The owners of the Shuweihat 2 power and water plant in Abu Dhabi have approached banks asking them to lower the pricing on loans used to finance the project. The move is part of a wider plan to refinance the project’s debt in the bond market.

Later this year, the owners, which include Abu Dhabi Water & Electricity Authority (Adwea), Japan’s Marubeni and France’s GDF Suez, plan to issue an $800m bond. The owners plan to use this money to repay a portion of the bank loans about 18 years ahead of schedule so that they can convince banks to accept lower interest payments.

The project, which was financed in October 2009 at the peak of the financial crisis, is currently funded by $950m of debt that pays a margin of 260 basis points over the London interbank offered rate (Libor), rising to 350 basis points over its 22-year duration. That makes it one of the most expensive deals signed by Adwea for a long time. There is also a $1bnloan by Japan Bank for International Corporation and a few smaller tranches.

The bond will pay off part of both the main debts, and in exchange, the project owners have asked banks to reduce the pricing on the loan to around 175 basis points above Libor, rising to 250 basis points.

“The banks have basically been asked what they will give Adwea in return for being partially repaid early,” says one banker involved in the Shuweihat 2 lending group. Banks in the 14-strong lender group on the $950m facility are currently mulling over how to respond to the proposal.

Sources close to the process say that some European banks are expected to ask to be completely repaid, rather than accept lower pricing, as a result of the pressures they are currently under stemming from the eurozone debt crisis.

The deal is being arranged by the US’ Citigroup, the UK’s HSBC and France’s BNP Paribas.