Project sponsors can often lean on standardised templates based on precedent, sector and geography, but exceptions like Braskem and Idesa’s $4.5 billion Etileno XXI petrochemical complex in Mexico exist. The $3.19 billion debt financing brought together development banks and export credit agencies that in some cases had never collaborated before, and the path to close was not well trodden.

The project company that the two sponsors formed, Braskem Idesa SAPI, won a 20-year ethane supply agreement from Petróleos Mexicanos, the Mexican state-owned petroleum company known as Pemex, in 2010. Etileno project would be the largest private investment in a single project in Mexico’s history and the only locally-based private producer in the sector.

The sponsors and their adviser SMBC needed to coordinate several export credit agencies, multilaterals and development banks – each with their own specific cultures and often with specific requirement, such as average minimum loan lives –because the commercial bank market was not liquid enough to finance Etileno on its own. The deal needed presidential-level support in Mexico and Brazil to close.

Braskem – a Brazilian thermoplastic resins producer controlled by Odebrecht that wants to expand its reach in the Americas, and especially in Latin America – owns 65% of the project company, with Mexican petrochemicals producer Idesa owning the balance. A consortium of Brazil-based Odebrecht (40%), Technip (40%) and ICA Fluor (20%) is Etileno’s engineering, procurement and construction contractor, under a $2.7 billion contract that signed in October 2012.

With such a heavy Brazilian participation in the project, the sponsor reached out to Banco Nacional de Desenvolvimento Econômico e Social (BNDES), the country’s stringent development bank. But BNDES prefers to support exports, and Etileno was not importing much equipment from Brazil.

The development bank ultimately agreed to provide a direct loan to the project by reinterpreting its policies in the middle of the transaction. Only 15% of BNDES’ $623 million loan – which makes it largest of the 16 lenders in the deal, across seven tranches of debt – represents support for exports to the project. Etileno is the first time the bank had collaborated with Nacional Financiera (Nafinsa), the Mexican development bank.

Braskem, Idesa and SMBC approached US Ex-Im and Banobras, a Mexican state-owned development bank, about participating. But neither was able to join. US Ex-Im had to prioritise the reauthorisation of its charter, which was to expire 31 May 2012 and faced scrutiny from some members of Congress. The bank didn’t know when it would be able to approach its board for a credit approval, so it had to stay on the side-lines. In the case of Banobras, the nature of Etileno did not meet the infrastructure mandate in its charter.

Other export and development finance lenders were more forthcoming. Export Development Canada contributed the second largest direct loan to Etileno, with $300 million, followed by Nafinsa with $280 million. Bancomext, the Mexican export finance bank, chipped in $120 million.

Besides the four direct loans, Etileno also features a A/B loan structure and a tranche covered by Sace, the Italian credit agency. The presence of Sace, supporting Technip’s role in the EPC contract, on a covered tranche allowed European lenders – which have lately preferred mini-perms transactions to join the 17-year facility. Yet, the value of that cover declined, however, when Moody’s Investors Service downgraded Italy’s credit rating from A3 to Baa2 in July 2012.

The IADB and the International Finance Corporation each provided 17-year A loans of $285 million. The IADB and IFC mobilised $700 million in the 15-year B loan, priced above 300bp over Libor. SMBC, HSBC, Banco do Brasil, Bank of Tokyo-Mitsubishi UFJ and Korea Development Bank participated in the B tranche; Banco do Brasil, BTMU and KDB all lent $140 million.

The $600 million Sace-covered tranche drew seven lenders: KfW ($150 million), BBVA ($100 million), Intesa Sanpaolo as Sace agent ($100 million), Santander ($100 million) and Mizuho ($30 million), plus SMBC and HSBC. Between the B and Sace-covered tranches, SMBC and HSBC each lent $200 million total. The financing features a robust, commodity-style debt service coverage ratio – above 2x – because it is exposed to some price risk.

In total, three export credit agencies, two multilateral agencies, four development banks and eight commercial banks participated in the Etileno financing, which closed on 19 December 2012. In the course of financing, the sponsors hosted more than a half-dozen discussions with all participants featuring 65-70 people per gathering.

Etileno, located in the municipality of Nanchital in Mexico’s Veracruz state, will have a capacity of one million tonnes of low and high density polyethylene per year, displacing between $1.5 billion and $2 billion of imported polyethylene. The project will consist of an ethane-based ethylene cracker using Technip technology and two high-density polyethylene plants. Construction is underway and should be completed by mid-2015. 

Braskem Idesa SAPI
STATUS
Closed 19 December 2012
SIZE
$4.5 billion
DESCRIPTION
Petrochemicals complex located in Nanchital, Veracruz, Mexico, with an annual capacity of one million tonnes of low and high density polyethylene.
SPONSORS
Braskem and Idesa
DEBT
$3.19 billion
LENDERS
SMBC, BNDES, EDC, Nafinsa, IADB, IFC, HSBC, Banco do Brasil, BTMU, KDB, KfW, BBVA, Intesa, Santander, Mizuho
ECA
Sace
FINANCIAL ADVISER
SMBC
AGENT BANK
Deutsche
SPONSOR LEGAL ADVISER
White & Case
LENDER LEGAL ADVISER
Allen & Overy
SPONSOR MARKET ADVISER
CMR
LENDER MARKET ADVISER
CMAI / Purvin & Gertz
LENDER INDEPENDENT ENGINEER
Nexant
SPONSOR ENVIRONMENTAL ADVISER
ERM
LENDER ENVIRONMENTAL ADVISER
D’Appolonia
SPONSOR INSURANCE ADVISER
AON
LENDER INSURANCE ADVISER
WILLIS
SPONSOR ACCOUNTING & TAX ADVISER
E&Y
LENDER MODEL AUDITOR
Operis
LENDER DUE DILIGENCE ADVISER
Greengate