Mozal II: double deal, double output
Financing for the phase two expansion of the Mozal aluminium
smelter, which aims to double the plant's output by 250,000 tonnes
per year, is moving swiftly towards its conclusion. The financing
structures are fully locked in place (with the primary structural
elements and loan agreements having already been signed with
sponsor BHP Billiton (47.11%), and co-sponsors IDC (24.04%),
Mitsubishi Corporation (25%), and the Mozambican government
(3.85%)) and in sum will contribute to what will have become the
largest ever foreign investment in Mozambique.
The total cost of doubling the plant's output comes to $1 billion, of which $600 million is senior debt, with the balance paid in as sponsor equity. Coordinating the deal is the IFC, which also led funding for the transaction backing Mozal's first phase in 1998. The multilateral is also investing $25 million of its own A-loan funds as part of the debt package ? it previously slotted in $120 million for phase one.
The deal first came to the market last year. Deutsche Bank was appointed as financial adviser for the deal, for which close was initially set for March. The schedule has since slid back due to technical negotiations.
The bulk of the debt rolls up in ECA tranches, as follows. Canada's EDC is bringing to the mix $30 million; JBIC is contributing $75 million; Coface will provide $150 million; and the newly established South African Export Credit Agency (SAECA) will supply $250 million. The remaining balance of $75 million is being furnished by senior lenders to the first financing: DBSA ($40 million), DEG and Proparco.
Coface is being backed by agent bank BNP Paribas, and SAECA by agent IDC.
The EDC tranche comprises the first support ever provided by EDC for Canadian exporters in Mozambique ? Canadian SNC-Lavalin, together with South Africa's EMS, has provided project management acting as EPC contractor for both phases of the plant's expansion. The agency initially lent $25 million for Mozal I through Mozfund Pty Ltd, a special purpose vehicle.
Mozfund was established for the first transaction by IDC, together with ABSA, BoE, First Rand, Nedcor and Standard Bank, and attracted a total of $400 million for that deal.
The phase one financing came to $1.34 billion ? the largest single project investment ever made in the country. Notably, the project was completed six months ahead of schedule, while managing to shave off $120 million from the projected budget. At that time, funding was split between 38% equity ($520 million), 50% senior debt ($670 million) and 12% sub-debt ($150 million). The IFC, coordinating the deal, provided a $55 million A-loan and $65 million of subordinated debt. The bulk of senior debt was provided by ECA cover, most conspicuously a $400 million tranche from South Africa Credit Guarantee Insurance Corporation (CGIC).
The structure for the second phase largely replicates that of the first deal. For instance, the Mozfund SPV is also being deployed again for the SAECA tranche. Aside from size, where the two diverge is in the absence of CDC and EIB, both of whom were participants on the first deal. JBIC and EDC are new players on Mozal II.
Furthermore, notes Azmat Taufique, Division Head for Global Mining Investments at the IFC, given that this is an expansion project, as opposed to the Mozal I greenfield development, security rationalization and the extent of sponsor support were both issues that needed appropriate attention.
Building the second smelter on the site of the first saved $300 million from the price tag. And the existing revenue stream from phase I also significantly helped matters for financing the second. The lack of sub-debt in this second facility reflects the first plant's success as much as a more general calibration of the global aluminium market.
World aluminium prices have slipped somewhat of late. But, explains Taufique, ?you don't finance this kind of project based solely on the cyclicality of product pricing. Remember that Mozal is among the lowest cost producers of aluminium in the world, and the longer supply/demand picture is eminently robust.?
?Mozal I was such a resounding success that it sent out very strong signals to the market. Moreover, the strength of the sponsors and the sheer commitment of the government all contributed to the success of this deal,? he adds.
Other beneficial aspects include the fact of the plant's location. Situated on the Maputo Industrial Free Zone, 21km outside the capital, Maputo, the plant reaps substantial tax benefits ? specifically, exemption from income tax for foreign workers, a reduction in 40% income tax for domestic workers (the vast majority), and, most importantly, exemption from corporate tax on Mozal's profits.
The IFC's involvement, continues Taufique, also provides reassurance to investors not only in Mozal but, more generally, in other large scale private sector projects in Mozambique. Aside from coordinating lenders, IFC is also participating in creating opportunities for small to medium size enterprises (SMEs), through helping implement Mozal's policy of outsourcing all non-core activities to local companies.
Mozal is the world's second cheapest aluminium producer. Construction will begin immediately. The first output should be produced towards the end of 2003 and the project is expected to earn Mozambique an extra $100 million per year from exports, while boosting GDP, on some estimates, by up to 7%. Mozal accounts for about 2% of the world aluminium output.
The total cost of doubling the plant's output comes to $1 billion, of which $600 million is senior debt, with the balance paid in as sponsor equity. Coordinating the deal is the IFC, which also led funding for the transaction backing Mozal's first phase in 1998. The multilateral is also investing $25 million of its own A-loan funds as part of the debt package ? it previously slotted in $120 million for phase one.
The deal first came to the market last year. Deutsche Bank was appointed as financial adviser for the deal, for which close was initially set for March. The schedule has since slid back due to technical negotiations.
The bulk of the debt rolls up in ECA tranches, as follows. Canada's EDC is bringing to the mix $30 million; JBIC is contributing $75 million; Coface will provide $150 million; and the newly established South African Export Credit Agency (SAECA) will supply $250 million. The remaining balance of $75 million is being furnished by senior lenders to the first financing: DBSA ($40 million), DEG and Proparco.
Coface is being backed by agent bank BNP Paribas, and SAECA by agent IDC.
The EDC tranche comprises the first support ever provided by EDC for Canadian exporters in Mozambique ? Canadian SNC-Lavalin, together with South Africa's EMS, has provided project management acting as EPC contractor for both phases of the plant's expansion. The agency initially lent $25 million for Mozal I through Mozfund Pty Ltd, a special purpose vehicle.
Mozfund was established for the first transaction by IDC, together with ABSA, BoE, First Rand, Nedcor and Standard Bank, and attracted a total of $400 million for that deal.
The phase one financing came to $1.34 billion ? the largest single project investment ever made in the country. Notably, the project was completed six months ahead of schedule, while managing to shave off $120 million from the projected budget. At that time, funding was split between 38% equity ($520 million), 50% senior debt ($670 million) and 12% sub-debt ($150 million). The IFC, coordinating the deal, provided a $55 million A-loan and $65 million of subordinated debt. The bulk of senior debt was provided by ECA cover, most conspicuously a $400 million tranche from South Africa Credit Guarantee Insurance Corporation (CGIC).
The structure for the second phase largely replicates that of the first deal. For instance, the Mozfund SPV is also being deployed again for the SAECA tranche. Aside from size, where the two diverge is in the absence of CDC and EIB, both of whom were participants on the first deal. JBIC and EDC are new players on Mozal II.
Furthermore, notes Azmat Taufique, Division Head for Global Mining Investments at the IFC, given that this is an expansion project, as opposed to the Mozal I greenfield development, security rationalization and the extent of sponsor support were both issues that needed appropriate attention.
Building the second smelter on the site of the first saved $300 million from the price tag. And the existing revenue stream from phase I also significantly helped matters for financing the second. The lack of sub-debt in this second facility reflects the first plant's success as much as a more general calibration of the global aluminium market.
World aluminium prices have slipped somewhat of late. But, explains Taufique, ?you don't finance this kind of project based solely on the cyclicality of product pricing. Remember that Mozal is among the lowest cost producers of aluminium in the world, and the longer supply/demand picture is eminently robust.?
?Mozal I was such a resounding success that it sent out very strong signals to the market. Moreover, the strength of the sponsors and the sheer commitment of the government all contributed to the success of this deal,? he adds.
Other beneficial aspects include the fact of the plant's location. Situated on the Maputo Industrial Free Zone, 21km outside the capital, Maputo, the plant reaps substantial tax benefits ? specifically, exemption from income tax for foreign workers, a reduction in 40% income tax for domestic workers (the vast majority), and, most importantly, exemption from corporate tax on Mozal's profits.
The IFC's involvement, continues Taufique, also provides reassurance to investors not only in Mozal but, more generally, in other large scale private sector projects in Mozambique. Aside from coordinating lenders, IFC is also participating in creating opportunities for small to medium size enterprises (SMEs), through helping implement Mozal's policy of outsourcing all non-core activities to local companies.
Mozal is the world's second cheapest aluminium producer. Construction will begin immediately. The first output should be produced towards the end of 2003 and the project is expected to earn Mozambique an extra $100 million per year from exports, while boosting GDP, on some estimates, by up to 7%. Mozal accounts for about 2% of the world aluminium output.
Request a Demo
Interested in IJGlobal? Request a demo to discuss a trial with a member of our team. Talk to the team to explore the value of our asset and transaction databases, our market-leading news, league tables and much more.