It took 33 lenders, five tranches and the first-ever domestic guarantee from the Export Finance and Insurance Corporation (EFIC) but the Wiggins Island Coal Export Terminal (WICET) has proven that large-scale project financings can still be inked in Australia; with a little effort.

The A$2.5 billion ($2.4 billion) project is sponsored by WICET Ltd (whose shareholders are Aquila Resources, Bandanna Energy, Caledon Resources, Cockatoo Coal, Northern Energy Corporation, Xstrata Coal, Yancoal Australia and Wesfarmers Curragh) and involves the construction of the first phase of a 27 million tonnes per year coal export terminal. The terminal will be operated by the Queensland Government-owned Gladstone Ports Corporation and the first exports are due in mid-2014.

From the start, the sponsors and their financial adviser Australia and New Zealand Banking Group (ANZ) knew that finding this debt amount was going to be a delicate process. Limited capital, tight tenors, high margins and the general state of the global economy meant the package had to be developed long before the banks were approached.

There was something of a precedent, however, in the shape of the Newcastle Coal Infrastructure Group (NCIG) project, which was a similar coal export terminal at Newcastle in New South Wales. The earlier project acted as a benchmark for WICET; the financing model was made as diverse as possible and export finance debt, as well as a healthy slice of equity Like NCIG, the deal had the provision for the sponsors to finance the deal directly, although this was not taken up.

The equity contribution covered just over 10% of the total project cost. The sponsors contributed A$275 million as preference shares, for which the coal exporters subscribed at financial close. The holding company only issued nominal share capital, which made the preference equity more important for anchoring the senior debt.

When it came to the financing, the main issue for the banks were concerns about completion risks and cost overruns. The Queensland floods at the start of 2011 initially raised some questions at lenders about the cost and availability of contractors for the construction (these were addressed once the initial contracts were awarded) and Australia is also in the midst of a natural resources boom. There is tough competition for labour, the price of steel is increasing, and capital costs are soaring. As such, the senior debt demanded some additional features to mitigate this risk.

The total debt comprised $2.4 billion for construction and, importantly, AUD600 million for performance guarantees, working capital and contingencies across four tranches. It was provided in US dollars because coal and the loading charges are both priced in the currency. The senior debt was broken down into five tranches

In addition to the $2.4 billion construction facility, the other tranches were: a $100 million liquidity facility; a $350 million overrun facility; an A$50 million working capital facility; and a letter of credit facility financed by ANZ (A$25 million), National Australia Bank (A$25 million) and Westpac (A$50 million).

The package required a number of external and internal enhancements in order to attract lenders at a decent pricing level (the senior debt came in at roughly market level - 300bp over Libor - dropping to 275bp post-completion). For instance, construction needed to start before financial close to reduce the risk and the project benefits from take-or-pay shipping agreements with the sponsors, which means the sponsors cover the costs if any of the coal is not taken. The sponsors also needed to provide letters of credit.

Perhaps the most symbolic provision in mitigating the risk though was the involvement of EFIC. Not only did the Australian export credit agency invest in three of the tranches but it also guaranteed part of the construction tranche; the first-ever instance of the EFIC guaranteeing a domestic financing. Several ECAs were called upon to support domestic projects in the immediate aftermath of the 2008 crisis, though some have stepped back from that remit, and most continue to be barred from the domestic market.

Although the project is in Australia, the coal will be shipped outside of the country, effectively making it an export infrastructure deal and thus falling under EFIC. EFICis viewed as a breakthrough because it highlights the fact that ECAs can still step in to help major domestic infrastructure projects reach close, a role that would be pivotal if another financial crisis bites.

To compound this, international banking involvement was also crucial. The big four Australian banks have maintained a cautious approach since the global financial crisis. As such, they are not keen on underwriting the huge debt required for the likes of Wiggins Island on their own, which meant international banks need to step in.

ANZ and CBA were joined by Bank of China, BOS International, China Development Bank, Korea Development Bank, DBS, ING, NAB, Santander and SMBC as mandated lead arrangers. The lenders, however, were not able to shake off the reluctance of the Australian banks to lend long-term. The longest tenor was the seven-year letter of credit facility. The overrun and working capital facilities were four years, the liquidity facility was one year and the construction facility was three years. Insiders are expecting a refinancing in due course.

The trickiest part of the package turned out to be the mezzanine debt. The Gladstone Long Term Securities (GLTS) financing comprised A$450 million and $50 million (which has comparable terms to the nine-year tenor and 600bp pricing for NCIG). The package secured 13 participants, although it proved harder to attract investors than the senior debt.

The Australian mezzanine market is not particular deep and such an amount of debt could be seen as ambitious so some of the coal sponsors Xstrata ended up subscribing in order to cover a slight short-fall (a similar scenario occurred with NCIGsecurities, meaning they will not have to hold on to mezzanine tickets for the long-term and will become easier to sell as construction progresses.

Wiggins Island Coal Export Terminal Ltd

Status: Financial close 9 September, 2011
Size: $2.5 billion
Location: Queensland, Australia
Description: A coal export terminal capable of handing 27 million tonnes per year of coal
Sponsors: Aquila Resources; Bandanna Energy; Caledon Resources; Cockatoo Coal; Northern Energy Corporation; Xstrata Coal; Yancoal Australia; and Wesfarmers Curragh.
Debt: $3 billion across five tranches
Mandated lead arrangers: ANZ, Bank of China, BOS International, CDB, CBA, DBS, ING, KDB, NAB, Santander and SMBC
Margin: 300bp (275bp post-completion)
Maturity: One to seven years
Legal adviser to the lenders: Allens Arthur Robinson
Legal adviser to the sponsor: Blake Dawson
Financial adviser to the sponsor: ANZ