikma representing a significant portion of Al Hikma's revenue stream.

Under the tripartite agreement, the government also assumes joint and several liability with the UAEU for making required transfer payments to Al Hikma as a result of the termination of the project agreement.

The facilities management company, Khadamat (51% Mubadala/49% Serco), will receive service payments (net of any deductions) from Al Hikma on a monthly basis.

Khadamat's obligations are supported by a management services agreement, under which Serco will provide operations and facilities management expertise to Khadamat for a period of 10 years post the commencement of operations, renewable by mutual agreement.

Al Hikma entered into a construction contract with Oger Abu Dhabi LLC to Oger. Mubadala is putting up a debt service guarantee during construction.

Once the facilities will be made available and ready to use, the UAEU will make monthly unitary charge in local currency to pay Al Hikma for the availability of the buildings and for the facilities management services.

Deductions to the unitary charge are subject to monthly and annual caps. The University pays a fixed amount to Al Hikma every month whilst the government will pay the balance of the unitary charge due.

Syndication was launched in September 2007 and closed on 27 December with BTM, Calyon, Dexia, ING, Mashreq Bank, Mizuho and SMBC coming into the deal.

The project's success in syndication reflects the robustness of the structuring. It also represents not only an important milestone for Government of Abu Dhabi and the University but also for the wider lending market as it perhaps signals the start of a PPP pipeline in the region.

Al Hikma Development Company
Status: Financial close 4 April 2007, syndication close 27 December 2007
Description: $410 million debt backing Abu Dhabi's first PPP, Al Ain University
Sponsor: Mubadala
Mandated lead arrangers: Barclays Capital, National Bank of Abu Dhabi, Royal Bank of Scotland, Société Générale
Sponsor's legal counsel: Allen & Overy
Lenders' legal counsel: Simmons & Simmons
Facilities management partner: Serco
EPC contractor: Oger Abu Dhabi LLC