Sadara to start seeking bank debt in second quarter

26 January 2012

Aramco wants to complete financing for the $20bn project by the end of 2012

The Sadara Chemical Company, a joint venture of Saudi Aramco and the US’ Dow Chemical, is set to approach banks in the second quarter of the year to raise finance for the project, which is estimated to cost about $20bn.

Sources close to the project say that it is one of Aramco’s top priorities and the state oil company wants to have the financing in place by the end of 2012. “Everyone is working for financial close in 2012,” says a source close to the project.

Nine export credit agencies (ECAs), including the local Public Investment Fund, are understood to be in advanced stages of talks to supply direct loans, or loan insurance for the project. They have been pushed to provide as much as they can to minimise the requirement for bank funding. The project will also lean heavily on Saudi liquidity through a large Saudi riyal bank tranche and a sukuk (Islamic bond) listed on the Saudi Stock Exchange (Tadawul).

“Saudi liquidity and ECAs will be the focus of financing Sadara,” says the source. “There is huge domestic liquidity and that allows us to not be dependent on European bank liquidity.”

The willingness of European banks to put large amounts into long-term project lending has been cast into doubt following the eurozone debt crisis. Sadara is also expected to try and tap the international bond markets as a further source of liquidity. Last year Aramco tapped the local markets with a sukuk to fund a refinery project in Jubail, although it dropped plans for an international bond issue.

Completing the financing before the end of the year could be ambitious. One source in Riyadh says that a launch in the third quarter of 2012 is more likely, with financial close in early 2013.

Aramco is keen to see the project finance arrangements progress quickly as it has a growing pipeline of multibillion-dollar schemes that require bank funding. “Aramco does not want to have its own deals competing with each,” says another Saudi banker.

The Red Sea Refining Company, a $10bn refinery joint venture with China’s Sinopec at Yanbu, and PetroRabigh 2, a $5bn petrochemicals expansion project in partnership with Japan’s Sumitomo Chemical, also require funding. It is unclear which project will approach banks after Sadara, but sources in the kingdom suggest it could be the Yanbu refinery. The scheme did have financing in place in early 2010, before Aramco’s former partner in the scheme, ConocoPhillips, walked away from the project.

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