Middle Eastern Petrochemicals Deal of the Year 2012: Jubail Acrylates


The $1.9 billion Jubail Acrylates deal in Saudi Arabia was unique for the region because of its multi-company structure which spreads default risk between its three distinct project companies. Sponsors Tasnee, Sahara, Evonik, Dow and the General Organization for Social Insurance of Saudi Arabia (GOSI) also managed to finance the project entirely in the local market, without any export credit agency involvement, while achieving highly competitive pricing over a 15-year tenor. The debt was structured around a new form of hybrid Islamic financing, combining elements of the standard procurement and wakala models. Financial close took place on 12 June 2012.

Jubail Acrylates involves three distinct operating companies; the Saudi Acrylic Acid Company (SAAC), Saudi Acrylic Monomer Company (SAMCO), and the Superabsorbent Polymers Company (SAPCO). SAMCO is overseeing the construction and operation of the first acrylic monomer production plant in the region, which is scheduled to be fully operational in the second quarter of 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.

Tasnee and Sahara are the major shareholders in the overall venture, with the other three sponsors holding smaller shares, and the five have different stakes in each of the constituent companies. TSOC is a special purpose vehicle whose owners are Tasnee (60.45%), Sahara (32.55%) and GOSI (7%). Tasnee (13%), Sahara (22%) and TSOC (65%) jointly own SAAC, the holding company in the deal. SAAC owns 75% of both SAMCO and SAPCO, with Dow, through its wholly-owned subsidiary Rohm and Haas Nederland, controlling 25% of the former and Evonik, through its wholly-owned subsidiary Stockhausen Nederland, taking the same share of the latter.

Feedstock and output will be moved between SAAC, SAMPCO and SAPCO, and if one of the project companies 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.

Advisers warned the sponsors of the complexities associated with using three separate project companies during early discussions in 2009, but the sponsors decided that the benefits outweighed the risks. “It made sense to finance it in one deal despite the fact there are three project companies involved, because all of those projects are integrated,” says George Terziev, global head of project finance at Dow Chemicals.

“Our goal was to achieve a single project financing, however the complexity of aligning all the interests of the three different entities, owned by three different sponsor groups, and completing the projects at different times was enormous.”

The projects closed a $500 million one-year bridge loan in 2011 with Samba Financial Group, SABB and Banque Saudi Fransi. The signing of a R5.085 billion ($1.356 billion) long-term facility followed in May 2012. SABB was co-ordinating bank on the long-term deal, with HSBC also providing financial advice to the sponsors. Nine local banks provided the debt, split between two different types of Islamic product. Samba, SABB, Bank Saudi Fransi, Riyad Bank and Saudi Hollandi Bank provided a standard Islamic procurement facility, or istisna ijara (60% of the debt), while Bank Al Jazira, Al Rajhi Banking & Investment Corporation and Alinma Bank signed a wakala (40% of the debt).

Jubail Acrylates
STATUS
Financial close on 12 June 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, Hatem Abbas Ghazzawi (Saudi Law)
LENDER LEGAL COUNSEL
Clifford Chance, Al Jadaan (Saudi Law)

The local Islamic banks were keen to use a wakala structure, while the commercial banks preferred the istisna ijara model. In a wakala fixed repayments are based upon a forecasted spending curve rather than actual revenue available to service this facility. A procurement facility provides more flexibility. The facilities have a general spread of 212bp above Sibor. Pricing starts at 185bp pre-completion, drops to 170bp during the first three years post-construction, rises to 185bp up to year six, 200bp up to year nine, and then ends at 215bp until maturity. Upfront fees were 195bp and commitment fees were 40bp.

Saudi Arabia’s Public Investment Fund (PIF) and the Saudi Industrial Development Fund (SIDF) will be providing additional financing to the Jubail projects. The PIF facility is expected to be around $428.6 million, and will be used to prepay the Islamic facility. SIDF financing will be around R1.5 billion, split between the three project companies, with the bulk used to prepay the existing facilities and $80 million to remain available.

Fluor, Linde and Samsung Engineering hold the project’s engineering, procurement and construction contract. Some of the plant’s feedstock will come from the next-door SEPC plant, whose owners are Tasnee, Sahara and Basell Polyolefins. A portion of the Islamic financing will also fund SAAC’s investment in a separate butanol plant to be built at the site. SAAC, Sadara and Saudi Kayan own equal equity and will buy equal amounts of the output from the $500 million Jubail n-Butanol plant, which is set to start operations in the second half of 2014.