Yansab: Thirst for firsts

SABIC's first true project financing and Saudi Arabia's largest greenfield project financing to date, the Yansab deal also features the biggest single bank project debt underwriting in the MENA region, the largest Islamic tranche in any multi-sourced financing and the first successful close of a project IPO prior to debt financing.

Yansab is a $5 billion integrated petrochemical complex to be built in Yanbu in the Western Province of Saudi Arabia. The project is a joint-stock company 51% owned by Sabic, with 4% held by Sabic Industrial Investments Company for the benefit of an employee option scheme, and 35% publicly owned through an initial public offering that closed on 5 January 2006 (2.8 times over subscribed and with nearly half the 18 million population of Saudi Arabia holding shares). The remaining 10% is owned by 17 private investors.

The project will have an annual capacity of over 4 million metric tons (MT) of various petrochemical products including: 1.3 million MT of Ethylene; 400,000 MT of Propylene; 900,000 MT of Polyethylene; 400,000 MT of Polypropylene; 700,000 MT of Ethylene Glycol; 250,000 MT of Benzene, Xylene and Toluene, and 100,000 MT of Butene-1 and Butene-2.

The project benefits from an agreed allocation of gas feedstock from Saudi Aramco. The ethane/fuel gas is sold on a fixed price basis, with the next review due in 2015, and the propane is sold on a formula based on a discount to international pricing of naphtha with the current discount fixed until 2011.

In the current climate of high oil prices the cost advantage over a naphtha-fed plant can be as high as $8 per million BTU. Nonetheless, the economics of the project assumed a higher ethane cost during the later stage of the repayment period.

Yansab also benefits from a marketing agreement with SABIC for all production whereby Yansab receives a netback based on the actual realisation and hence is subject to market fluctuations. The economic assessment of the project was based on a conservative average $40 per barrel crude oil price with Chemical Market Associates (the lenders' market consultant) developing feedstock and product prices based on this oil price assumption.

The structuring of the deal was unique with ABN Amro initially underwriting the entire $3.5 billion debt, although this was reduced by the early commitment to participate from the PIF. The transaction was significantly oversubscribed at senior syndication, with the underwriting commitments exceeding the target amount by 48% and the final hold commitments exceeding it by 38%.

The $3.5 billion debt comprises a SR4 billion ($1.067 billion) 13-year tranche from the Public Investment Fund (PIF); a $850 million 12-year Islamic tranche; a $700 million ECA comprehensively covered tranche provided by EGCD ($150 million) and Sace ($550 million); a $350 million working capital facility; and a $533 million 12-year uncovered commercial tranche. The debt to equity ratio is 70/30.

Pricing on the deal was very competitive. The commercial debt pays a pre-completion margin of 45bp over Libor, stepping up to 65bp once the project is complete. The Sace tranche pays a margin of 12.5bp over Libor throughout the life of the loan. The ECGD debt pays 10bp over Libor and the PIF facility 50bp.

The commercial facilities and the ECA covered tranches are repaid by semi-annual repayments over 9.5 years following a 2.5-year grace period. The repayment profile was sculpted to accommodate the ramp up period.

PIF offered the most competitive financing and longest tenor hence this facility was maximized. The facility is repaid by equal semi-annual repayments over 10 years following a 3-year grace period.
The Islamic facility was structured as a standard forward lease (Ijara mousofa fil thimma) where the investors, through a special purpose vehicle, acquire the asset under construction and lease it to the project after completion. The repayment terms are the same as the commercial facilities.

The $350 million working capital facility was structured as a revolver with a bullet repayment at final maturity with the added flexibility to allow usage during construction to cover cost overruns. At project completion however, any drawing under the working capital facility to meet cost overruns will be repaid by a sponsor support facility leaving the working capital facility fully available to meet working capital requirements.

This flexibility allows SABIC to defer any additional capital commitments that might be required and to ensure any cost overrun is a true cost overrun and not just an advance in the timing of construction payments. It also offered the lenders the potential for better returns, with the working capital facility possibly being drawn prior to completion so the project paid the full interest rate plus margin rather than just commitment fees.

Yansab compares competitively against its benchmarks, Rabigh and Sharq. Even though the $5.8 billion debt for the Rabigh project boasts the formidable Saudi Aramco as one of its sponsors and the lower risk profile of being an expansion rather than greenfield project, the Yansab debt is priced at only around 10bp more.

Yanbu National Petrochemicals Company
Status: Signed 18 June 2006
Description: $3.5 billion debt for a Saudi greenfield petrochemical complex
Sponsor: Saudi Basic Industry Corporation (SABIC)
Initial mandated lead arrangers: ABN Amro; Saudi Hollandi
Mandated lead arrangers: ABC/ABC Islamic; Apicorp; BNP Paribas; BoTM UFJ; Citibank; Fortis; GIB; Islamic Development Bank; ING; Mizuho; Saudi British Bank (HSBC); SAMBA Financial; SMBC; Standard Chartered
Lead arrangers: Arab Bank; Banque Saudi Fransi; National Commercial Bank
Financial advisers: ABN Amro; Saudi Hollandi Bank
Borrower legal counsel: Baker & McKenzie
Lender legal counsel: Clifford Chance
Consultants: Foster Wheeler; Marsh; Chemical Market Associates; URS Corporation; Nexant
EPC contractors: Fluor (utilities and facilities); Aker Kvaerner and China Petrochemical Corporation (polyolefins plant); TEC (ethylene glycol plant); Technip (ethylene and propylene plant)