The project has been in development for three years. RBS was mandated as financial adviser in 2008 and approached banks in 2009 for informal discussions. It approached international banks first and then brought local banks into the process in October 2009. While the response from international banks was relatively muted, the Egyptian banks lobbied hard for involvement, and in March and April of 2010 communicated in writing that they had the appetite for both project risk and underwriting.

Egyptian banks have suffered less than international lenders from lack of liquidity because the Egyptian economy has been largely insulated from credit crunch fall-out. The local banks were able to offer EHC more competitive pricing and at a reasonable 10-year tenor. Enthusiasm among local banks for the project also brought the ad­vantage of speeding up deliberations. The three commercial banks were formally approached in June 2010 and reached financial close just five months later.

The financing model is said to be strong. Market, technical and environmental assessments took 18 months and were delivered to an ECA standard rather than just satisfying the commercial banks. British Sulphur carried out the market analysis and Baker & O’Brien the technical analysis.

Because the debt is being financed in dollars, Egyptian banks did not have the same funding advantage as they would have if they were lending in Egyptian pounds. Nevertheless, the tenor has been set at a competitive 10 years, and the debt is fully underwritten on an equal club basis. As feedstock cost and offtake income will be in dollars there was no need for currency hedging.

The project is unusual for the region in that it has no corporate or completion guarantees. Although the EBIC ammonia project, signed in 2005, was similar in this regard, two-thirds of that financing was provided by US Ex-Im. In comparison the latest EHC project has no ECA or multilateral support whatsoever. Inter­national banks would almost certainly have in­sist­ed on completion guarantees, but local banks were happy to proceed with financing without them. Placing full construction risk with the lenders has meant that careful structuring of the project was vital, with White & Case advising in this regard.

The project will produce low-density ammonium nitrate, a component used in precision explosives in the mining industry. Having studied the market dynamics, EHC is expecting increased demand for the product as mining companies penetrate deeper underground. The Egyptian government is also drafting new legislation to encourage the incipient domestic mining sector, and the prospect of coal mining projects in the pipeline should provide a natural local market for the offtake.

Commodity prices have been rising and although demand is set to increase, the supply of ammonium nitrate remains relatively constrained. There is only one other ammonium nitrate facility in Africa, locat­ed in South Africa, and EHC’s new facility will almost certainly be the first of its kind to be delivered through project financing.

Ammonium nitrate’s unique properties, incredibly specific application and ab­sence from the project finance market thus far, meant that there was no previous template for the structuring of offtake and feedstock contracts. Transammonia is pro­viding 100% of the am­monia feedstock – which it is most likely to purchase from the EBIC plant just 20km away from the EHC project – and is also purchasing 100% of the output. There is no fixed pricing for the EHC feed­stock and offtake contracts with Trans­ammonia, which will instead be priced at market rate. The price of ammonia and ammonium nitrate are closely linked, how­ever, so this largely eliminates the risk of dangerous disparities between feedstock cost and revenue.

Uhde, a wholly owned sub­sidiary of ThyssenKrupp, signed up as EPC contractor on 20 August 2010 on a lump-sum turnkey basis. Uhde is one of the most experienced foreign contractors in Egypt and operates through a Cairo based subsidiary called Uhde Engineering Egypt. Uhde’s appointment provides some comfort to the lenders and explains why they are willing to take on construction risk.

The project is expected to begin operating in 2013. When completed the complex will convert the ammonia feedstock into 925 tonnes per day (tpd) of nitric acid, which will then be processed to produce 1,060 tpd of low-density ammonium nitrate. EHC has two other projects in the pipe­line, a greenfield olefins project and a green­field methanol and ammonia project. The appetite among Egyptian banks for the ammonium nitrate facility is partially driven by the desire for preferred positioning on these future projects. 

EHC Ain Sokhna Ammonium Nitrate Project
Status: Financial close 22 November 2010
Description: Nitric acid and ammonium nitrate complex
Debt: $298 million
Sponsor: Egyptian Hydrocarbon Commission
Mandated lead arrangers: Commercial International Bank (facilities agent), Banque Misr (security agent), Ahli United Bank (bookrunner)
Financial adviser: RBS
Sponsor legal counsel: White & Case and Helmy Hamza & Partners (local)
Lender legal counsel: Sarie Eldin & Partners
Market adviser: British Sulphur
Technical adviser: Baker & O’Brien
EPC contractor: Uhde