The biggest project financing to date in Qatar and the largest globally in 2011, financial close on Qatar Petroleum (QP) and ExxonMobil’s $10.3 Barzan gas project at the end of last year confirmed what other deals had hinted at – the growing dollar liquidity in GCC banking sector and the willingness of those lenders to go cross-border.

Under the supervision of project manager and operator RasGas, Barzan will produce 1.4 billion cubic feet per day of natural gas from onshore and offshore processing facilities, primarily to meet growing demand for feedstock from Qatar’s power sector – Qatar plans to boost domestic production of gas to 4 billion cubic feet by 2015, up from 2.8 billion cubic feet per day.

Barzan Train 1 will be completed in 2014, followed by Train 2 in 2015. The project is structured to allow expansion of up to a maximum of six trains.

Barzan will also provide natural gas to fuel water desalination plants and other industrial users in Qatar, while processing propane and butane for export. The gas will be supplied from Qatar’s North Field – the largest offshore non-associated gas field in the world.

QP is offtaker for the project under a fixed price contract. However, that agreement is not take-or-pay, a risk mitigated in the deal’s structure by a volume support mechanism. And although the typical sponsor completion guarantees fall away, they only fall away once gas demand from the domestic market for the project has been proven.

The project is fully funded on a 70/30 debt-to-equity ratio and plans for a complementary bond deal have been put on hold until the bond market becomes more competitive. The project documentation contains provisions for a bond, which can be launched at relatively short notice to get the best pricing. If that happens the proceeds will be used to refinance some of the bank debt.

The $7.25 billion debt facilities closed with a major oversubscription – around $8 billion was offered across all third party lenders. The financing pulled in $4.9 billion of commitments from 27 lenders for the $3.34 billion uncovered tranche, with oversubscription allowing some European banks to scale back by up to 45%.

The 16-year debt is split between an ECA-backed tranche of $2.55 billion, an $850 million Islamic tranche – the largest by QP to date – and a $3.34 billion uncovered commercial tranche – also the largest uncovered facility in the GCC to date.

The ECA facility is split between $1.3 billion in direct export credit agency loans from JBIC ($600 million) and Kexim ($700 million) and $1.25 billion in covered loans from Nexi ($600 million), Kexim ($300 million) and Sace ($355 million).The JBIC/Nexi and Kexim support is on the back of onshore EPC contractor JGC Corporation and offshore EPC contractor Hyundai respectively.

ExxonMobil is also providing a sponsor loan to the project on a pro rata basis to its 7% equity stake – shadowing 7% of each debt tranche and thereby providing a total of $507 million.

The lenders to the uncovered and export credit agency facilities are: Al Khaliji 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. The uncovered and Islamic tranches are priced at 130bp pre- completion, 175bp for the first four years in operation, 190bp for the next four years, then 200bp to term. Upfront fees are 150bp. The ECA tranche is priced at a flat 130bp.

The geographic spread of lenders in Barzan is significant – 25% of the pre-scale back debt came from Europe, 32% from Asia, 7% from the US and 36% from the GCC. The appetite from the GCC was very large and the scale-back of European bank takes on the uncovered tranche in turn enabled GCC lenders, many of which did not want to reduce their takes, to retain their original positions. Furthermore many of those GCC lenders are non- Qatari banks which confirms the development of a highly liquid dollar-based cross-border lending market for major GCC projects going forward.

The appetite from the GCC was very large and the scale-back of European bank takes on the uncovered tranche in turn enabled GCC lenders, many of which did not want to reduce their takes, to retain their original positions.

Barzan Gas Development
STATUS: Financial close 13 December 2011
PROJECT COST: $10.3 billion
DEBT: $7.25 billion
DESCRIPTION: Development of 1.4 billion cubic feet per day natural gas processing plant in Qatar
SPONSORS: Qatar Petroleum (93%), ExxonMobil (7%)
PROJECT MANAGER/OPERATOR: RasGas
FINANCIAL ADVISER: RBS
COMMERCIAL LENDERS: Al Khaliji 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
ISLAMIC LENDERS: Barwa, Masraf Al Rayan, Qatar International Islamic Bank and Qatar Islamic Bank
ECAS: JBIC, Kexim, Sace, Nexi
SPONSOR LEGAL COUNSEL: White & Case
LENDER LEGAL COUNSEL: Skadden Arps
ECA LEGAL COUNSEL: Allen & Overy
FEED STUDY CONSULTANTS: Chiyoda, J Ray McDermott