Shuweihat Asia Power Company (SAPCO) – a special purpose company established by the Abu Dhabi Water and Electricity Authority (ADWEA, 60%), Kepco and Sumitomo (40% split 49/51 respectively) – reached financial close on 19 May on the Shuweihat 3 independent power project in the United Arab Emirates. The deal benefits from a 25-year offtake contract with ADWEA, following the precedent of the earlier Shuweihat 2 financing.

The 1,600MW project is the first that grantor ADWEA has procured without a water component. It is also the first time Kexim has participated in a power financing in the emirate, despite the long-time dominance of Korean engineering, procurement and construction (EPC) contractors in the Middle East. The EPC consortium is made of Siemens and Daewoo E&C. A long-term service agreement is also in place between the project company and Siemens for the maintenance of the gas turbines. However, the most significant aspect of the deal is probably the pricing, with the commercial bank debt starting at 175bp and rising to 200bp over six-month Libor.

The financing comprises $1.117 billion term facilities and $55.7 million in stand­by facilities. JBIC and Kexim are contributing $381 million term loans each while the remainder ($355 million term loan plus standby) comes from seven com­mercial lenders: BNP Paribas and Mizuho as initial mandated lead arrangers and HSBC, NBAD, BTMU, SMBC and Samba as mandated lead arrangers.

The term facilities have a duration of 23 years door-to-door. The construction period is 3 years and there is a 20-year repayment period during which the debt is fully amortised.

The debt-equity ratio is set at a maximum of 80% with the financial model benefiting from early generation revenues. The sponsors are providing $300 million of the project costs through equity: $180 million from ADWEA, $61.2 million from Sumitomo and $58.8 million from KEPCO.

It could be argued that the tight pricing was due to the heavy contribution from the export credit agencies – around 70% of the financing needs – thus contributing to a relatively small amount of commercial debt that could be provided by a limited number of banks, which in turn helped sponsors’ commercial negotiations.

The project was tendered against the backdrop of a diminshed number of active international project finance banks and the Arab Spring. To ensure that all bidders were on an equal footing, ADWEA asked each bidder to appoint just two pathfinder banks. Each bank preliminarily committed $125 million, with the grantor lining up NBAD and HSBC to each contribute $125 million to the winning bid. The path­finder banks to Sumitomo and Kepco, BNP Paribas and Mizu­ho, each fully under­wrote the $355 mil­lion commercial tranche at bid, but ADWEA was keen to widen the group of lenders.

The pricing conditions essentially carried from the bidding phase and were basically adopted by the new mandated lead ar­rangers. The debt pricing obtained from Sumitomo and Kepco from their two pathfinder banks was higher than two of the other bidders – thought to be the Marubeni and Mitsui-led groups that had the benefit of JBIC backing – so ADWEA asked for tighter pricing. One source suggest that the sponsors agreed too readily to pass on this request to their banks, but the pricing was a compromise rather than a match of the bid with the lowest margins. Most of the lead arran­gers that joined were exclusive banks supporting other consortiums that were released by ADWEA after the appointment of the first-ranked bidder.

The pricing on the deal is to some extent illustrative of an improved level of liquidity, at least for a project of this type: that is, conventional power, well-tested environment, top-tier sponsors and EPC and operations and maintenance contractors, and probably one of the few IPPs closing in the Middle East this year. However, such tight pricing may not migrate to other sectors and jurisdictions. For instance the debt for the Sur IPP project in Oman will almost certainly be priced wider.

Changes to the management of ADWEA and the Abu Dhabi Executive Council, wide­ly seen as a response to the revolts sweeping through North Africa and the Middle East, delayed the deal. The changes, which were done to remove long-held suspicions of corruption and opacity, delayed the project by a couple of months. The appointment of the consortium as first-ranked bidder took place in mid-October while the PPA was scheduled to be signed in December but was not signed until mid-February and financial close took place on 19 May, with the signing date of the finance documents 16 May.

Shuweihat 3 is the first IPP to be developed since the launch of the Emirates’ nuclear programme, which is expected to produce first power in 2017. The S3 plant will thus be dispatched in a more flexible manner under a reserve shut-down regime that allows the plant to only operate when demand is high or other capacity is down. The plant will potentially complement a baseload nuclear fleet. The first contribution of Kexim to a financing of this type in Abu Dhabi suggests that Korean expertise in gas and nuclear will be similarly complementary.

Shuweihat Asia Power Company
Status: Financial close 19 May 2011
Size: $1.417 billion
Location: Abu Dhabi
Description: First IPP launched by ADWEA with no water component, and has a capacity of 1,600MW.
Sponsors: Sumitomo, Kepco and ADWEA
Equity: $300 million
Debt: $1.117 billion
Mandated lead arrangers: BNP Paribas and Mizuho as initial MLAs and HSBC, NBAD, BTMU, SMBC and Samba as MLAs
Sponsors’ financial adviser: BNP Paribas
Sponsors’ legal counsel: Herbert Smith and Trowers & Hamlins
Lenders’ legal counsel: Ashurst