Latin American Oil and Gas deal of the year
Difficult market conditions throughout the last two years have not
prevented sponsors and financiers getting involved in Latin
America, albeit cautiously. But signing of the $472 million
Compania Mega project in Argentina at the end of June 1999 is proof
that first time deals can still get done. Mega is the first oil
& gas deal to be done on a project finance basis in the
southern cone that includes Argentina, Chile, Uruguay and Paraguay.
The project involves the construction of an integrated natural gas processing facility comprising a natural gas separation plant, a natural gas liquids fractionation plant, a 600km pipeline and related storage and loading facilities, all located in Argentina. Sponsor of the project is a consortium made of YPF (38%), Petrobras (34%) and Dow Chemical (28%). The project is expected to be operational by the end of 2000 with JGC Corporation been mandated as the engineering, construction and procurement contractor.
The project will process natural gas to be provided by YPF and will producing products such as ethane, propane, butane and natural gasoline. Local Petroquimica Bahia Blanca (PBB) has signed a long-term contract for the purchase of 500,00 tonnes of ethane a year while butane and natural gasoline produced at Mega will be sold by Petrobras in the Brazilian domestic market. Mega represents the first time a project located in a non-investment grade country and selling product to a non-investment grade buyer such as PBB has been able to surpass both sovereign and offtaker ceilings and achieve grade ratings such as Standard & Poor's and Duff & Phelps.
Financing was split between $195 million 10-year floating rate notes, $102 million 13-year floating rate notes, $175 million 15-year senior secured fixed rate note and a $203 million equity portion. Both the floating and fixed rate notes closed oversubscribed.
Steven Greenwald, managing director in project finance at Credit Suisse First Boston in New York, says: ?Mega has been the first Latin American project financed after the emerging market crisis of 1998. What happened in the second half of 1999 went beyond anybody's expectation with a 180 degree turn from previous market conditions. Sheer resourcefulness was what drove us to put the financing package together in a period of 12 months. Our biggest achievement was to obtain an investment grade rating for the project making financing viable in the US capital markets.?
Paul Weber, partner at Chadbourne & Parke in London says: ?The changes affecting the world markets throughout 1998 put strains on the original structure of the deal which needed to be reworked. Changes in Argentina's tax law required some amendments to be made, but the altogether result has been a positive one.? John Lindenberg, managing director in global project finance at Citibank in New York, says: ?We were able to put together a good package and present it to the market at the right time. The Latin American market is a very interesting one but with the tightening of spreads it is unlikely large volumes of deals will come underway. Getting investment grade ratings is no longer a ticket for long-term executions of project financing in the region.?
The project involves the construction of an integrated natural gas processing facility comprising a natural gas separation plant, a natural gas liquids fractionation plant, a 600km pipeline and related storage and loading facilities, all located in Argentina. Sponsor of the project is a consortium made of YPF (38%), Petrobras (34%) and Dow Chemical (28%). The project is expected to be operational by the end of 2000 with JGC Corporation been mandated as the engineering, construction and procurement contractor.
The project will process natural gas to be provided by YPF and will producing products such as ethane, propane, butane and natural gasoline. Local Petroquimica Bahia Blanca (PBB) has signed a long-term contract for the purchase of 500,00 tonnes of ethane a year while butane and natural gasoline produced at Mega will be sold by Petrobras in the Brazilian domestic market. Mega represents the first time a project located in a non-investment grade country and selling product to a non-investment grade buyer such as PBB has been able to surpass both sovereign and offtaker ceilings and achieve grade ratings such as Standard & Poor's and Duff & Phelps.
Financing was split between $195 million 10-year floating rate notes, $102 million 13-year floating rate notes, $175 million 15-year senior secured fixed rate note and a $203 million equity portion. Both the floating and fixed rate notes closed oversubscribed.
Steven Greenwald, managing director in project finance at Credit Suisse First Boston in New York, says: ?Mega has been the first Latin American project financed after the emerging market crisis of 1998. What happened in the second half of 1999 went beyond anybody's expectation with a 180 degree turn from previous market conditions. Sheer resourcefulness was what drove us to put the financing package together in a period of 12 months. Our biggest achievement was to obtain an investment grade rating for the project making financing viable in the US capital markets.?
Paul Weber, partner at Chadbourne & Parke in London says: ?The changes affecting the world markets throughout 1998 put strains on the original structure of the deal which needed to be reworked. Changes in Argentina's tax law required some amendments to be made, but the altogether result has been a positive one.? John Lindenberg, managing director in global project finance at Citibank in New York, says: ?We were able to put together a good package and present it to the market at the right time. The Latin American market is a very interesting one but with the tightening of spreads it is unlikely large volumes of deals will come underway. Getting investment grade ratings is no longer a ticket for long-term executions of project financing in the region.?
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