The financing of the 25-year concession for the rehabilitation, expansion and operation of Queen Alia International Airport (QAIA) posed three major challenges: mitigating Jordanian political risk, getting commercial banks comfortable with the structure, and overcoming the limited debt capacity of the local market.

Nevertheless, the deal sets a significant precedent – the first limited recourse airport financing in the Middle East – and should pave the way for other countries in the region seeking private investment in their airports.

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 the national capital of Amman, QAIA is the gateway airport for Jordan. Following strong performance by flag carrier Royal Jordanian, QAIA has experienced solid 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 reserve bidder, a Hochtief-led consortium, was a close second with a score around 1% lower than the winning bid (there was a formula to determine the bid score and Hochtief's bid was actually higher for years 12-25 than AIG, but lower for years 1-12). 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 Islamic tranche provided by Islamic Development Bank (IDB). The IFC facilities have tenors ranging between 16 and 18 years and comprise a direct loan portion of $120 million split between an A loan and sub-debt, and a $160 million IFC B loan provided by Calyon, Europe Arab Bank and Natixis.

No party was prepared to comment on the debt pricing, but it is known that the deal comes in under the pricing of Antalya Airport in Turkey, which was priced in the range of 250bp-275bp. The deal was able to achieve competitive pricing and the longest tenor for a Jordanian project (Amman East IPP had a maximum debt tenor of 12 years) despite the volatile markets because the consortium with its adviser, Ernst & Young, competitively tendered every aspect of the financing.

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. 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.

Banks were first approached in January and submitted bids in April with indicative financing without credit committee approval. The consortium was in exclusive dialogue with seven banks and non-exclusive discussions with multilaterals. The banks were eventually whittled down in competition to three: Calyon, Europe Arab Bank and Natixis.

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 in 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. 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