If the Qatari Barzan gas deal closes as planned at the end of November, its 30-bank club will be a timely rejoinder to doom-sayers who say that the international project finance bank market is only 12-strong. Barzan has captured the highest ever amount of bank debt commitments in the Gulf Cooperation Council region, with over $6 billion commit­ted. The response is hardly a sign of crisis in project finance lending.

The closing of the $10.3 billion Barzan gas project, sponsored by Qatar Petroleum (QP) and ExxonMobil, follows on the heels of another multi-billion GCC project finance deal that closed in October, Ma’aden and Alcoa’s $3.6 billion bauxite mine and alumina refinery in Saudi Arabia. Both Barzan and the Ma’aden deal highlight a shake-up to the old order but in different ways: there were no international commercial banks on Ma’aden and Alcoa’s deal, and a different mix of banks on Barzan.

Ma’aden’s mine, say local banks

The absence of any international banks on Ma’aden was not much of a surprise, given that 90% of the $991.5 million in conventional and Islamic allocations was Saudi riyal-denominated and around $2 billion of the financing came from the Public Investment Fund and Saudi Industrial Development Fund. Ma’aden and Alcoa funded the remain­der ($1.43 billion) in line with their project shareholdings. Ma’aden owns 74.9%, and Alcoa 25.1%, of Ma’aden Bauxite and Alumina Company.

The bank list comprises: National Commercial Bank, Riyad Bank, Saudi French Bank, Al Rajhi Bank, SAMBA Financial Group, Alinma Bank, Arab National Bank, Saudi British Bank, Bank Al Jazira, Saudi Hollandi Bank, Saudi Investment Bank, Emirates Bank and Export Development Canada. Riyad Bank and Standard Chartered were financial advisers to the sponsors.

In the financing for the first part of the complex, the $5 billion smelter and $2.5 billion rolling mill BNP Paribas (which was advising Alcoa) and Standard Chartered participated as lenders.

The mine and refinery deal was four times oversubscribed, reflecting the liquidity of local banks and their appetite for deals sponsored by large, reputable corporates. Debt pricing is around 20bp inside the smelter deal, starting at around 120bp over Saibor, also reflecting the banks’ liquidity, the dearth of other large deals in Saudi Arabia, and lender familiarity with the term sheet, which closely follows the terms for the smelter deal.

The mine and refinery debt/equity ratio is roughly 60/40, and the tenor is 16 years, with a cash sweep starting at around year 8. The average life of the loan is around 12 years and there is no balloon payment at maturity. Ticket sizes on offer started at $50 million and preference was given to those over $100 million.

Feedstock for the refinery will be transported by rail from a mine at Al Ba’itha, near Quiba, in the north of the country. First commercial production from the smelter and mill is scheduled for early 2013 and late 2013, respectively. First production from the mine and refinery is set for early 2014.

Me Barzan, Euro pain 

Liquidity among Saudi banks for riyal-denominated facilities is currently assured for domestic projects But the Qatari Barzan deal also attracted two Saudi banks to its dollar deal: Samba, which has a regional office in the Dubai International Financial Centre, and Riyad Bank, which is making a rare excursion outside its domestic market. NBAD also went outside Abu Dhabi to back the deal. GCC cross-border lending is increasingly common for project finance deals as regional banks are flush with dollar oil revenues and relatively insulated from the Eurozone fallout.

In total, Qatar Petroleum (QP) and ExxonMobil’s $10.3 billion Barzan gas project received commitments from 31 lenders, split roughly one-third from the GCC, one-third from Asia, 10% from Asia and 25% from Europe. The bank composition reflects the troubles of the Eurozone, with a large contingent of regional and North American banks and the absence of the French banks BNP Paribas, Societe Generale, Credit Agricole and Natixis. The deal is scheduled to reach financial close in the third week of November.

The lenders to the uncovered and export credit agency facilities are: Al Khalij Commercial Bank, APICORP, ANZ, Bank of America, BTMU, Barclays Capital, Citi, Commercial Bank of Qatar, DnB, Dohar Bank, International Bank of Qatar, JP Morgan Chase, HSBC, KfW, Mizuho, National Bank of Abu Dhabi, Qatar National Bank, Riyad Bank, RBS, Samba, Siemens Financial Services, Standard Chartered, SMBC, UNB, EDC, Credit Suisse and WestLB (the last two lent only on the Kexim and Sace tranches). The Islamic tranche participants are Barwa, Masraf Al Rayan, Qatar International Islamic Bank and Qatar Islamic Bank. RBS is financial adviser to the sponsors.

The signing will cover 16-year loan facilities of around $6.6 billion, comprising an ECA-backed tranche of $2.7 billion, an $850 million Islamic tranche and a $3.2 billion uncovered commercial tranche. The exact size of the tranches will be determined at financial close. The ECA facility is split between $1.35 billion in direct export credit agency loans from JBIC and Kexim and $1.35 billion in covered loans from Nexi, Kexim and Sace, which is covering $400 million.

The uncovered tranche is priced at 130bp pre-completion, 175bp for the first four years in operation, 190bp for the next four years, then 200bp. Upfront fees are 150bp. The deal is similar to Qatar’s earlier LNG deals, but is probably more robust because QP is the offtaker under a fixed-price contract.

Then and now

Only Siemens Financial Services, KfW and WestLB are from the Eurozone and participating in Barzan. WestLB is the only Eurozone commercial bank, a far cry from the $4.03 billion QP/Shell Qatargas 4 deal that signed in July 2007. On Q4 the Eurozone contingent was heavily represented among the 30-bank club, with the likes of Santander, Bayerische, BBVA, BNP Paribas, Caja Madrid, Calyon, Dexia, Fortis, HVB, Intesa SanPaulo, Natixis, SG and WestLB. The composition of the bank group (which also included a certain Lehman Brothers) is not the only thing that has changed: pricing on Q4 started at an eye-watering 30bp over Libor pre-completion, rising to 50bp during years five to eight, 55bp during years nine to 12 and 60bp until the 15.5-year maturity.

QP is known for extracting the best possible terms from banks and is thought to have threatened non-participating banks in Barzan with exile from future project finance deals in Qatar. “It’s very likely that the Qataris will treat the current crop of banks like a revolving facility,” says one project banker about the deal. The French banks may have to do some serious relationship-building if they want to book future deals in the emirate.

Non-Euro Europe is well represented in the deal, with DnB NOR, Credit Suisse, Barclays Capital and RBS, and North America is represented by Bank of America, Citi and JP Morgan – the latter two likely to have a keen eye on the bond mandate for Barzan, which is expected in 2012, and future capital markets work in Qatar.

The Asian banks are typically well represented, and the longer the Eurozone crises continues the more certain it is that the likes of BTMU, especially since it has ingested most of the once-mighty RBS’ project finance business, and SMBC usurp the dominance of Credit Agricole, BNP Paribas and SG at the top of the international project finance lending league tables.

Barzan is essentially an expansion of the successful RasGas deals, which have capital markets components and a ready investor base, and QP wants to diversify its funding sources and access the capital markets again. QP is arguably the most progressive grantor in the GCC region and made the bold move to diversify its funding sources for its slew of LNG deals early.

Qatar is more sensitive about the pricing of capital markets issuance compared with bank debt than its peers in Abu Dhabi and Saudi Arabia, which are paying a premium over bank debt to diversify their funding sources. But the Barzan bond issue will happen almost regardless of the pricing on the bank facilities. The precise timing of the issue – besides sometime in 2012 – is uncertain. First drawdown on the bank facilities is scheduled for December. Some regional banks have indicated that they do not want to be scaled back.

Sighting Sadara

Beyond the closing of Barzan, the next $5 billion-plus deal to close in the GCC is likely to be Saudi Aramco and Dow Chemical’s $20 billion Sadara petrochemical project in Saudi Arabia. The financial advisers are RBS and Riyad Bank, which will again engineer the deal by approaching the bank market with a fully formed term sheet and asking banks to compete on price.

The cornerstone for the debt will be export credit agencies. A group of ECAs and Saudi Arabia’s Public Investment Fund are reviewing a preliminary information memorandum on the financing. US-Ex-Im, the UK’s ECGD, Coface, Hermes, JBIC, Nexi, K-Sure and Kexim are all involved. The PIF is reviewing the financing along with the agencies. The other major Saudi government-backed agency, the Saudi Industrial Development Fund, declined to be involved in negotiations but is expected to participate in the financing.

Together the agencies are likely to directly provide and cover between $8 and $10 billion of the debt funding requirement. The sponsors plan to tap all available sources of international and local debt, and given the presence of Aramco, a diverse group of international banks – some not regular project finance lenders – are likely to be pressured into participating, as they were on Aramco and Total’s Jubail refinery project.

Aramco has a history of developing precedents and will almost certainly again use a project sukuk for a non-operational asset as it did with the sukuk for its Jubail refinery joint venture with Total. The $1 billion sukuk was launched on Sunday 16 October with the bond 3.5x oversubscribed. The 14-year floating rate bond, run by Deutsche, Saudi Fransi and Samba, priced at 95bp over six-month Sibor, on the tight side of the 95-105bp guidance. The issue is a Musharaka sukuk and also involves a forward lease agreement.

The project sukuk, which is guaranteed by Aramco during construction, forms part of the $8.5 billion project debt total, and will refinance loans from the sponsors. The two provided the loans alongside ECA and bank facilities that reached financial close in October 2010. The deal was notable for lenders accepting greenfield refinery margin risk with tight debt pricing. The 400,000 barrels-per-day refinery has a cost of $14 billion.

Jubail refinery represents the first time in the Middle East that a greenfield project financing has been structured to include the option of raising financing through a project sukuk and it is the first sukuk for a project in construction. Aramco and its peers may hope that wider use of such instruments might reduce their need to spend so much effort managing relationships with fractious and fickle bank groups. ¦