Getting a Gulf power deal done successfully despite tough market conditions has become something of a truism. The deal backing Umm al Nar, Abu Dhabi's latest independent water and power (IWPP) project is no exception. At $1.77 billion, the package is one of the region's largest single financings. And given that the emirate has had to raise substantial amounts of cash for its previous three IWPPs, funding the current deal was itself something of challenge, quite apart for regional geopolitical anxieties.

?It has not been an easy transaction. It was a large amount and it was always going to be difficult,? points out a banker close to the deal. ?That said, I wasn't expecting the kind of enthusiasm we've witnessed from participating banks. It really is a tried and tested structure,? he adds.

The deal demonstrates that international banks still have a keen interest in the region, despite war jitters and the retrenchment of many international project sponsors ? of the twelve companies invited to bid, only two submitted.

The project is being sponsored by Arabian power, the joint venture company, which is 60% owned by Abu Dhabi Water and Electricity Authority (ADWEA), 20% by UK's International Power, and 10% each by Japan's Tokyo Electric Power Company (Tepco) and Mitsui & Co., also of Japan.

The consortium tapped the markets for about $1.2 billion in non-recourse debt to finance the acquisition of the 850MW, 162 million g/d plant, and adding 1,550MW and 25 million g/d of new capacity.

?Abu Dhabi is clearly seen as one of the better risks in the region. But this is a very attractive financing for them. It's 20 years ? which is not easy,? says Peter Barlow, International Power's director of finance. ?The ADWEA model is generally accepted as a very financeable package for the whole region. It's even been copied by Saudi,? he adds.

The deal is being financed on a club-basis ? a standard format for Gulf project financings ? by a group of 14 mandated lead arrangers.

Financing is split into 5 tranches. An $855 million loan is being lead arranged by 13 of the MLAs. The 20-year tranche has a pricing mechanism starting at 110bp from signing until end of construction at year 5, then 100bp from years 5 to 7, 115bp from years 8 to 10, 130bp from year 11 to 13, 155bp from years 14 to 16 and then 165bp for years 17 to 20.

Pricing is slightly lower than on Shuweihat, the emirate's last major IWPP financing, since that deal benefited from a flex, post 9/11. ?The market has moved on since then and it's a lot more stable now,? points out another banker familiar with the region.

The banks on the deal are Abu Dhabi Commercial Bank, Bank of Tokyo Mitsubishi, Bayerische Landesbank, First Gulf Bank, GIB, HSBC, National Bank of Abu Dhabi, Sumitomo Mitsui, WestLB, Abu Dhabi Investment Corporation, ING, Mizuho and KfW.

BoTM acted as global coordinator, syndication, facility and documentation agent. HSBC was global syndication, technical, insurance, offshore account and offshore security trustee bank.

There is also a short-term, 5-year $232 million tranche to match debt service to cashflow from the old assets. This is a locally-funded tranche, arranged by GIB and NBAD,

?We had to find a way of splitting this deal into multiple facilities. There's substantial liquidity in the market but 20 years was a problem. So we included a short term-tranche,? says Chandra Sekaran, head of project finance at GIB in Bahrain, which acted as regional syndication agent. ?We've been advocating this approach for a long time: we need to bring in different players with different needs,? he adds. NBAD was onshore account bank and onshore security trustee.

Banks on this portion of the deal are ADIC, Arab Bank, Apicorp, Saudi Fransi, Mashreq Bank, National Bank of Bahrain and National Bank of Dubai,

The regional participation is indicative of a growing trend. But some bankers are more circumspect. ?I'd like to hope that the regional banks will begin to take a more active role but the truth is it's basically the international banks that know and understand these deals,? admits one regional banker. ?The regional banks and there but still lack the expertise. The local banks really need to start going cross border,? he adds.

There is also a $250 million, 20-year Islamic tranche arranged by Abu Dhabi Islamic Bank. The lender is also arranging a five year equity bridge .The bank's involvement allows for Islamic interest rate hedging. NBAD is also raising a $150 million equity bridge, on commercial terms.

Umm Al Nar is the fourth water and power plant to be privatized as part of Abu Dhabi's ongoing program of unbundling and privatizing its water and electricity assets.

The project will operate on a build-own-operate (BOO) basis. Electricity and desalinated water will be purchased by the offtaker, Abu Dhabi Water & Electricity Company (ADWEC), itself 100% owned by ADWEA.

The consortium has signed a 23-year power and water purchase agreement with ADWEC, which covers 805MW and 157MIGD of the existing plant. Under the terms of the agreement, ADWEC will also purchase the entire output of a new plant when it reaches commercial operation.

The EPC contract for the new plant was picked up by Mitsui, with Toshiba and Hitachi Zosen as principal sub-contractors.

The new plant will be built using GE9FA gas turbines and multi-stage flash (MSF) desalination technology. Construction is slated to start in the third quarter of this year, with commercial operation expected by mid-2006.

With this financing now out of the way, ADWEA is now looking for an international partner for its next project: the 50 million g/d Taweelah reverse osmosis (RO) scheme, the Gulf's first independent water project (IWP).

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Status: Signed, July 2

Location: Abu Dhabi, UAE

Description: acquisition and expansion of water and power plant

Cost: $1.77 billion

Financing: $855 million, 20-year international commercial tranche; $232 million, short-term (5 year) regional tranche; $250 million, 20 year Islamic tranche; 290.5 million Islamic equity bridge; $150 million commercial equity bridge.

Lead Arrangers: Abu Dhabi Commercial Bank, Abu Dhabi Investment

Company, Abu Dhabi Islamic Bank, Bayerische Landesbank, First

Gulf Bank, HSBC, ING, KfW, Mizuho Financial Group, National Bank of Abu Dhabi, Sumitomo-Mitsui Banking Corp, Bank of Tokyo-Mitsubishi, WestLB.

Lawyers to ADWEA: White & Case

Financial Advisor to ADWEA: CSFB