Middle East - Petrochemical and overall emerging markets deal of the year:

Q-Chem

Q-Chem was last year's biggest Middle Eastern success story in a climate that has seen a major downturn in project finance. The benchmark deal was based on three elements ? a quick and timetabled delivery, a lot of pre-marketing in various forms, and structural flexibility ? all handled by financial advisor Greenwich NatWest.

Initially, there was doubt as to whether the arrangers would be able to locate enough appetite for Q-Chem at the retail level. Most of the 24 arrangers would have been pleased if it had raised $100 million in general syndication. But appetite proved overwhelmingly strong for the $750 million project financing which closed raising some $175 million in commitments ? $25 million more than expected.

Banks which came into the deal in general syndication were Abbey National Treasury Services, Bank Austria Creditanstalt, Commercial Bank of Qatar, ING Bank, Landesbank Baden-Wuerrtemberg, Riyad Bank, Saudi Investment Bank and Bank of Scotland.

The group marks a number of firsts. This is the first cross-border deal that Saudi Arabian banks have lent to ? a move that required clearance from the Saudi Arabian Monetary Authority. The deal also passes through an offshore trustee ? ABN Amro-owned LaSalle Bank, Chicago. It also marks a first for lending to a Qatari project for Abbey National Treasury Services and for Landesbank Baden-Wuerrtemberg.

Three tickets were offered to banks ? co-arrangers with takes of $20 million for fees of 75bp; senior lead managers with takes of $15 million for fees of 65bp; and, lead managers with $10 million for fees of 55bp. Almost all of the banks came in at the highest level.

Given the problems that QVC and Nodco had last year, pricing was very competitive at 70bp over Libor pre-completion, 125bp post-completion to year six from financial close and at 140bp until year 10. The final step-up took the margin to 160bp until maturity at 13 years.

Flexibility in the repayment structure was also key to the deal. Based around a 12-year maturity, tenor can be extended to 13 years or reduced to 11 years depending on cash flow.

Co-arrangers were ABN Amro Bank (security trustee and accounts bank), ANZ Investment Bank, Apicorp (regional bookrunner), Bank of Tokyo-Mitsubishi, Banque Nationale de Paris, Barclays Capital (documentation bank and facility agent), Bayerische Hypo-und Vereinsbank, Bayerische Landesbank, CIBC, Commerzbank, Credit Lyonnais, Dai-Ichi Kangyo Bank, Deutsche Bank, EDC, Fuji Bank, Greenwich NatWest (government advisor), Gulf International Bank, HSBC (international bookrunner), Industrial Bank of Japan (technical bank), KBC Project Finance, Paribas, Qatar National Bank, Royal Bank of Scotland (modelling bank) and WestLB (insurance bank).

Integral to the Q-Chem success story was the NGL4 corporate-type financing to fund extension of the plant. Both deals are two sides of the same project with NGL4 whipping up interest in Q-Chem: the same core of banks went into both deals.

Q-Chem

Project cost: $1.16 billion

Debt: $750 million

Maturity: 12 years

Sponsors: Qatar General petroleum (51%)and Phillips Petroleum (49%)

Financial advisor: Greenwich NatWest

International counsel to Q-Chem: Latham & Watkins

International counsel to lenders: Skadden Arps

Middle East - Water/Power deal of the year:

Al Taweelah 2

Financing for the $596 million Al Taweelah A2 710MW/50 million gallon desalination project is proof of the commitment of the Abu Dhabi government to opening the emirate to foreign investors. Taweelah is the first independent power/water project to be financed in the UAE and Abu Dhabi.

Mandated in September 1998, it took sponsor CMS less than 12 months to attract an international team of lenders and reach financial close on April 27, 1999.

Lead arranged by Barclays Capital, the deal has a number of outstanding structural features. Priced at 105bp over Libor during construction, dropping to 80bp post completion, CMS got value for money. And the 17-year tenor is notable ? despite Abu Dhabi's AAA credit rating.

In a previously published interview, CMS' Victor Fryling, president and chief operating officer in Dearborn, remarked how important Taweelah is for the company's future in the region (see Project Finance, June 1999). Speaking from the London office Amjad Ghori, senior director in global finance at CMS Energy says: "The authorities in Abu Dhabi gave a tremendous boost to the project and provided the right environment for foreign investors."

More deals are already happening. According to James McKellar, director in investment finance at Barclays Capital in London says: "Abu Dhabi is always big news for project financiers. The pipeline for 2000 is already full with bids for Taweelah A1 and the Shuweihat power and water projects."

Today CMS Energy has been shortlisted together with rival TotalFina for the development of Taweelah A1 with the winner expected to be announced by the beginning of February 2000. Taweelah A2 involves the construction of a gas-fired 710MW plant combined with a desalination unit facility which will have a capacity of 50 million gallons of water a day. Construction, to be carried by a joint venture between Germany's Siemens and South Korea's Hanjung, has started and the plant will be fully operational by August 2001. The plant will be developed 65km northeast of Abu Dhabi. The local Abu Dhabi Water and Electricity Corporation has signed with CMS a 20-year agreement for the purchase of power and water from the plant.

Taweelah A2 Power and Water

Total cost: $750 million

Sponsors: CMS Energy (40%) and Abu Dhabi Water and Electricity Corporation (60%)

EPC contractors: joint venture between Siemens and Hanjung

Financing: $596 million, 17-year credit facility

Pricing: 105 million basis points over Libor during construction, dropping to 80bp post-completion

Lead arranger: Barclays Capital

Arrangers: Abu Dhabi Commercial, Gulf International, ANZ, Abu Dhabi Investment, NordLB, Banque Paribas, SG, Union National Bank of Abu Dhabi and WestLB

Facility agent: Barclays Capital

Financial adviser to the utility/government: Credit Suisse First Boston

Legal advisers to the government: White & Case and Al-Tamini & Co

Legal adviser to the lenders: Shearman & Sterling

Technical adviser to the utility/government: Fichtner Consulting Engineers

Strategic adviser to the government: McKinsey & Co

Middle East - Transport Infrastructure deal of the year:

Cross Israel

Financing of the $1.35 billion Cross Israel highway project is an important step forward in the establishment of Israel on the project finance map. It represents the first BOT venture to reach financial close in Israel and involves the construction of an 86km north-south highway around Tel Aviv (see Project Finance, November 1999). Initiated in 1996 under the Labour government of the late Yitzak Rabin, the project was carried on by the conservative government of Benjamin Netanyahu and reached its conclusion under the new Labour government of Ehud Barak. Douglas Fried, partner at Chadbourne & Parke says: ?The task of putting together Cross Israel has showed the incredible determination different Israeli governments had to go ahead with the project.?

In January 1998, the Derech Eretz consortium won a 30-year concession to run the project. Construction started in December 1999 and it will be fully operational by the first quarter of 2004. The first 30km will ready by 2002. Financing was arranged by local Bank Hapoalim and Toronto-based CIT Group (formerly Newcourt Capital). Financial close was reached at the end of October 1999.

Cross Israel represented a steep learning curve for both local sponsors and financiers. Both parties have showed the capability of a fast learner teaming up with an international squad that included lawyers, financiers and sponsors across three continents.

Warren Thomson, managing director in structured finance at CIT Group in Toronto, says: ?It has been a real challenge putting together such an international group. Bringing together sponsors and financiers across different countries has been a unique and valuable experience.? John Beck, president of Canadian Highway International and president of Derech Eretz agrees: ?We are all wiser now. The complexity and size of the deal has proved to be a unique learning opportunities for local sponsors and financiers with little or no previous experience in BOT projects. Cross Israel represents a landmark transaction for a country that is likely to offer great opportunities in the coming years.? Ehud Savion, managing director of Derech Eretz in Tel Aviv concludes: ?Cross Israel represents the first BOT project done in the country and there will be more to come given the popularity this formula has with the local government.?

For those interested in Israel, the next projects to look at include bidding for the light railways in Jerusalem and Tel Aviv. Prequalification bids for Jerusalem are due in by May 2000 with the winner to be announced at the beginning of 2001.

Cross Israel Highway

Total cost: $1.35 billion

Location: Tel Aviv

Debt: $850 million local facility, $250 million North American bond

Sponsors: Canadian Highway International, Africa Israel, Housing & Construction

Arrangers: Bank Hapoalim,

Lawyer to the consortium: Freshfields

Lawyers to the lenders: Allen & Overy, Herzog Fox & Ne'man, Chadbourne & Parke

Lawyer to the government: White & Case

Middle East ? Power deal of the year:

Sidi Krir

Financing of the $480 million Sidi Krir power plant in July 1999 is testimony to new international bank enthusiasm for Egyptian risk.

The project involves the construction of a 685MW natural gas-fired power complex, 30km west of the northern city of Alexandria (see Project Finance, May 1999). Sidi Krir is Egypt's first BOOT power project and one of the largest ever done in the MENA region.

Structured by Dresdner Kleinwort Benson (DKB), the financing includes a $180 million local tranche ? arranged by Egyptian banks Commercial International, National Bank of Egypt and Mi Bank ? and a $130 million international tranche arranged by ABN Amro, DKB, Paribas, Societe Generale and Export Development Corporation of Canada.

Construction has started and the plant will be ready for operations in July 2002. Sponsor of the project is an international consortium comprising US' InterGen and local First Arabian Development & Investment and Kato Investments. Credit was arranged by a team of local and international banks that had a chance to test the appetite for Egyptian deals. InterGen is now negotiating with Washington-based International Finance Corporation over the refinancing of both the local and international debt portions with an agreement expected by the end of 2000.

Sidi Krir is the first initiative to cash in on the legal measures sponsored by the local Egyptian Electricity Authority to promote BOOT initiatives. Sister projects have been mandated in 1999 to Electricite de France (EdF) in East Port Said and the Gulf of Suez, with Societe Generale acting as EdF's financial adviser.

The coming year is likely to kickstart more Egyptian projects. A BOOT promotion visit to the UK, paid in November 1999, by Egypt's influential minister of the economy, Dr Youssef Boutros-Ghali, emphasizes the point. Over the next 20 years, 15 BOOT power projects are planned to meet a 7-8% increase in demand for electricity a year. Total investment required is estimated at around $7.2 billion.

Sidi Krir

Total Cost: $480 million

Sponsors: Egyptian project company, InterGen Sidi Krir Generating Company comprising InterGen with local partners First Arabian Development & Investment and Kato Investments

Financial advisor: Dresdner Kleinwort Benson

Power-purchase agreement: signed with EEA with a guarantee from the Central Bank of Egypt

Debt:

Tranche one: $130 million, 15-year term loan arranged by ABN Amro, Dresdner Kleinwort Benson, Paribas, Societe Generale and Export Development Corporation of Canada

Pricing: 175 basis point over Libor for year one

200bp from years two to five

230bp from years six to 15

Tranche two: $187 million, 18-year term loan arranged by Commercial International Bank, National Bank of Egypt and Misr International Bank

Pricing: same as for tranche one

Tranche three: $35 million equity bridge loan. See tranche one for arrangers

Tranche four: $6 million, working capital. See tranche two for arrangers

Tranche five: $19.5 milllion contractual guarantee. See tranche two for arrangers

Legal advisers to the consortium: Clifford Chance, Shalakany Law Office

Legal advisers to the lenders: Sherman & Sterling, Helmy & Hamza

Asia ? Telecoms deal of the year:

StarHub

Even against the background of resurgent telecoms project activity in the Far East, StarHub stood out clearly. Much of the allure of the project comes down to the sponsors' daring plans to intrude upon Singapore Telecom's fixed-line monopoly in the state. Mobile telephony has been open to competition for several years now, but StarHub's strategy envisages a combination of both mobile and fixed-line services to gain a foothold in Singapore's already saturated market.

StarHub's sponsors include Japanese telco NTT, British Telecom and local players Singapore Power and Singapore Technologies Telemedia. When Singapore's reputation as an oasis of good credit in the desert created by the Asian markets crash is included, it's easy to see why bankers were happy to use Singapore dollar-denominated debt and offered very competitive pricing.

ABN Amro NV won the lead arranger mandate in January 1999 after a flurry of interest the previous year for an offshore financing, with a number of bids submitted to StarHub's advisers Warburg Dillon Read. The S$825 million financing is now based on the company's revenue streams and earnings, denominated locally. Co-arrangers are Commerzbank, Overseas Union Bank, and BNP, taking S$200 million each, leaving ABN's share at S$225 million.

Syndication brought in 19 banks, with the deal 20% oversubscribed. Pricing, though fine at 60-132.5 bps, is based on a debt to EBITDA grid, and lender enthusiasm was based on trusting both StarHub's sponsors and the quality of Singapore assets. Tenor on the loan is 9.5 years, with a 4.25 year grace period.

The priority now for StarHub will be to roll out its network as fast as possible from the March 31 start of operations, starting in the country's central business district. And despite the interconnection agreement signed last year, which heralded the start to deregulation, it is difficult to predict how incumbent operator SingTel will respond to the start of competition. StarHub will not merely have to ensure rapid market penetration and competitive price structures, but will also need to match service provision with rapidly advancing technology as efficiently as possible.

Project financings in Singapore are likely from now to be concentrated in the country's power sector, with Singapore Power fast gaining a reputation as a serious regional player. If they manage to attract the same credit terms they have gained on the StarHub deal, it will be a reputation well deserved.

StarHub

Total Cost: S$1.5 billion

Sponsors: Singapore Technologies (Telemedia) (34.5%), Singapore Power (25.5%), British Telecom (20%), NTT (20%)

Lead arranger: ABN Amro NV

Co-arrangers: Commerzbank, Overseas Union Bank, BNP

Financial adviser to the consortium: Warburg Dillon Read

Debt: S$825 million

Tenor: 9.5 years

Pricing: 60-115bps over S$ swap rate, based on debt-Ebitda ratios

Asia ? Real estate deal of the year:

Universal Studios

Size is not everything, but it helps. Universal Studios of Japan ? the biggest ever project financing in Japan ? signed on September 30, 1999. The ¥125 billion syndicated loan from 18 financial institutions funds the construction of a theme park in Osaka.

Syndication was led and lead arranged by re-named Development Bank of Japan (formerly Japan Development Bank) which has ¥45 billion into the deal. Participants and co-arrangers included Sumitomo, Sanwa Bank, Daiwa Bank and Fuji Bank, putting up ¥40 billion in total.

Sakura, DKB, Tokai, BOT Mitsubishi, Sumitomo Trust, Mitsubishi Trust, Toyo Trust, Yasuda trust, Nippon Life, Sumitomo Life, Norin-Chukin, Zenshinren, and Nissay General also participated taking a further ¥40 billion in total. Facility agent bank was Sumitomo with Sanwa acting as security agent

Total project costs are ¥170 billion of which equity constitutes ¥40 billion. The Development Bank of Japan loan has a tenor of between 10 and 15 years starting from day one of commercial operation of the theme park. Maturity on the commercial bank loan is 10 years. The repayment schedule is in six-monthly equal instalments. The deal is backed by a charge over the Tourist Facilities Foundation ? in effect a bundle of theme park assets.

Construction on the site has begun and opening is scheduled for 2001. Sponsors on the deal are City of Osaka (25%), Universal Studios (24%) Rank Holdings (10%), Sumitomo (5%), Hitachi Zosen (5%) and others (31%).

Universal Studios

Total Cost: ¥170 billion

Sponsors: City of Osaka (25%), Universal Studios (24%) Rank Holdings (10%), Sumitomo (5%), Hitachi Zosen (5%), others (25%).

Debt: ¥125 billion

Equity: ¥40 billion

Tenor: 10 years

Lead arranger: Japan Development Bank

Asia ? Water deal of the year:

Chengdu No. 6

Few infrastructure projects have involved such an extensive schooling for all concerned as the Chengdu No. 6 Water Plant ? and many have not closed as successfully as this BOT, either.

The number of precedents set by the project is startling. Chengdu not only paves the way as the first pilot water BOT to be awarded under an open tender, and was the second BOT in the country to close after Laibin power, it set a new level of comfort for bank lending to the country based on public credit strength.

The $106.5 million plant has been built to provide wastewater treatment services to the city of Chengdu in Sichuan, and the project also comprises 27km of transmission pipelines. Its offtake agreement is with Chengdu General Waterworks Company, guaranteed by the local municipality. Chengdu No. 6 may have had the full backing of the central government, but it was the People's Government of Chengdu's ability, and discretion, to back payments that governed banks' credit assessments.

The pilot BOT initiative had the backing of the State Development and Planning Commission, and the commitment and expertise, both in construction, operating and maintenance, of sponsors Marubeni and Compangnie des Eaux Sahide (part of France's Vivendi). The consortium reached preferred bidder stage in February 1998 and was approved in July that year.

The challenge for the winners, as well as the municipality's advisers PricewaterhouseCoopers, was to persuade lenders that the government was able not only to back the offtake payments but also the substantial termination payment. This was achieved during the second due dilligence phase by assessing the tax and asset base of the Chengdu authorities as well as their ability to raise the relevant water taxes.

The $74.5 million debt for the consortium was advised upon, underwritten and arranged by Credit Lyonnais, with the contribution of the Asian Development Bank and the European Investment Bank ? the latter's first private project involvement in the country. Both provided a $26.5 million direct loan each, the EIB also providing an overcollateralised guarantee facility and political risk cover.

The financing received a strong response, a targeted pitch over-subscribed by 28%. Banks involved at the next level were ANZ, Barclays Capital, Development Bank of Singapore, Dresdner, Fuji and KBC, with signing taking place last August.

Chengdu's construction has now started, with the equity contribution replaced in January 2000 by the financing plan. The next challenge for sponsors is to provide projects that can tap local financing sources ? a process that should be moved along with the tender process for Beijing No. 10, where financing plans can be submitted with a renminbi-denominated element.

Chengdu No. 6 Water Plant B

Total cost: $106.5 million

Debt: $74.5 million

Sponsors: Marubeni (40%), Vivendi (60%)

Lead arranger: Credit Lyonnais

Multilaterals: ADB, EIB

Advisor to Peoples Government of Chengdu: PricewaterhouseCoopers

Lawyers: Allen & Overy, Gide Loyrette Nouel

Africa ? deal of the year:

N3 Toll Road

With R2.1 billion ($350 million) financing, the N3 toll concession is the largest BOT in South Africa to date and is a template for infrastructure projects in the country.

The concession required that the existing debt on the road be transferred from the South African National Roads Agency (SANRA) to the winning bidder. A consortium led by LTA, Murray & Roberts and Grinaker took on the concession and the R1.38 billion of existing debt in return for the 30-year right to collect the existing tolls, and tolls from as yet untolled sections of the route. The arrangement provided useful pre-completion revenue streams but added to the financing requirements.

Moreover, given the inflation and interest rate pressures affecting funding costs, and that the nature of the cash-flows is fairly back-ended, an underwritten CPI linked facility, of around R950 million, proved to be the best way to raise domestic debt from pension funds.

The CPI facility affirmed the explicit link between toll revenues, since levels were adjusted in line with inflation to ensure adequate debt service coverage ratios, and a delay in service coverage into the life of the concession. Rand Merchant Bank placed the facility and also guided the project through the rating process, undertaken by S&P affiliate C-A Ratings. The eventual rating, A-, came after rigorous stress-testing of traffic predictions.

The project also secured reasonably priced debt from the multilaterals, the European Investment Bank and the Development Bank of South Africa. The EIB's R300 million represents its first direct investment in the continent. Further tranches were placed domestically with BoE and Southern Life.

Additional equity came from numerous local empowerment groups, who are involved at several stages of the project, both in construction and in tolling. Job creation under the concession remains a priority both for sponsors and the government, whether on the road itself or associated industrial areas.

One significant piece of work yet to be started is the stretch of the route set to be diverted through the De Beers Pass. The new route will take the road through the Drakenberg mountains, and would require a large amount of additional capital expenditure. However, work does not start on this section, which bypasses the town of Harrismith, until adequate traffic levels have been reached.

The South African government has been well pleased with the progress of the N3, especially given some of the teething troubles experienced by the N4, which suffered from disgruntled residents and the effects of interest rate volatility. The N4 serves Maputo and is designed to foster development along the corridor, whereas the N3 is a single-country road along a proven corridor.

Several more road projects are in various stages of development by SANRA. N3TC could well provide a template for further much-needed infrastructure developments in South Africa.

N3 Toll Concession

Total Cost: R3.5 billion

Sponsors: Consortium including LTA, Murray & Roberts, Grinaker and 12 other investment, consulting, and empowerment organisations.

Borrower: N3TC (Pty) Ltd

Financial advisors: Sumitomo, Rand Merchant Bank

Equity: R350 million

Debt: R1.7 billion,with a R950 million CPI facility. Other tranches: EIB, Development Bank of South Africa, BoE and Southern Life.

Tenor: 25 years

Lead arranger: Rand Merchant Bank

Legal advisers to the government: White and Case

Legal advisers to the consortium: Ashurst Morris Crisp

Legal advisers to the lenders: Deneyz Reitz