The $1.1 billion SAMIR refinery upgrade, which reached financial close in January, is the first Moroccan project financing to close since a spate of acquisition financings in 2000. First disbursement is expected in March, when all the CPs have been met.

SAMIR – Société Anonyme Marocaine de l'Industrie du Raffinage – owns and operates the only two refineries in Morocco. Together, they have a nominal distillation capacity of 7.25 million tonnes per annum and are the dominant supplier to Morocco's refined petroleum products market. Since SAMIR was privatised in 1997, it has been controlled by Corral Petroleum Holdings (67.7%) with Morocco's Holmarcom Group holding a 7.1% stake and the remaining 25.2% listed on the Casablanca Stock Exchange.

Although a Saudi company, Corral is based in Sweden, where it owns the Preem refineries – its main European asset. It also has oil field exploration rights in West Africa and holds several assets in the Middle East.

The SAMIR upgrade is designed to bring the larger of the two refineries, situated in the port of Mohammedia, into line with EU environmental standards, as stipulated under the terms of the privatisation. This will allow the plant to produce cleaner, higher-quality fuels, but will not affect processing capacity.

The financing is a hybrid corporate loan with project finance enhancements and features a diverse set of lenders. These include the Italian ECA Sace, the African Development Bank (AfDB) and the French development agency Proparco. BNP Paribas and Barclays Capital are the international mandated lead arrangers, while Attijariwafa, BMCE Capital and Banque Centrale Populaire de Maroc arranged a domestic tranche.

The total debt package is for $670 million, including a $30 million cost overrun facility and a $35 million dollar/dirham depreciation facility, both covered by Sace.

Sace is providing 100% cover for $240 million of the debt. AfDB is providing $85 million and Proparco has leant $30 million to the project. On top of underwriting the Sace tranche, BNP Paribas and Barclays Capital are jointly providing a $50 million uncovered facility. Fifty percent of the total dollar-denominated debt is hedged. The Moroccan lenders each underwrote MAD833 million ($89 million at the time of the financing).

Project equity amounts to $340 million, although only $82 million of that has been set aside by the sponsors. The other $258 million comes from SAMIR's internal cash revenues.

All of the debt tranches have 13-year tenors, except for the international commercial tranche, which is for 10.5 years. Debt pricing has not been disclosed, but the uncovered debt is said to be attractive for lenders.

The project has had a troubled history. Deutsche Bank won the advisory mandate for the project in 2001 together with BMCE, a Moroccan bank. However, the original expansion plans were cancelled after a fire broke out in the refinery in November 2002.

But the plans could not remain on hold forever – the upgrade was one of the conditions for the refineries' privatisation in 1997 – and in 2004 the deal was resurrected. Taylor DeJongh had now replaced Deutsche Bank as financial adviser, though BCME Capital remained on board.

It had always been the intention to get ECA backing for the project, and Sace involvement from mid-2004 was helped by the shortlisting of two Italian bidders for the EPC contract – a Snamprogetti-led consortium, which was chosen ahead of Technip the following year.

In July 2005, SAMIR signed a fixed-price, turn-key contract with Snamprogetti, working in partnership with Turkish construction company Tekfen. The contract accounts for 72% of total project costs and is denominated in several currencies – Eu359 million ($124 million, current exchange rate), $203 million, ¥5,693 million ($48.8 million, current exchange rate) and MAD1.139 billion, amounting to approximately $800 million in total.

Construction risk is borne by the lenders, a reflection of current conditions in the EPC market, where the Gulf project boom has pushed up demand for contractors' services. The work involves the installation of a new processing complex, including a fuels hydro-cracker unit, and is scheduled for completion in December 2007. Commercial operations are slated to commence in June 2008.

As well as improving the refinery's environmental performance, the upgrade is also intended to make the plant more competitive in anticipation of the liberalisation of the country's petroleum products market in 2009. SAMIR currently enjoys a quasi-monopoly in Morocco, but this is set to change as petroleum products start moving to import parity prices.

The MLAs report strong interest from Middle East banks at syndication. The Gulf project boom has led to remarkably flat margins in that area, and some of the region's banks are not able to compete with the foreign lenders flooding into the market. The uncovered portion of SAMIR's debt offers them fatter margins than those available in the GCC, while also offering them a chance to diversify their portfolios.

Because it had been such a long time since a project financing was last closed in Morocco, the deal has updated the template for Moroccan project financing. BNP and Barclays won the arranger mandate near the beginning of 2005 and much of the time from then until financial close was spent working on the documentation.

No further projects are imminent in Morocco, although some may emerge in 2007, including a rumoured greenfield refinery sponsored by a Spanish oil major. This would export petroleum products to the Spanish rather than serve the domestic market.

SAMIR Refinery upgrade
Status: Closed December 2005
Size: $1.1 billion
Location: Mohammedia
Description: Upgrade of refinery to comply with EU emission standards and improve the quality of petroleum products
Sponsors: Corral Holdings (67.7%), Holmarcom Group (7.1%), publicly listed (25.2%)
Total debt: $670 million
Mandated lead arrangers: BNP Paribas, Barclays Capital, Attijariwafa, BMCE Capital, Banque Centrale Populaire de Maroc
Financial adviser: BMCE, Taylor DeJongh
Sponsor legal counsel: Akin Gump
Lender legal counsel: Clifford Chance