Middle Eastern Project Bond Deal of the Year 2013: Shuweihat 2
The Shuweihat 2 bond refinancing closed in August 2013, and attracted unprecedented levels of international investor interest. The 144A-eligible issue raised $825 million, which was used to refinance some of the $2 billion in existing debt against the combined-cycle independent water and power plant from 2009. The deal proves that the US capital markets are a viable refinancing option for GCC projects, and highlights international investors growing comfort with the region.
Ruwais Power Company PJSC |
STATUS |
Closed August 2013 |
DESCRIPTION |
Refinancing of a combined-cycle independent water and power plant located 250km south-west of Abu Dhabi on the emirates coast at Jebel Dhana. |
SPONSORS |
TAQA (54%), GDF Suez (20%), Osaka Gas (10%), Marubeni (10%) and ADWEA (6%) |
BOND DEBT |
$825 million |
BOOKRUNNERS |
Citi, BNP Paribas, HSBC, Mitsubishi UFJ, National Bank of Abu Dhabi, Standard Chartered |
COMMERICAL LENDERS |
Samba, KfW, SMBC, SMTB, BTMU, Standard Chartered, National Bank of Abu Dhabi, Mitsubishi Trust Bank, Mizuho, HSBC, BNP Paribas, Crédit Agricole, Societe Generale, Natixis |
ECA |
JBIC |
SPONSORS LEGAL COUNSEL |
White & Case, Chadbourne & Parke |
LENDERS' LEGAL COUNSEL |
Latham & Watkins (international); Hadef & Partners (local) |
ECAS LEGAL COUNSEL |
Milbank, Tweed, Hadley & McCloy |
The sponsors began sounding out the bond markets after agreeing revised terms for the original construction financing, which came from JBIC and a group of 14 local and international banks, in October 2012. However it was not until the second quarter of 2013 that they were ready to launch the issue. The revised timing of the bond looked less plausible after 19 June, when Federal Reserve Chairman Ben Bernanke mooted a possible end to quantitative easing, which would spell an end to record low interest rates.
Project bond activity has picked up in recent years, but after the comments the price of 10-year bonds fell sharply. Within a month, however, a new issue drought created pent-up demand and Shuweihat 2's sponsors seized the opportunity to fill the gap. According to Standard & Poors (S&P), the projects standalone credit profile is just BBB, but rated the debt A- thanks to its inherent state support. Moodys rated it Aa3.
Investors took comfort from the state-owned status of lead sponsor TAQA and ADWEA, the proven cash-flows of the asset and the long-term offtake with ADWEA. Unlike other project bonds from the region, however, Abu Dhabi does not have a direct obligation to maintain a controlling interest in the asset, and no covenants to this effect exist in the original financing, or in any of ADWEAs deals.
This proved not to be an issue for the S2 bond, as all parties (starting from the rating agencies, of course) understood the robustness of this IWPP model and the importance of the contractual framework, first and foremost the PWPA, which is where the payments are ultimately guaranteed by the government, says Stefano Terranova, executive vice-president at GDF Suez, which is the plant's second-largest sponsor.
The bonds priced on 25 July at a yield of 6% and will mature in 2036. Of the roughly 60 accounts in the issue, 70% came from the US, 23% from Asia, 3% mainland Europe, 2% UK and just 1% from the local market of Middle East and Africa. Investors included insurance companies (56%), asset managers (42%) and other buyers (2%).
The bank and ECA debt had an original tenor of 22 years and had just over 18.5 years left to run when the refinancing closed. The new debt reduces the commercial tranche from around $927 million to $690 million, and the JBIC piece from around $1 billion to $780 million. The JBIC loan retains the same tenor and margin of 235bp over Libor from the original deal, while the tenor on the bank piece has been reduced to 17 years and the pricing has come down from 260bp over Libor, stepping up to 350bp, to 175bp rising to 250bp at maturity. The proceeds of the bond were also partly used to repay a loan from ADWEA to the project.
On the commercial tranche, Samba, KfW, SMBC and SMTB have the largest tickets, of around $100 million, while BTMU provided $65 million, NBAD, Mitsubishi Trust Bank and Standard Chartered lent about $40 million each, Mizuho, HSBC and BNP Paribas $30 million, and Crédit Agricole, Societe Generale and Natixis took smaller tickets. NBAD is providing a $34 million working capital facility which ranks behind the payment of principal on the main debt package.
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