The bridge loan that funded a network expansion for Zain Saudi Arabia (Zain KSA) was due to mature in 2012. But a refinancing did not close that year, or even in the first half of 2013. At least four developments delayed the refinancing.

Zain KSA

STATUS

Junior facility refinanced closed in June 2013, senior bridge Murabaha closed in July 2013

SIZE

$2.9 billion

DESCRIPTION

Refinancings of bridges that funded the expansion of a Saudi mobile network

DEBT

A R2.25 billion ($600 million) subordinated loan, and a R8.63 billion ($2.3 billion) five-year senior facility

JUNIOR LENDERS

Arab National Bank, Banque Saudi Fransi, Gulf Bank, Samba Financial Group

SENIOR LENDERS

Al Rajhi Bank, Banque Saudi Fransi (investment agent and security agent), Arab National Bank, National Bank Kuwait, Gulf Bank, Crédit Agricole, Boubyan Bank KSC

LENDERS’ INDEPENDENT MARKET CONSULTANT

Analysys Mason

BORROWER LEGAL ADVISER

Clifford Chance

LENDERS’ LEGAL ADVISER

Latham & Watkins

In early 2011, Kingdom Holding Company (KHC) and Bahrain Telecommunications Company (Batelco) made a non-binding offer for Zain Group’s 25% stake in Zain KSA. KHC and Batelco then signed a non-binding term sheet with Zain KSA in July of that year. Two months later, however, KHC and Batelco opted against acquiring Zain Group’s stake. Zain also closed a rights issue, which raised R6.3 billion ($1.68 billion).

About the same time, Zain KSA faced regulatory pressure to impose a minimum price on international calls. So the telecoms operator restructured its international call tariffs to remove this uncertainty. The Saudi government also pushed toughened enforcement of labour practices, which forced Zain KSA, among other Saudi employers, to tweak its operations.

Along the way, lenders agreed to extend the maturity of the bridge loan at least eight times. And Zain KSA, in mid-2012, paid down R750 million of the bridge, after closing the rights issue. Zain now owns 37% of Zain KSA, while Faden Trading and Contracting owns 5.9%, Saudi Plastic Factory another 5.8%, and public shareholders 51.3%

Zain KSA closed the R9.75 billion bridge loan, which featured a bullet payment at maturity, in August 2009. The Murabaha facility had pricing of 425bp over Libor, and had a tenor of two years, though it allowed for two six-month extensions. Zain KSA used the funds to repay an existing Murabaha and fund network expansion.

On the bridge loan, Al Rajhi Bank, Banque Saudi Fransi, Calyon (now Crédit Agricole) were financial advisers to the sponsor, as well as the deal’s initial mandated lead arrangers and bookrunners. National Bank of Kuwait (NBK) and Arab National Bank (ANB) were senior mandated lead arrangers and bookrunners, while Saudi British Bank (SABB) was a senior mandated lead arranger. Gulf Bank and Standard Bank were mandated lead arrangers. Zain had asked lenders to write tickets of $150 million for fees of 150bp, and $100 million tickets for 125bp.

Before Zain KSA closed the bridge refinancing, it first refinanced its junior debt facility and convinced the Saudi government to delay license fee payments of $1.5 billion until 2021. In mid-2013, Zain KSA closed a three-year R2.25 billion subordinated loan. ANB, Banque Saudi Fransi, Gulf Bank and Samba Financial Group participated.

In July 2013, Zain KSA finally closed the refinancing of its senior bridge – the largest pure commercial bank deal that year in Saudi Arabia. The new R8.63 billion limited-recourse facility has a tenor of five years, and is priced 75bp below the previous Murabaha. The new Murabaha includes a balloon, and only about 25% of the debt amortises over the life of the loan. The facility is secured on a 50% stake in the borrower, which also provided a partial guarantee of up to $700 million.

Banque Saudi Fransi, the new deal’s investment agent and security agent, took the second biggest ticket – nearly $577 million. Al Rajhi Bank is the biggest lender, contributing $766 million. ANB and NBK each committed $300 million. Gulf Bank took a $150 million ticket, Crédit Agricole provided $138.5 million, and Boubyan Bank $20 million.

Zain KSA could have obtained a longer tenor in the Saudi bank market for the senior facility. It would easily have been able to go to seven years, and possibly as far out as 15, though the pricing available would have been beyond sponsor tolerances.

Zain KSA did not consider a local bond issue because local capital markets are still young – only two sukuk project financings have come to market, including for the Sadara petrochemicals project. Few companies in Saudi Arabia are rated, which would pose another hiccup for would-be issuers nervous that they would fall beneath A-.