The $2.2 billion Jubail United Petrochemical Company (JUPC) petrochemical plant was signed in January 2003. It provided a strong opportunity for regional banks to demonstrate their appetite for Saudi risk ? regional lenders account for 90% of the $1.154 billion debt. A banking group of thirteen led the transaction. The banks' portion of debt was signed in August, but financial close was not reached until the $400 million Saudi Public Investment Fund (PIF) debt slice signed in January.

Riyad Bank, ABC, BTM, Sumitomo, GIB, Saudi Fransi, Saudi British, Saudi Hollandi, National Commercial Bank, Saudi American, Arab National Bank, Saudi Investment Bank and Apicorp provided debt with a tenor of ten years. The remainder was sourced through the PIF. ABC was also documentation bank, Riyad took the title of agent bank and GIB was also the financial advisor to the sponsors. JUPC is a 100% SABIC-owned subsidiary. Margin on the debt is undisclosed as yet, but, according to one banker, ?it was good, and met the market expectation for other similar petrochemical deals?.

The project's purpose is to improve and increase Saudi Basic Industries Corporation (SABIC)'s petrochemical production in the region. It is a greenfield project and will entail the construction and operation of an 800,000 tonne per year (t/y) ethylene cracker plant, a 150,000 t/y linear alfa olefins (LAO) plant, and a 460,000 t/y ethylene glyco and oxide plant. The complex will also include a 400,000 t/y polyethylene plant.

According to a source close to the deal, liquidity at regional institutions is incredibly good, saying: ?The appetite for regional risk is much stronger with regionals than with internationals. It wasn't a case of regionals picking up the pieces of international banks shying out, it was a case of strong regional appetite not allowing room for internationals.? Low pricing expectations are at the forefront of this newly-created dominance

Another source says: ?This is a quite remarkable accomplishment for the regional banking markets. Raising the financing for a project of this magnitude shows an ability by these banks to put together a very large financing package ? groundbreaking even. It shows growth and maturity of the market and a new level of sophistication and depth that was not present before. The regional banks are better positioned to understand and price the risks of regional transactions. This is why we are seeing an increase in the role of regional financing in project finance in the Middle East.?

In place of a concession, SABIC has signed a marketing agreement with the project. One banker working on the deal said: ?The output streams of the project are commodities with fairly developed markets. Even absent an offtake, the output can be sold on the market easily and competitively given SABIC's cost advantage. The output will go into SABIC's marketing system ? except for the ethylene cracker plant, which feeds the other plants.?

Financiers did face a risk with the LAO plant as its technology is new ? it has not been used in commercial-sized plants yet. It has been tried on a laboratory-sized scale before but has not been applied or tested on a world scale plant before. However, says a lender, ?it is a completely, physically separate part of the plant, so it is independent. This means that should anything go wrong at that stage, the economics of the project are not dependent on LAO sales and it still repays. This is the only unique risk.?

Another consideration was completion risk, and this was mitigated with well-established EPC contractors. Bid invitations for the lump-sum, EPC, turnkey contract were sent out to five firms. The bid proposal for the main 32-month EPC contract, the $350 million ethylene cracker package, was given to a consortium comprising Halliburton, Mitsubishi Corporation and Chiyoda Corporation. There is also a separate EPC package in place for the infrastructure serving the plant and the seawater intake necessary for its operation. As well as this, a 230KV, $24 million substation, including a transmission line, is also planned. Fluor Daniel (Arabia) won the project management front-end engineering and design (FEED) package.

SABIC's track record provided significant comfort for lenders ? it is the world's 6th largest petrochemicals producer. Jubail's petrochemicals plant should come on stream in the late quarter of 2004.

The banker adds: ?This transaction is a first for SABIC and the banks in many ways. It is the first greenfield 100% SABIC owned petrochemicals project ? other SABIC greenfields were joint ventures. This has unique documentation, although it does show certain common trends with other SABIC financings. But in essence this is a new structure, the first of its kind. It is quite possible that this documentation could be used for other projects.?

Jubail Olefins Complex

Status: closed January 2003

Location: Al Jubail Industrial City, Saudi Arabia

Description: construction and operation of a SABIC-owned petrochemicals complex

Size: Total project cost $2.2 billion

Debt: $1.5 billion split into $1.154 billion bank debt and $400 million as a PIF

Lead arrangers: Riyad Bank, ABC, BTM, Sumitomo, GIB, Saudi Fransi, Saudi Hollandi, Saudi American, Saudi British, National Commercial Bank, Arab National Bank, Saudi Investment Bank, Arab Petroleum Investment Corporation.

Equity: $700 million 100% from SABIC

Lawyers to sponsors: Clifford Chance

Lawyers to lenders: Baker & McKenzie

Financial advisor: GIB

Technical advisors: Scientific Design and Fluor Daniel

EPC contractors: Halliburton, Mitsubishi Corporation, Chiyoda Corporation