Banks seek to revise Ras al-Zour finance

17 October 2008

Lead arrangers enter talks with project sponsor and seek assistance of local banks for $1.5bn syndication.

Banks supporting the lead bidder for the $5.5bn Ras al-Zour power project are seeking to restructure their commitments to the deal, to reduce the cost of syndicating $1.5bn in debt.

The lead arrangers on the deal are in talks with the project sponsor about bringing in local banks to help with the syndication.

A consortium led by Japan’s Sumitomo Corporation, and including Malaysia’s Malakoff International and the local Aljomaih Automotive Company, emerged as the low bidder for the project after bids were submitted on 28 June (MEED 11:7:08).

Total cost of project$5.5bn
Estimated total debt required for the project$3.5bn
Debt to be syndicated by mandated lead arrangers$1.5bn

But the mandated lead arranger group supporting the consortium is now in talks with the sponsor, the Water & Electricity Company (WEC), and its financial adviser, HSBC, about changes to the financing of the deal.

Talks began in mid-October, according to one of the banks in the mandated group and a source close to the sponsor.

The mandated group includes Bank of Tokyo Mitsubishi, Citigroup, Royal Bank of Scotland, Sumitomo Mitsui Banking Corporation and Mizuho.

The project contract includes a material adverse change clause that would enable the banks to walk away from the deal in the event of serious market disruption. This has not been invoked by the banks, and talks are focusing on bringing in local banks to share the risk.

Riyad Bank, Samba and Saudi Hollandi are all understood to have been contacted to play a part in an enlarged mandated lead arranger group. Al-Rajhi is also understood to have been approached to provide Islamic funding.

Talks with a several of these Saudi banks are understood to be ongoing.

“Anyone with underwriting commitments agreed during the summer is looking to invoke the material adverse change clause, or they are discussing how to change the transaction to reduce their commitments,” says one banker within the mandated lead arranger group.

He adds that, notwithstanding the talks with Saudi banks, he does not expect the market to have improved enough to launch the syndication of the deal until early 2009 at the earliest.

The Ras al-Zour project is also supported by a commitment from export credit agency Japan Bank for International Corporation (JBIC), which is providing 60 per cent of the debt financing. This reduces the size of the debt the mandated lead arranger group will have to syndicate to about $1.5bn, out of a total of $3.5bn.

Bankers in the region say JBIC’s involvement should help the developers secure funding for the project and reduce their exposure.

“The most you could expect to syndicate is about $1.5bn, so Ras al-Zour, with JBIC’s support and a strong sponsor, should not have too much trouble getting through the market,” says one project finance adviser in the kingdom.

If support from Saudi banks
is forthcoming, it is likely to be denominated in riyals, where there is more liquidity.

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