Jamnagar: Well oiled

The first successful project financing in India since the collapse of the Dabhol power project in 2001; a deal at least partially funded by India's biggest IPO to date; the largest foreign currency loan in India and the longest tenor for a syndicated loan in India; the most widely syndicated loan ever in India – the list of benchmarks the Reliance Petroleum Jamnagar financing set is as long as the deal was popular with lenders.

Reliance Petroleum is effectively a spin-off from Reliance Industries, following an agreement in June 2005 to divide the group's businesses between the two sons – Mukesh and Anil Ambani – of founder Dhirubhai Ambani.

Reliance Petroleum plans to build a 580,000 barrels per day (bpd) refinery and 900,000 tonnes per year of polypropylene petrochemicals complex next to parent Reliance Industries' existing 660,000 bpd plant at Jamnagar in western India – a project that has already helped Reliance Industries more than triple its annual profit since the plant opened in 1999.

Upon start of operations in December 2008, Reliance Petroleum's $6.1 billion refinery complex will be the world's largest with heavy crude oil processing capability.

The project's funding started with a three-part IPO in April 2006, when Reliance Petroleum attracted strong global and domestic demand for its sale of a 20% stake.

The company sold 450 million publicly offered shares in a global bookbuild at Rp60 a share, within a range of Rp57-Rp62, raising Rp27 billion ($607 million). It had already placed another 450 million shares with institutional investors on 3 April at Rp60 a share, making the total institutional sale worth Rp54 billion. Those investors are locked up for a year. The two tranches together constitute 20% of the company.

The other part of the IPO was a 20% stake, locked up for three years, that was sold to Reliance Industries. Reliance Industries now owns 75% of Reliance Petroleum's 4.5 billion shares. Chevron holds 5% (with an option to purchase an additional 24% from Reliance Industries) and the 20% public float began trading in early May.

DSP Merrill Lynch and Morgan Stanley managed the IPO and handled the international offer. State Bank of India, Citigroup, ICICI Securities and six other banks were also bookrunners. Amarchand Mangaldas, Khaitan & Co and Junnarkar & Associates took the primary local legal roles on the offering with Milbank Tweed and Davis Polk & Wardwell providing international counsel.

With about $32 billion of demand, the 450 million publicly offered shares were 51 times oversubscribed, and more than 99% of investors were willing to pay the top end of the price band.

Reliance followed up its IPO success with a $2 billion non-recourse loan. The deal is the largest syndicated loan for an Indian borrower to date and its massive uptake – 52 banks in all – is symptomatic of the loan market's growing appetite for Indian risk. The $1.5 billion loan secured commitments of over $3.4 billion, an oversubscription of 2.3 times.

Reliance first approached the loan market at end of 2005 eventually appointing a 14-strong MLA group – ABN Amro, Bank of America, BNP Paribas, BTMU, Calyon, Citigroup, DBS, DZ Bank, HSBC, ICICI, Mizuho, SMBC, Standard Chartered, State Bank of India.

All of the original MLAs were also appointed bookrunners, after a number of them objected to a plan for four of Reliance's core banks – ABN Amro, Bank of America, Citigroup and Standard Chartered – to run the books. The MLAs were subsequently joined by a further 12 banks with the same status after financial close in August.

The $500 million increase on the original $1.5 billion debt package is structured as a separate facility funded exclusively by the MLAs pro rata to their original commitments. Institutions that committed in general syndication were only given the option to join the original $1.5 billion facility.

The new facility carries the same terms as the original, and is divided between two tranches of 7.5 and 10 years. The interest margins are 80bp and 85bp over Libor on each tranche respectively during construction, stepping up to 140bp on the shorter tranche and 165bp on the 10-year portion once the refinery starts operating. Fees are 70bp for an MLA and 65bp for senior lead arranger.

The cheap construction debt reflects a commitment from parent Reliance Industries to fund any cost overruns during construction. Lenders can also take comfort from the asset – while there is currently an excess of heavy crude on the international market, few refineries can process the heavier and higher-sulphur crude into transportation oil, giving Reliance an edge over other refineries, particularly the Singapore-based refineries that dominate the region.

Jamnagar Petrochemicals Refinery Complex

Status: Syndication closed 13 October 2006
Description: Refinery and petrochemicals complex
Sponsor: Reliance Petroleum
Initial mandated lead arrangers: ABN Amro, Bank of America, BNP Paribas, BTMU, Calyon, Citigroup, DBS, DZ Bank, HSBC, ICICI, Mizuho, SMBC, Standard Chartered, State Bank of India
Mandated lead arrangers: Bank of Baroda, BayernLB, Fortis, HSH Nordbank, HVB, ICBC Asia, Banca Intesa, KBC, KfW, Mashreq, RBS, WestLB
Arrangers: BBVA, NordLB, CCB International Finance, Sanpaolo IMI, Natexis, Union National Bank of Abu Dhabi, Arab Banking Corporation, IKB Deutsche Industriebank
Lead managers: Arab Bank, Canara Bank, Cathay United Bank, Chinatrust Commercial Bank, DNB Nor Bank, Mega International Commercial Bank, National Bank of Kuwait, Nedbank, Syndicate Bank, Taiwan Business Bank
Managers: Banca Monte dei Paschi di Siena, Bank of Bahrain & Kuwait, Bank of Kaohsiung, Bank Sinopac, Dah Sing Bank, Shin Kong Commercial Bank, SBI International, Sunny Bank
Legal counsel to lenders: Milbank Tweed