Abu Dhabi Water & Electricity Authority (Adwea) is considering asking for only short-term financing from bidders interesting in building its project at Mirfa, as part of its attempts to try and lure European banks into offering funding for the scheme.
It hopes that by doing so, the first time short-term debt has been used to finance a project in Abu Dhabi, it will encourage cheaper bids for the development of the Mirfa independent water and power project (IWPP).
If the plan is approved, the emirate is expected to seek five to seven-year bank funding for the development of the project, which it will then refinance, most likely in the bond market. This would replace the typical requirement for bidders on Abu Dhabi projects to put loans of around 20 years in place. Sources close to Adwea say the proposal has not yet been approved, but after several months of consideration, it is now looking more likely.
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If approved, the move would be welcomed by both banks and power plant developers. “It would certainly help get a lot more interest from European banks,” says one banker based in Dubai.
Under new banking regulations, longer tenor loans are less attractive for lenders. By using short-term debt, a structure known as a mini-perm, Adwea hopes to attract more European banks, and convince lenders that they will not have to sit on loans for more than 20 years. This could compel them to offer the loans at cheaper pricing.
Adwea is currently involved in the $800m bond issue that will be used to refinance some of the debt on the Shuweihat 2 IWPP. It is the first time that a bond has been used to refinance a power project in the region and could set a precedent for future deals around the region.