Schahin Group has completed an $800 million debt financing for its Black Gold Drilling subsidiary. The deal backs the construction of two drilling platforms for charter to Petrobras, Brazil's national oil company. The arrangers of the debt are Mizuho, Standard Chartered, Unicredit/ HVB and WestLB, which completed syndication and closed on 26 October.

Brazil's upstream sector has been one of the few bright spots in the region's oil and gas market, and Petrobras, US-listed and disciplined, has long been a favourite of project bankers. Japanese trading companies and banks, and the Japan Bank for International Cooperation (JBIC) have been a staple of the upstream deals done in the country to date. Brazil and Japan have long been trading partners, and Japanese businesses assumed that it had a lock on the country's natural resources.

Schahin's financing is significant because it breaks – slightly – this dominance. While the sponsor is a Brazilian conglomerate with interests in banking, power, telecoms and real estate, and experience in offshore rig operations, the builder of the two platforms is the Chinese Yantai Raffles Shipyard. Chinese banks, including China Development Bank, were represented heavily in the debt's syndicate.

The presence of such a sizable Chinese contingent is another sign of the strides taken by Chinese corporations and their lenders into new markets, especially those where oil and gas resources are available. But the depth of their involvement should not be over-estimated, since the deal involves neither control over resources, nor even an operational partnership with Petrobras.

But construction risk and its management are the central themes of the financing. Schahin, while small relative to international operators, has experience operating drilling rigs and ships going back to 1982. It will maintain the ships from its base in Macae, in Rio de Janeiro state, with one charter running from 2009 to 2014, and a second from 2010 to 2017.

Yantai Raffles is headquartered in Singapore, and listed on the Oslo over-the-counter stock exchange, but builds its ships in Shandong province, China, and has been in business since 1994. It has a lower profile than its Korean and Japanese competitors, but like them has benefited hugely from global demand for offshore oil production equipment.

Moreover, like its rivals, it has a sufficiently strong order book to avoid making expensive promises to its clients and their lenders. It lacks either the willingness or the resources to extend comprehensive guarantees to project lenders. The financing was assembled around this lack of guarantees, and used a mixture of staggered drawdowns, stringent technical oversight, performance bonds and letters of credit.

Schahin won the contracts with Petrobras under a Brazilian government programme that is meant to stimulate the development of domestic operators. This fleshes out a long-held desire on the part of Petrobras to reduce its dependence on Japanese expertise. Schahin won two of the six platforms out to bid, while Queiroz Galvao won another two, and Petroserv and Odebrecht each won one.

The two semi-submersible rigs – Schahin I and Schahin III – are built to a Friede & Goldman ExD design. Schahin I, whose charter runs to seven years from 2010, will operate at 2,000m. Schahin III, with a five-year charter, runs to depths of 2,400m. The two can both drill 7,500m below the seabed, and will be used in the Campos field, where most of Brazil's producing oil and gas assets are located. Schahin Engenharia, another Schahin subsidiary, will operate the rigs.

The project's credit profile is challenging, and meant that banks enjoy attractive pricing. The debt has a margin of 237.5bp over Libor pre-completion, which rises to 200bp post-completion, but might reduce to as low as 167.5bp depending on the project's financial performance during its operational period. In comparison with the margins that banks can expect for direct exposure to national oil company debt, these levels are attractive.

The final noteworthy aspect of the financing, and one in which the pricing played a part, was the composition of the debt's bank group. The four leads brought in the International Finance Corporation as a participant, in the form of a $50 million A loan. The drilling project is considered to be a category B project for environmental due diligence purposes, not just because of the impact of its operations but the working conditions at the Yantai shipyard may require monitoring.

Among the remaining ten banks in the debt syndicate, Chinese banks predominate. China Development Bank is chief among them, and China Construction Bank, which has a pre-existing relationship with Yantai Raffles, also made a sizable commitment. Their involvement indicates that Chinese banks have lost none of their enthusiasm for overseas oil and gas credits, even following their withdrawal from the Tangguh financing package.

The financing might be dismissed as a one-off, the simple result of Schahin's price-driven choice of supplier. But Brazil is set to be a powerhouse in global oil and gas for the foreseeable future. On 8 November, three days after this financing funded, it announced a huge new field discovery, Tupi, containing up to 8 billion barrels of oil. Lifting it will require even greater spending on suitable drilling equipment.

Black Gold Drilling
Status: Closed 26 October, funded 5 November
Size: $1.013 billion
Location: Brazil
Description: Financing for two semi-submersible rigs to be chartered to Petrobras
Sponsor: Grupo Schahin
Debt: $800 million
Tenor: 10 years
Lender legal adviser: Milbank Tweed Hadley & McCloy
Sponsor legal adviser: Linklaters