Financing large petrochemical projects can be hard enough in the most stable jurisdictions, but few markets would be more challenging then Egypt. Since the Arab Spring uprisings forced President Hosni Mubarak from power in February 2011 only one new large-scale Egyptian project financing has been launched and signed, the Ethydco petrochemicals development. Not only have its project sponsors overcome the immense challenges created by regime change, they managed to sign a $1 billion multi-currency debt facility with a cast of local lenders.

The Egyptian Ethylene & Derivative Company (Ethydco) is billed as strategically vital to Egypt’s economic recovery following the revolution. The $1.925 billion project is the start of a petrochemicals master plan, and the project sponsors envisage it will spur a series of downstream investments in the country. The project company signed the financing agreement in September 2012 and close and funding is expected in February 2013.

Ethydco is a two-phase greenfield development. Phase 1 involves the construction of a 460,000 tons per year (tpy) ethylene plant and a 20,000 tpy butadiene plant in the Nahda Industrial Area in Alexandria. Phase 2, which will be implemented after Phase 1 is complete, involves building a 400,000 tpy polyethylene plant and a 26,000 butadiene derivatives unit at the same site.

The Ethydco project company is a consortium made up of the state-owned Egyptian Petrochemicals Holding Company (ECHEM, 20%), Sidi Kerir Petrochemicals company (SIDPEC, 20%), Egyptian General Petroleum Company subsidiary the Egyptian Natural Gas Company (GASCO, 11%), Al Ahly Capital Holding Company (21%), National Investment Bank (14%), Banque Misr (10%) and Nasser Social Bank (4%).

A steering committee featuring all the main sponsors began discussing financing options with Banque Misr as early as 2010. Ethydco was formerly established in February 2011, at which point Banque Misr immediately became financial adviser. The timing proved unfortunate, because political instability promptly engulfed the country. “As a consequence of the Egyptian revolution, the country was downgraded about three times before the date of signing,” said Mahmoud Elhebawy, head of the finance department at Ethydco.

“There were major delays in obtaining approvals due to the absence of decision makers, as the cabinet and all ministries involved changed repeatedly. On top of this we had to contend with a lack of liquidity in the market and higher interest rates due to financing the total amount locally.”

Total debt for the deal is $1.25 billion, split between a $750 million dollar denominated tranche and a E£3.3 billion ($500 million) Egyptian pound tranche. Only $1 billion of the debt has been underwritten to date, with the remaining $250 million currently covered with a contingent equity commitment. The sponsors plan to finance this final chunk either with ECA debt or during a general syndication after financial close. If there is sufficient appetite a new dollar tranche from ECAs and multilaterals, with a longer tenor, may be carved out of the existing debt.

Banque Misr, National Bank of Egypt, Commercial International Bank, Banque Du Caire and Arab International Bank are the lead arrangers on the deal, and are providing all of the underwritten debt. The dollar tranche is $630 million with a ten-year tenor, while the local currency tranche matures in 11 years and totals E£2.5 billion. A cash sweep will be applied to prepay the Egyptian pound tranche because it has a longer tenor.

GASCO is supplying feedstock to the plant under a 15-year (with an option to renew after the end) gas supply agreement, with a contracted quantity of 533,333 tons per year. Under the agreement the price of gas will be determined by a formula linked to ethylene and polyethylene market prices with a floor price of $185 per ton. GASCO has agreed, at its own cost, to correct operating conditions of its gas facilities to meet the needed specifications.

ECHEM and a number of unnamed international end-users have signed offtake agreements for 70% of production, and the length of these contracts will match the tenor of the loan. The remaining 30% will be sold or the local market, where Ethydco believes there is more than enough of a demand gap to absorb this quantity. Japanese firm TOYO is conducting the engineering, procurement and construction contract for phase 1 after winning a competitive tender in March 2012. Operations at the ethylene and butadiene units are expected to commence in April 2015. 

Ethydco
STATUS
Signed September 2012
SIZE
$1.925 billion
DESCRIPTION
Greenfield petrochemicals plant construction located at Nahda Industrial Area, Ameriya, Eqypt. It will produce 460,000 tons per year (tpy) of ethylene, 20,000 tpy of butadiene, 400,000 tpy of polyethylene and 26,000 tpy of butadiene derivatives
SPONSOR
ECHEM (20%), SIDPEC 20%, GASCO (11%), Al Ahly Capital Holding Company (21%), National Investment Bank (14%), Banque Misr (10%), Nasser Social Bank (4%)
DEBT
$1.25 billion
FINANCIAL ADVISER
Banque Misr
LEAD ARRANGERS
Banque Misr, National Bank of Egypt, Commercial International Bank, Banque Du Caire,
Arab International Bank
EPC CONTRACTOR
TOYO Engineering
SPONSORS LEGAL COUNSEL
Helmy, Hamza & Partners
(Baker & McKenzie)
LENDERS LEGAL COUNSEL
El Borai Law Office
LENDERS TECHNICAL ADVISOR
Nexant
ENVIRONMENTAL ADVISER TO LENDERS
Econserv