Qafco IV: something for nothing
The first major borrowing out of Qatar this year, the financing for
Qatar Fertilizer Company (Qafco), has sold well in syndication,
demonstrating ample appetite for deals of its kind in an
increasingly active Gulf market. Syndication closed on July 6
followed by signing on July 16.
The $400 million loan for the 8.5-year facility was signed by mandated lead arrangers ABC (regional bookrunner), Barclays Capital (documentation bank), Gulf International Bank (facility agent, technical bank), HSBC Investment Bank (international bookrunner), Apicorp and Qatar National Bank. They are taking $50 million each at the senior level on a take-and-hold basis.
Says Raed Sarhan, vice-president of project finance at GIB: ?Syndication was very smooth and demonstrated that there was a lot of appetite for this kind of deal. This is particularly encouraging since it was Qatar's first this year.?
The deal was heavily oversubscribed and bank allocations were scaled back. A sub-underwriting stage was bypassed because of strong bank market appetite and a tight schedule.
The loan pays a margin of 75bp over Libor with fees ranging from 25bp to 50bp. ?This pricing is very good for Qatar,? adds Sarhan.
Arrangers are Arab Bank, Bank of Tokyo-Mitsubishi, Mashreq Bank, National Bank of Abu Dhabi, Riyadh Bank, Saudi American Bank, Saudi Investment Bank and Sumitomo.
Co-arrangers are Ahli United Bank, Arab National Bank, BayerischeLB, Den Norske Bank, Natexis Bank, National Bank of Bahrain and National Bank of Dubai. Lead Managers are Abu Dhabi Investment Company, Al Ahli Bank of Qatar, Bank of Kuwait and the Middle East, British Arab Commercial Bank and Commercial Bank of Qatar. United Arab Bank joins as manager.
SG is financial adviser to Qafco, which is owned by Qatar Petroleum (75%) and Norsk Hydro (25%).
The debt package will be used to part finance the Qafco IV expansion project, which aims to boost the company's total production capacity to 2.8 million t/y of urea and 2 million t/y of ammonia. The new expansion calls for a fourth train which is widely expected to bolster the company's position as one of the world's lowest cost fertilizer producers.
The company last tapped the debt market in 1994, at which time a $368 million three tranche term loan was used for project financing. Mandated arrangers were Banque Paribas, Dresdner Bank, KfW and WestLB.
Over the years, Qafco has demonstrated a particularly robust cash flow from its first three trains. As a result there was no problem for the market. Qafco is a well established company whose leveraged ration is 0.01, with no debt whatsoever ? in effect a fairly easy sell. As a result, the deal was structured as a hybrid project/corporate financing. ?The thought was that, given the company's lack of outstanding debt, the earnings from the first three trains would be more than sufficient to pay down the debt on the fourth,? notes Sarhan.
The company's profits tumbled in 1998 and 1999 due to the recession in the Asian markets, Qafco's primary customers. But since then profits have soared owing to a recovery of product prices. Last year, average prices for urea climber by 35% to $108 /t and for ammonia by 43% to $157 /t. The profit rebound coincided with the company's moves to tap the market to finance its latest expansion project.
Roughly concurrent with the signing of the loan agreement, Qafco awarded the EPC contract, worth $420 million, to Krupp Uhde. The contract is to be signed September 5. The company cut through competition from Snamprogetti, Kellogg Brown & Root and Chiyoda Corporation to seize the 32 month contract. Its nominated sub-contracter is Consolidated Contractors International Company (CCC). Krupp Uhde previously undertook EPC work on Qafco's 1997 Phase III expansion. Construction work is slated to begin in October.
With three other hefty big-ticket deals yet to come to the market, the next year looks set to pack substantial activity. The question arises, though, whether the bank market has sufficient capacity to support such a bulk of deals. Says a banker close to the deal, ?people are beginning to see the benefits of lending to Qatar. Moreover, a lot of the regional banks are highly liquid and need assets to book, and Qatar is offering some outstanding transactions.?
Despite the encouraging mood, the remaining deals looking for project funding will need to coordinate their borrowing very carefully to succeed. Still in the pipeline is financing for the Ras Laffan independent power and water project (IWPP). The government is understood to have given the $600 million deal priority. Accordingly, the $700 million debt facilities for Qatar's next project, Ras Laffan LNG's third train, will be held back until the IWPP has cleared the market. Also in line is the $160 million financing for the first phase of Ras Abu Fontas B extension.
Bankers remain buoyant about capacity and appetite for forthcoming Qatari deals. Indeed, few flinch at the thought of the country having to raise $1.8 billion this year alone. But at the same time further funding sources are being sought. One prospect is the insurance market, previously tapped for last year's NGL-4 transaction. The other is the project bond market, which has yet to take off. And it is not unlikely that yet more innovative solutions will come to bear not only in Qatar, but throughout the entire Gulf region.
The $400 million loan for the 8.5-year facility was signed by mandated lead arrangers ABC (regional bookrunner), Barclays Capital (documentation bank), Gulf International Bank (facility agent, technical bank), HSBC Investment Bank (international bookrunner), Apicorp and Qatar National Bank. They are taking $50 million each at the senior level on a take-and-hold basis.
Says Raed Sarhan, vice-president of project finance at GIB: ?Syndication was very smooth and demonstrated that there was a lot of appetite for this kind of deal. This is particularly encouraging since it was Qatar's first this year.?
The deal was heavily oversubscribed and bank allocations were scaled back. A sub-underwriting stage was bypassed because of strong bank market appetite and a tight schedule.
The loan pays a margin of 75bp over Libor with fees ranging from 25bp to 50bp. ?This pricing is very good for Qatar,? adds Sarhan.
Arrangers are Arab Bank, Bank of Tokyo-Mitsubishi, Mashreq Bank, National Bank of Abu Dhabi, Riyadh Bank, Saudi American Bank, Saudi Investment Bank and Sumitomo.
Co-arrangers are Ahli United Bank, Arab National Bank, BayerischeLB, Den Norske Bank, Natexis Bank, National Bank of Bahrain and National Bank of Dubai. Lead Managers are Abu Dhabi Investment Company, Al Ahli Bank of Qatar, Bank of Kuwait and the Middle East, British Arab Commercial Bank and Commercial Bank of Qatar. United Arab Bank joins as manager.
SG is financial adviser to Qafco, which is owned by Qatar Petroleum (75%) and Norsk Hydro (25%).
The debt package will be used to part finance the Qafco IV expansion project, which aims to boost the company's total production capacity to 2.8 million t/y of urea and 2 million t/y of ammonia. The new expansion calls for a fourth train which is widely expected to bolster the company's position as one of the world's lowest cost fertilizer producers.
The company last tapped the debt market in 1994, at which time a $368 million three tranche term loan was used for project financing. Mandated arrangers were Banque Paribas, Dresdner Bank, KfW and WestLB.
Over the years, Qafco has demonstrated a particularly robust cash flow from its first three trains. As a result there was no problem for the market. Qafco is a well established company whose leveraged ration is 0.01, with no debt whatsoever ? in effect a fairly easy sell. As a result, the deal was structured as a hybrid project/corporate financing. ?The thought was that, given the company's lack of outstanding debt, the earnings from the first three trains would be more than sufficient to pay down the debt on the fourth,? notes Sarhan.
The company's profits tumbled in 1998 and 1999 due to the recession in the Asian markets, Qafco's primary customers. But since then profits have soared owing to a recovery of product prices. Last year, average prices for urea climber by 35% to $108 /t and for ammonia by 43% to $157 /t. The profit rebound coincided with the company's moves to tap the market to finance its latest expansion project.
Roughly concurrent with the signing of the loan agreement, Qafco awarded the EPC contract, worth $420 million, to Krupp Uhde. The contract is to be signed September 5. The company cut through competition from Snamprogetti, Kellogg Brown & Root and Chiyoda Corporation to seize the 32 month contract. Its nominated sub-contracter is Consolidated Contractors International Company (CCC). Krupp Uhde previously undertook EPC work on Qafco's 1997 Phase III expansion. Construction work is slated to begin in October.
With three other hefty big-ticket deals yet to come to the market, the next year looks set to pack substantial activity. The question arises, though, whether the bank market has sufficient capacity to support such a bulk of deals. Says a banker close to the deal, ?people are beginning to see the benefits of lending to Qatar. Moreover, a lot of the regional banks are highly liquid and need assets to book, and Qatar is offering some outstanding transactions.?
Despite the encouraging mood, the remaining deals looking for project funding will need to coordinate their borrowing very carefully to succeed. Still in the pipeline is financing for the Ras Laffan independent power and water project (IWPP). The government is understood to have given the $600 million deal priority. Accordingly, the $700 million debt facilities for Qatar's next project, Ras Laffan LNG's third train, will be held back until the IWPP has cleared the market. Also in line is the $160 million financing for the first phase of Ras Abu Fontas B extension.
Bankers remain buoyant about capacity and appetite for forthcoming Qatari deals. Indeed, few flinch at the thought of the country having to raise $1.8 billion this year alone. But at the same time further funding sources are being sought. One prospect is the insurance market, previously tapped for last year's NGL-4 transaction. The other is the project bond market, which has yet to take off. And it is not unlikely that yet more innovative solutions will come to bear not only in Qatar, but throughout the entire Gulf region.
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