Red Sea Gateway Terminal: A Saudi port first

The first privately financed greenfield port project in Saudi Arabia and funded by a full Islamic project facility, the Red Sea Gateway Terminal (RSGT) financing backs construction of a third container terminal at the Jeddah Islamic Port.

The project involves building a 740 metre long main berth, a 390 metre feeder berth and a deep draft of 18 metres, all with an annual container handling capacity of 1.5 million TEU's.

RSGT will also have its own dedicated 16.5 metre deep channel linking the Jeddah Islamic Port's main channel. The terminal will be capable of serving the next generation of container ships. The two berths are planned to be ready for operation during the first quarter of 2009.

The project is also strategically important to Jeddah Islamic Port and will add 45% to its handling a capacity and invigorate the re-export area as a regional logistic support center.

The 30 year BOT concession is sponsored by the RSGT consortium comprising SISCO, Xenel Industries, Tusdeer, City Island Holdings (a subsidiary of Malaysian Mining Corp).The concession is not take or pay and does not guarantee any fixed payments.

therefore comes with some risk for the lenders. The revenues of the project company are based on the tariff published by the concession awarding entity the Saudi Ports Authority (SPA) and the volume forecast done by the project company. RSGT has been conservative inits forecasting and volumes are gradually built over the years, reaching full capacity in the fifth year of operation.

A share in the revenue has also been agreed with the SPA and if the SPA revises the tariff downwards, it has to reimburse the shortfall from its revenue share.

Due to the nature of the contract and market conditions, it was more efficient to have separate contracts for equipment supply and construction. The equipment supply contract is a fixed price EPC. However, the construction contract is based on measured quantities. This risk has been mitigated by providing sponsors support with a cap, in case the cost overrun is in excess of the standby financing commitment.

RSGT invited proposals from six regional and international banks for the financial advisory and mandated lead arranger roles. The proposal of Al Rajhi Bank/ Standard Bank of South Africa was the most comprehensive, innovative and competitive. It was also in line with the fast track to financial close that RSGT was looking for.

Lead arranged by Al Rajhi (initially sole underwriter) and Standard Bank, the $498.8 million project is fully Islamic financed with $344.1 million of debt under an Ijara Mawsufah Fi Al Dhimmah (a Wakala with a forward lease).
The SR1275 million 13 year Ijara will cover most of the equipment and construction related costs. Al Rajhi Bank is providing SR900 million and Bank Saudi Fransi SR375 million of the Ijara. A working capital murabaha facility of SR19 million is also being provided by Al Rajhi Bank.

The balance of the project will be financed by $154.6 million of equity on the following basis: SISCO (57%), City Island Holdings Limited (20%), Xenel Industries Limited (18%) and Tusdeer (5%).

The deal is not going to be a one-off. RSGT plans to capitalize on its knowledge gained and participate in further up coming deals within the region.

Red Sea Gateway Terminal
Status: Financial close 3 December 2007
Sponsors: SISCO, Xenel Industries, Tusdeer, City Island Holdings (Malaysian Mining Corp)
Mandated lead arrangers: Al Rajhi Bank, Standard Bank
Participants: Saudi Fransi Bank
Legal counsel to sponsors: Linklaters
Legal counsel to lenders: Allen & Overy
Consultants: Halcrow, Mott MacDonald
Auditor: PKF
EPC: China Harbour Engineering Arabia