SECCO
Asia-Pacific Oil & Gas Deal of the Year 2002
Shanghai Ethylene Cracker Complex (SECCO)
Chinese banking involvement on last year's groundbreaking Shanghai Ethylene Cracker Complex project (SECCO) was unprecedented: it was the largest People's Republic of China (PRC) debt financing to be done since the 1997 Asian financial crisis. It was also the largest uncovered long-term financing mixing international and PRC banks. This is the first big-ticket petrochemical fundraising to close in China.
The deal closed within five months of the feasibility study approval, and was about eight times over-subscribed. Those who worked on the deal say this will form the basis of more Chinese banks lending into international projects. The lead arrangers on the deal are: Bank of China, Hong Kong and Shanghai Banking Corporation and Industrial Bank of Japan, Industrial and Commercial Bank of China, China Construction Bank, Bank of Communications, Shanghai Pudong Development Bank, HSBC Hong Kong and Mizuho Hong Kong, Agricultural Bank of Bank of China, Bank of Shanghai and Guangdong Development Bank.
This BP-, Sinopec- and CPCC-sponsored project was financed from a multi-tranche package comprising a commercial term loan of $708 million, a local currency loan of RMB8.1 million ($979 million) and working capital of RMB963 million ($116 million). The commercial loan has a maturity of 12 years and a pricing placed at 70bp over Libor with a commitment fee of 30bp. The renminbi (RMB) tranche has a long maturity in the region of 20 years with the People's Bank of China (PBOC) rate adjusted downward by 10%. This rate was the same for the working capital facility, whose tenor was 10 years. Altogether the debt package amounted to $1.8 billion. Total project cost is $2.7 billion. The RMB tranche exists because revenue from the project will be denominated in local currency and as such, it will eliminate the need for swaps.
The debt to equity ratio is 70/30, and the project financing is fully guaranteed by the sponsors. One of the key aspects here is that there is no specific foreign lending tranche because foreign banks and Chinese domestic lenders worked together and took hold positions in one tranche.
The deal is innovative in that Chinese banks accepted a direct guarantee by BP, and international banks accepted a direct guarantee from the Chinese sponsor Sinopec.
Li Haotian, deputy manager in the corporate banking department of Bank of China, worked on the deal. He says: ?Another innovative feature I believe is the involvement of Bank of China International (BOCI ? Bank of China's investment arm) as the global facility agent) on the deal. Because of Chinese banks' important contribution to the financing of SECCO project, BOCI, a Hong Kong company with a strong Chinese background was appointed as GFA. Previously there has not been such an arrangement in other projects.?
The project structure is strong, partly because the sponsors are strong and because their guarantees were well structured, the requirement for an offtake agreement was dropped. Secondly, SG, Bank of China and CCB worked on the project as financial advisors for about two years ? meaning the major Chinese banks were familiar with the financing structure and understood it.
The location of the plant another important factor in making it more financeable. It will be based in a chemical industry park. Says Haotian of Bank of China: ?Bayer, BASF and other big names are all in the park. These companies will consume part of SECCO's output. This also makes it easy to find an experienced and educated work force.?
The repayment structure matches the project's cashflow and steps up over time. The project involves the construction and operation of a 900,000 tonnes per year ethylene cracker and integrated derivative plants.
Dominic Gregory of Skadden Arps, which advised the joint venture company SECCO Petrochemical Company, says, ?this was a banking effort led by Chinese banks ? there was a lot of financing from Chinese banks on international terms. It is highly documented that China is not too involved in project deals, so this was a first for many of the banks.?
David Hicks, senior finance manager in Asia Pacific for BP, was pleased with the deal. He says: ?This was a significant transaction. It was the first time we managed to involve and close a very large financing with both Chinese and international banks post the Asian crisis, which made financing more of a challenge. The success of the financing was based on the close working relationship and alignment with our Chinese parties. It was done on extremely competitive terms. For RMB we managed 20 years ? very long indeed. To get these tenors was a key factor in the deal.?
The deal's final stand-out feature is its rapid signing and financial close. Says Hicks: ?There was always a desire to try and close ahead of the other deals. This is as yet the only closed petrochemical financing in China and will pave the way and set a trend in China to lend dollars on very competitive terms to other projects too. We were enormously helped by Bank of China, CCB, ICBC and SG. All four banks were very helpful in delivering a timely and successful financing. We made sure all the terms and structures of the deal were well considered with a clear view of what was wanted, and this helped.?
Status: Closed April 2002
Cost: $2.7 billion
Location: Shanghai
Description: Financing of an ethylene cracker complex
Sponsors: BP, Sinopec, CPCC
Arrangers: Bank of China, China Construction Bank (CCB), China Industrial and Commercial Bank, Bank of Communications, Bank of Shanghai, Guangdong Development Bank, Agricultural Bank of China, HSBC, Mizuho (then IBJ), Shanghai Pudong Development Bank, China Development Bank.
Financial advisors: SG, CCB, Bank of China and ICBC (independent).
Contractors: AMEC and ABB Lummus
Lawyers to the sponsors: Skadden Arps Slate Meagher and Flom, King & Wood, Baker & McKenzie
Lawyers to the lenders: Allen & Overy, Haiwen
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Shanghai Ethylene Cracker Complex (SECCO)
Chinese banking involvement on last year's groundbreaking Shanghai Ethylene Cracker Complex project (SECCO) was unprecedented: it was the largest People's Republic of China (PRC) debt financing to be done since the 1997 Asian financial crisis. It was also the largest uncovered long-term financing mixing international and PRC banks. This is the first big-ticket petrochemical fundraising to close in China.
The deal closed within five months of the feasibility study approval, and was about eight times over-subscribed. Those who worked on the deal say this will form the basis of more Chinese banks lending into international projects. The lead arrangers on the deal are: Bank of China, Hong Kong and Shanghai Banking Corporation and Industrial Bank of Japan, Industrial and Commercial Bank of China, China Construction Bank, Bank of Communications, Shanghai Pudong Development Bank, HSBC Hong Kong and Mizuho Hong Kong, Agricultural Bank of Bank of China, Bank of Shanghai and Guangdong Development Bank.
This BP-, Sinopec- and CPCC-sponsored project was financed from a multi-tranche package comprising a commercial term loan of $708 million, a local currency loan of RMB8.1 million ($979 million) and working capital of RMB963 million ($116 million). The commercial loan has a maturity of 12 years and a pricing placed at 70bp over Libor with a commitment fee of 30bp. The renminbi (RMB) tranche has a long maturity in the region of 20 years with the People's Bank of China (PBOC) rate adjusted downward by 10%. This rate was the same for the working capital facility, whose tenor was 10 years. Altogether the debt package amounted to $1.8 billion. Total project cost is $2.7 billion. The RMB tranche exists because revenue from the project will be denominated in local currency and as such, it will eliminate the need for swaps.
The debt to equity ratio is 70/30, and the project financing is fully guaranteed by the sponsors. One of the key aspects here is that there is no specific foreign lending tranche because foreign banks and Chinese domestic lenders worked together and took hold positions in one tranche.
The deal is innovative in that Chinese banks accepted a direct guarantee by BP, and international banks accepted a direct guarantee from the Chinese sponsor Sinopec.
Li Haotian, deputy manager in the corporate banking department of Bank of China, worked on the deal. He says: ?Another innovative feature I believe is the involvement of Bank of China International (BOCI ? Bank of China's investment arm) as the global facility agent) on the deal. Because of Chinese banks' important contribution to the financing of SECCO project, BOCI, a Hong Kong company with a strong Chinese background was appointed as GFA. Previously there has not been such an arrangement in other projects.?
The project structure is strong, partly because the sponsors are strong and because their guarantees were well structured, the requirement for an offtake agreement was dropped. Secondly, SG, Bank of China and CCB worked on the project as financial advisors for about two years ? meaning the major Chinese banks were familiar with the financing structure and understood it.
The location of the plant another important factor in making it more financeable. It will be based in a chemical industry park. Says Haotian of Bank of China: ?Bayer, BASF and other big names are all in the park. These companies will consume part of SECCO's output. This also makes it easy to find an experienced and educated work force.?
The repayment structure matches the project's cashflow and steps up over time. The project involves the construction and operation of a 900,000 tonnes per year ethylene cracker and integrated derivative plants.
Dominic Gregory of Skadden Arps, which advised the joint venture company SECCO Petrochemical Company, says, ?this was a banking effort led by Chinese banks ? there was a lot of financing from Chinese banks on international terms. It is highly documented that China is not too involved in project deals, so this was a first for many of the banks.?
David Hicks, senior finance manager in Asia Pacific for BP, was pleased with the deal. He says: ?This was a significant transaction. It was the first time we managed to involve and close a very large financing with both Chinese and international banks post the Asian crisis, which made financing more of a challenge. The success of the financing was based on the close working relationship and alignment with our Chinese parties. It was done on extremely competitive terms. For RMB we managed 20 years ? very long indeed. To get these tenors was a key factor in the deal.?
The deal's final stand-out feature is its rapid signing and financial close. Says Hicks: ?There was always a desire to try and close ahead of the other deals. This is as yet the only closed petrochemical financing in China and will pave the way and set a trend in China to lend dollars on very competitive terms to other projects too. We were enormously helped by Bank of China, CCB, ICBC and SG. All four banks were very helpful in delivering a timely and successful financing. We made sure all the terms and structures of the deal were well considered with a clear view of what was wanted, and this helped.?
Status: Closed April 2002
Cost: $2.7 billion
Location: Shanghai
Description: Financing of an ethylene cracker complex
Sponsors: BP, Sinopec, CPCC
Arrangers: Bank of China, China Construction Bank (CCB), China Industrial and Commercial Bank, Bank of Communications, Bank of Shanghai, Guangdong Development Bank, Agricultural Bank of China, HSBC, Mizuho (then IBJ), Shanghai Pudong Development Bank, China Development Bank.
Financial advisors: SG, CCB, Bank of China and ICBC (independent).
Contractors: AMEC and ABB Lummus
Lawyers to the sponsors: Skadden Arps Slate Meagher and Flom, King & Wood, Baker & McKenzie
Lawyers to the lenders: Allen & Overy, Haiwen
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