The latest $2.8 billion financing raised by Oman Oil Refineries and Petroleum Industries Company (ORPIC) for its Sohar refinery is part of a wider strategy to boost Oman’s downstream industrial capacity.

The deal will expand and improve the existing refinery at Sohar, before ORPIC moves on to its next project – the $3.6 billion Liwa plastics development. The Omani government is also a joint venture partner with Abu Dhabi’s IPIC on the upcoming $6 billion Duqm refinery project. These projects show that Oman seems intent on making up for is relative lack of oil & gas resource, compared to regional neighbours, by becoming world leaders in downstream industries.

A third financing

State-owned Sohar Refinery Company (SRC) signed the financing for the $1.3 billion construction of the Sohar refinery in June 2003. The deal featured $1.17 billion in debt from a group of local and international lenders, including a direct loan from JBIC. This debt was then refinanced in 2007 as part of the merger of Oman Refinery Company and SRC which created the wholly state-owned ORPIC. HSBC and Standard Chartered were the only foreign lenders on this deal, with the rest of the debt coming from local and regional banks.

This third financing replaces the approximately $1 billion still outstanding from the construction financing, and provides ORPIC with $1.76 billion to expand and upgrade the existing facility. The plant’s total capacity will rise 70% to 198,000 barrels-per-day following the expansion. The plant’s processing capacity will also improve to cope with Omani crude, enhancing the overall yield of the refinery.

Petrofac and Daelim were jointly awarded the engineering, procurement and construction contract in November 2013. ORPIC managed to sign the financing just five months later, with financial close following on 1 June 2014, despite the expanded lender group from the merger financing and the presence of several export credit agencies (ECAs) from different countries.

No guarantee for success

Project costs were originally estimated at $1.5 billion but rose after it became clear that ORPIC would not be providing completion guarantees to lenders, and the EPC contractor would have to assume more of the construction risk. For the construction financing the government had provided implicit state guarantees for construction through the project company, and this is usually the case for Omani projects of this size.

No doubt the lender group was comforted by the fact that the new deal is for a brownfield asset with strong existing cashflows, and the presence of three ECAs to cover a sizable chunk of the debt, but the financing still marks an achievement for Oman given the diversity of lenders and size of the debt.

Triumph through diversity

There were 21 lenders on the refinancing and expansion deal, with local, regional and international lenders providing around $2.4 billion, while Korean ECA Kexim provided $400 million via a direct loan. Kexim and sister organisation K-Sure along with SACE the Italian ECA have covered around $500 million of the debt from three international lenders – HSBC, SMBC and KfW IPEX Bank.

Standard Chartered is the fourth and final international bank on the deal, but all of its commitment is uncovered. The international lenders are providing around $1 billion in total through covered and uncovered facilities. Local banks are understood to have the largest tickets on the deal, and along with regional lenders have provided around $1.4 billion.

The local banks are:

• Bank Muscat
• National Bank of Oman
• Al Ahli Bank
• Bank Dhofar
• Bank Sohar
• Oman Arab Bank

The regional lenders on the deal are:

• Abu Dhabi Commercial Bank
• Qatar National Bank
• Saudi National Commercial Bank
• National Bank of Abu Dhabi
• Arab Banking Corporation
• Arab Petroleum Investment Corporation
• Ahli United Bank
• Arab Bank

All of the debt has a door-to-door tenor of 12 years. The uncovered commercial debt is priced at around 250bp over Libor, rising in step-ups to around 300bp by the end of the loan. The covered facilities are priced tighter, with the Korean-backed debt starting at around 150bp while the SACE-guaranteed piece begins at 200bp, with both stepping up over the life of the loan.

HSBC (international) and National Bank of Oman (local) were the sponsor's financial advisor on the deal. Clifford Chance and Allen & Overy were legal advisers to the lenders and sponsor, respectively.

Liwa link-up

ORPIC will now turn its attention to its next project, the Liwa plastics complex. The project entails the construction of a steam cracker unit, and polypropylene, linear low density polyethylene, and high density polyethylene units at the Sohar Industrial Port Area, next to the Sohar refinery. The sponsor has launched a financial advisory tender for the project and it is expected to mandate one of the major international investment banks for the role in the third quarter of 2014.

ORPIC will build a natural gas extraction plant in Fahud and a 300km pipeline from there to the plastics complex as part of Liwa development. Sohar refinery will also provide higher quality feedstock for the plastics plant thanks to the improvements made through the expansion project.