Tasnee, Sahara, Evonik and Dow closed the $1.9 billion Islamic financing for the Jubail Acrylates scheme in May. Jubail Acrylates is the umbrella for three related but distinct downstream petrochemicals projects in Jubail, Saudi Arabia. The sponsors are not providing any construction cost guarantees, and cashflows from the three project companies can be used to cover debt service for any one of them in the event of default.

The three project companies are Saudi Acrylic Acid Company (SAAC), Saudi Acrylic Monomer Company (SAMCO) and Superabsorbent Polymers Company (SAPCO). Each of the three project companies is subject to separate facilities from local providers on an integrated project finance basis. The total debt financing of $1.356 billion will be split three ways, with SAMCO taking $688.27 million, SAAC $376.25 million and SAPCO $291.48 million.

Tasnee and Sahara each have 43.75% stakes in the overall venture, with the other two sponsors owning 6.25%. But the four have different stakes in the three constituent companies. Tasnee (50%) and Sahara (50%) jointly own SAAC, which in turn owns 75% of both SAMCO and SAPCO, with Dow controlling 25% of the former and Evonik taking the same share of the latter.

SAMCO will oversee the construction and operation of the first acrylic monomer production plant in the region, which is scheduled to be fully online in 2013. SAAC will buy up to 96,000 tonnes per year (tpy) of butyl acrylates, which are used in a variety of plastic products, from SAMCO. SAPCO will also buy feedstock from SAMCO, taking 64,000 tpy of glacial acrylic to produce super absorbent polymer for sale to Evonik and SAAC. Superabsorbent polymers are commonly used in products such as nappies and sanitary towels.

The projects closed a $500 million one- year bridge in 2011 with Samba Financial Group, SABB and Banque Saudi Fransi. The R5.085 billion ($1.356 billion) long-term financing followed in May this year. SABB was co-ordinating bank on the long-term deal, with HSBC also providing financial advice to the sponsors. Nine local banks provided the financing, split between two different types of Islamic product. Samba, SABB, Bank Saudi Fransi, Riyad Bank and Saudi Hollandi Bank agreed to a standard Islamic procurement facility, while Bank Al Jazira, Al Rajhi Banking & Investment Corporation and Alinma Bank signed a forward ijarah. The loans are priced at the equivalent of 170-180bp over Libor, rising to 230-240bp over their 15-year tenor.

The forward Ijarah is similar to the more common wakala agreements typical in project financing in the region, but the investors used a different label for this agreement to signify a separation of risk. There is no cross collateralisation of assets between the separate companies.

The sponsors were able to pass construction cost risk on to the lenders because of the way the project companies will operate. As feedstock and output will be moved between the project companies, if one cannot meet its debt obligations another should be able to cover the shortfall. Amounts owed between the companies will be treated as subordinated debt obligations. Inter- company loans can be used to cover shortfalls, but there will be no joint liability and the three companies’ balance sheets remain separate.

Saudi Arabia’s Public Investment Fund (PIF) and the Saudi Industrial Development Fund (SIDF) will be providing additional financing to the Jubail projects. The sponsors have already completed the PIF application, the facility is expected to be between $450-500 million, and will be used to prepay the Islamic facility. The SIDF financing is expected to be $480 million between the three project companies. While the bulk of this will be used to prepay the existing facilities, $80 million is to remain available.

The very aggressive timescale of the project meant that the sponsors closed the private financing before they could line up the PIF and SIDF tranches. These government-backed providers, with limited in-house resources, were not able to keep pace with commercial providers. The sponsors started documentation on 1 January 2012, signed the debt facility on 28 May and the first draw on the facilities was on 16 June.

Fluor, Linde and Samsung Engineering hold the engineering, procurement and construction contract for the complex, and construction at the site is already well advanced. Part of the feedstock to the projects will come from the next-door SEPC plant, whose owners are Tasnee, Sahara Petrochemicals and Basell Polyolefins.

Along with the acrylates plants, the Islamic financing will also fund SAAC’s investment in a separate butanol plant due to be built on the site. The $500 million Al Jubail n- Butanol plant’s owners will be SAAC, Sadara and Saudi Kayan with each taking 33%. The production capacity will be made available in equal proportions to each of the shareholders, with each responsible for procuring feedstock for production and for their share of the output. Commercial operations are expected to begin at the site in the second half of 2014.

Jubail Acrylates
STATUS: Financial close 8 May 2012
SIZE: $1.9 billion
DESCRIPTION: Islamic financing for development of a petrochemicals complex in Jubail, Saudi Arabia
SPONSORS: Tasnee (43.75%), Sahara (43.75%), Evonik (6.25%), Dow Chemicals (6.25%)
DEBT: $1.356 billion
FINANCIAL ADVISER: HSBC
LEAD ARRANGERS: Samba, SABB, Bank Saudi Fransi, Riyad Bank, Saudi Hollandi Bank, Bank Al Jazira, Al Rajhi Banking & Investment Corporation, Alinma Bank
EPC CONTRACTORS: Fluor, Linde, Samsung Engineering
SPONSOR LEGAL COUNSEL: Linklaters, Baker & McKenzie
LENDER LEGAL COUNSEL: Clifford Chance, Al Jadaan