Middle East Power and Water Deal of the Year 2001 - Shuweihat IWPP
Shuweihat is not only the United Arab Emirate's largest project
financing to date it is also the largest combined power and water
project financing ever to be done in the Middle East. The project
is the most substantial component of Abu Dhabi's ambitious power
and water programme which has so far seen the Taweelah A1 and A2
power projects. Valued at $1.6 billion it carries the longest-ever
tenor for any project financing in the region ? 20 years ? and is
the first project finance transaction in the Gulf to include a 100%
equity bridge. It will also be the largest desalination plant in
the world. Shuweihat is the first power deal to include a
substantial Islamic financing portion ? in possibly the most
daunting circumstances in the region for over a decade.
The 1500MW independent water and power project (IWPP) closed successfully in December, 2001. The project is being co-sponsored by CMS Energy (20%) and International Power (20%), both well-entrenched in the Gulf power market. The former built up its regional presence with Abu Dhabi's first IWPP, Al Taweelah A2. The latter is developing its Al Kamil IPP project in neighbouring Oman. The 60% priority stake in the project, however, is being kept firmly by ADWEA, the government's corporatized water and electricity authority.
The transaction was lead arranged by a seven-strong bank group comprising Barclays Capital (joint bookrunner), Citibank (joint bookrunner), Bank of Tokyo-Mitsubishi, Kreditanstalt fur Wiederaufbau, Royal Bank of Scotland, National Bank of Abu Dhabi and Abu Dhabi Investment Company. Joining at the senior arranger level were Credit Lyonnais, HSBC Investment Bank and Sumitomo Mitsui. Abu Dhabi Islamic bank led the Islamic financing tranche.
?We had a strong bank group involved for over a year supporting our offers, and we worked closely with ADWEA to bring in core regional and relationship banks ? to everyone's advantage,? says CMS's director of global finance, Chris Thiele. ?It was the overall level of mutual commitment that got it done so smoothly.?
The lead arrangers are currently working to determine the extent to which senior banks want their allocations reduced in general syndication, which will be launched around the beginning of February. The $1.285 billion debt package is made up of two facilities: a $1.035 billion, 20 year conventional loan and a $250 million Islamic tranche. The former features a step-up pricing mechanism which was raised by 15bp post-September 11, reflecting the changed environment.
The 20-year debt facilities are priced at 125bp over Libor pre-completion. Post-completion through to year seven the margin is 115bp and for years eight to 10 the margin is 125bp. Subsequently for years 11 to 13 the margin is 140bp, for years 14 to 16 it is 165bp and for years 17 to 20 the loan pays 175bp.
The tenor is the longest yet for a Gulf power deal ? despite what many considered to be daunting circumstances post-September 11. The size and tenor of the deal are understood to have been concerns for certain lenders during negotiations. But, says Sikander Zaman, managing director of global project finance at Citibank, ?This tenor was ultimately the best fit for the deal. The terms for future deals, however, will have to be decided on a case by case basis, based on project strength.? It remains an open question whether the capacity exists for extending tenors of this length (and for such vast amounts) for the abundance of forthcoming Gulf projects.
The Islamic tranche was conceived to reduce the burden on the conventional bank market through tapping a ready source of fresh liquidity. It was lead arranged by Abu Dhabi Islamic Bank (which is underwriting $200 million) with Dubai Islamic Bank and Kuwait Finance House acting as arrangers and underwriting $100 million and $50 million respectively. At $250 million, it is the largest such facility for any project in the UAE. And it is particularly noteworthy for having been arranged in just one month.
Islamic facilities, though not new to project financings, have not been widely used. Indeed, the debate about the efficacy of Islamic tools for the industry may now gain new momentum in the wake of Shuweihat's success. The argument against these structures has hinged on the added layer of complexity that Islamic facilities bring to the deal ? primarily given intercreditor issues relating to security. But with liquidity constraints looming, this fresh source of capital could yet become a more common project finance instrument, especially in the Middle East.
Another innovative feature of the deal is its three-year, $352 million equity bridge facility, allowing the sponsors to inject their cash post-completion. This marks the first time an equity bridge has been put together for a power project in the UAE, or indeed the Gulf. Previously, for Taweelah A1, a back-ended equity structure had been put in place.
Yet to be completed is the insurance package although a schedule for its finalisation is understood to be in place. Post-September 11, insurance cover (particularly terrorism cover for Middle East deals) has been in short supply. To counter this, ADWEA has agreed to provide a backstop for political and other risks uncovered by any standard insurance package.
Aside from being the largest greenfield project in the UAE, it is also the country's largest power project to date. But equally noteworthy is the sheer appetite for the deal in a region supposedly beset by political risk, not to mention global economic uncertainty. The project entails the development of a 1500MW power and 100 million gallons per day water facility on a build, own operate (BOO) basis. In subsequent phases, however, the plan is to notch power capacity up to between 3,000MW and 5,000MW and water capacity to between 200 million and 300 million gallons per day.
CMS/IPower bid for the project with Siemens as its nominated engineering, procurement and construction (EPC) contractor for the power works and Fisia Italimpianti as its nominated desalination contractor. Last year's bidding process was, according to many industry players, highly competitive, with the winning consortium beating close competitors Tractebel and AES after intense negotiations.
The 1500MW independent water and power project (IWPP) closed successfully in December, 2001. The project is being co-sponsored by CMS Energy (20%) and International Power (20%), both well-entrenched in the Gulf power market. The former built up its regional presence with Abu Dhabi's first IWPP, Al Taweelah A2. The latter is developing its Al Kamil IPP project in neighbouring Oman. The 60% priority stake in the project, however, is being kept firmly by ADWEA, the government's corporatized water and electricity authority.
The transaction was lead arranged by a seven-strong bank group comprising Barclays Capital (joint bookrunner), Citibank (joint bookrunner), Bank of Tokyo-Mitsubishi, Kreditanstalt fur Wiederaufbau, Royal Bank of Scotland, National Bank of Abu Dhabi and Abu Dhabi Investment Company. Joining at the senior arranger level were Credit Lyonnais, HSBC Investment Bank and Sumitomo Mitsui. Abu Dhabi Islamic bank led the Islamic financing tranche.
?We had a strong bank group involved for over a year supporting our offers, and we worked closely with ADWEA to bring in core regional and relationship banks ? to everyone's advantage,? says CMS's director of global finance, Chris Thiele. ?It was the overall level of mutual commitment that got it done so smoothly.?
The lead arrangers are currently working to determine the extent to which senior banks want their allocations reduced in general syndication, which will be launched around the beginning of February. The $1.285 billion debt package is made up of two facilities: a $1.035 billion, 20 year conventional loan and a $250 million Islamic tranche. The former features a step-up pricing mechanism which was raised by 15bp post-September 11, reflecting the changed environment.
The 20-year debt facilities are priced at 125bp over Libor pre-completion. Post-completion through to year seven the margin is 115bp and for years eight to 10 the margin is 125bp. Subsequently for years 11 to 13 the margin is 140bp, for years 14 to 16 it is 165bp and for years 17 to 20 the loan pays 175bp.
The tenor is the longest yet for a Gulf power deal ? despite what many considered to be daunting circumstances post-September 11. The size and tenor of the deal are understood to have been concerns for certain lenders during negotiations. But, says Sikander Zaman, managing director of global project finance at Citibank, ?This tenor was ultimately the best fit for the deal. The terms for future deals, however, will have to be decided on a case by case basis, based on project strength.? It remains an open question whether the capacity exists for extending tenors of this length (and for such vast amounts) for the abundance of forthcoming Gulf projects.
The Islamic tranche was conceived to reduce the burden on the conventional bank market through tapping a ready source of fresh liquidity. It was lead arranged by Abu Dhabi Islamic Bank (which is underwriting $200 million) with Dubai Islamic Bank and Kuwait Finance House acting as arrangers and underwriting $100 million and $50 million respectively. At $250 million, it is the largest such facility for any project in the UAE. And it is particularly noteworthy for having been arranged in just one month.
Islamic facilities, though not new to project financings, have not been widely used. Indeed, the debate about the efficacy of Islamic tools for the industry may now gain new momentum in the wake of Shuweihat's success. The argument against these structures has hinged on the added layer of complexity that Islamic facilities bring to the deal ? primarily given intercreditor issues relating to security. But with liquidity constraints looming, this fresh source of capital could yet become a more common project finance instrument, especially in the Middle East.
Another innovative feature of the deal is its three-year, $352 million equity bridge facility, allowing the sponsors to inject their cash post-completion. This marks the first time an equity bridge has been put together for a power project in the UAE, or indeed the Gulf. Previously, for Taweelah A1, a back-ended equity structure had been put in place.
Yet to be completed is the insurance package although a schedule for its finalisation is understood to be in place. Post-September 11, insurance cover (particularly terrorism cover for Middle East deals) has been in short supply. To counter this, ADWEA has agreed to provide a backstop for political and other risks uncovered by any standard insurance package.
Aside from being the largest greenfield project in the UAE, it is also the country's largest power project to date. But equally noteworthy is the sheer appetite for the deal in a region supposedly beset by political risk, not to mention global economic uncertainty. The project entails the development of a 1500MW power and 100 million gallons per day water facility on a build, own operate (BOO) basis. In subsequent phases, however, the plan is to notch power capacity up to between 3,000MW and 5,000MW and water capacity to between 200 million and 300 million gallons per day.
CMS/IPower bid for the project with Siemens as its nominated engineering, procurement and construction (EPC) contractor for the power works and Fisia Italimpianti as its nominated desalination contractor. Last year's bidding process was, according to many industry players, highly competitive, with the winning consortium beating close competitors Tractebel and AES after intense negotiations.
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