Credit committees have been looking over three oil and gas-related Egyptian deals recently: the refinancing of Segas LNG, and the EAgrium and EMethanex petrochemical deals. Such is the liquidity in the region, and the differences in the projects' end markets, the sponsors and their advisers have not sought to stagger the entry of each deal into the lending market.

EAgrium is one of the largest oil and gas deals to be project financed in Egypt, and the deal was done with no export credit agency or EIB support, and all of the $1 billion debt is placed with international and local banks.

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, but it does, however, feature a cost overrun facility and Agrium as 100% offtaker for 25 years. The average debt service coverage ratio (ADSCR) is 1.5x.

The EAgrium deal sets 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 have matched the 15-year tenor on the international tranche, although with different pricing, for a sizeable chunk of the deal, $400 million.

As well as growing increasingly confident with project experience, local banks' liquidity is in part due to the investment of international banks in the domestic bank market. Notably, in October 2006, the Egyptian government chose SanPaolo IMI for the $1.6 billion privatization of 80% of Bank of Alexandria, the country's third largest bank in distribution and total assets.

Although there was a fair amount of rivalry and disinformation from the EMethanex and EAgrium arrangers, and from the banks invited to participate in each, the markets for methanol (used primarily to make other chemicals) and fertiliser are distinct and separate, and both deals got away without a hitch.

Aside from the output markets there are other distinguishing factors between the two deals: the EMethanex deal is smaller, at $530 million, and features EIB support, the margins are comparable despite the higher ADSCR of 1.8x on EMethanex, and Agrium is rated BBB/Baa2, whereas Methanex is unrated.

The EAgrium deal also enjoyed a speedy route to financial close, since 10 mandated lead arrangers committed with $125 million tickets in November 2006 and financial close took place in July 2007. 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, the petrochemical deal flow could be stymied by government policy and the slower than expected rate at which reserves are being proven.

The government's strategy is to supply one-third of gas discoveries to the domestic market at subsidised rates, keep one-third for 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: Lead arrangers committed in November 2006, 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, Echem, Egas, GASCO, Apicorp
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