Credit squeeze forces Qatar Fertiliser to drop bond plan

Qatar Fertiliser Company (Qafco) has dropped plans to use a bond to help fund its $1,200 million Qafco 5 project, because of adverse conditions in the credit markets.

Financial advisers to the project are understood to be structuring the deal by only using project finance debt to fund the expansion of the firm's Mesaieed complex. The move comes despite the firm receiving a credit rating from Moody's Investors Service in March, in anticipation of approaching

the bond market before the end of 2007.

The interest costs on bonds have been rising internationally and liquidity has been drying up because of the financial crisis that began in the US mortgage market. This has led Qafco's advisers to pull the mooted bond tranche because it was getting too expensive to finance the project this way.

International and local banks are being approached to take part in the $1,200 million project finance deal. It is being marketed as a refinancing and expansion of existing project finance debt.

This structure enables the advisers to keep interest costs as low as possible and the terms in Qafco's favour. However, given the market conditions, some banks are believed to be reluctant to take part in a refinancing with low spreads.

The funding package, which is expected to be completed by December, will be used for the construction of a 3,500-tonne-a-day (t/d) urea train and two 2,200-t/d ammonia trains.