The project involves construction of a 2.4GW integrated gasification combined-cycle (IGCC) power plant, the largest facility of its type in the world and the first of its kind in Saudi Arabia.
HSBC’s role is understood to involve working on structuring the project to make it attractive to a foreign investor, who could partner with Aramco to develop the project. They will then work on identifying potential partners, structuring their investment, and potentially also raising project finance debt to build the plant.
The mandate promises to be a challenging one though, due to the remote location of the plant, its own economic feasibility, and the need to arrange a deal with Saudi Electricity Company (SEC) to buy most of the plant’s output after Aramco has taken the roughly 500MW it needs for the neighbouring refinery. “This project does not make economic sense by itself, but there are power issues in south-west Saudi Arabia that need to be dealt with,” says one banker close to Aramco.
|Saudi Arabia peak power demand in select regions (GW)|
|Region||2009||2014||Average growth rate (%)|
|GW=Gigawatts. Source: Ninth Development Plan|
HSBC bid for the deal with its local subsidiary Sabb, beating off competition from four other bidders, including the US’ Goldman Sachs with Riyad Bank; Japan’s Mizuho with Apicorp; the US’ Citigroup with Samba; and Banque Saudi Fransi with Deutsche Bank.
The award is the latest in a long line of recent mandates for HSBC in Saudi Arabia. The company is advising Aramco on its new cogeneration power projects and on the PetroRabigh phase two expansion. It is also advising Saudi Arabian Mining Corporation (Maaden) on its next phosphate project. The bank also advised on the SR15bn sukuk (Islamic bond) issued by the General Authority for Civil Aviation in early 2012, a deal that was the first ever sukuk to carry a Saudi government sovereign guarantee.
“HSBC has developed a very powerful franchise in Saudi Arabia and they seem to be winning a lot of the biggest mandates from government clients at the moment,” says one banker in the kingdom.