Emirates Aluminium (Emal) is due to start approaching banks to finance its $5bn second-stage expansion of its Taweelah aluminium plant in the next few weeks, as the company aims for financial close on the project finance in the third quarter.

The deal is expected to be one of the first new project finance loans launched in the GCC in 2012 and could prove a benchmark for long-tenor debt pricing for 2012. “The markets deteriorated significantly in the last quarter of 2011, so this deal will be a test of where things stand now,” says one banker in the region.

Three export credit agencies (ECAs), Export Import Bank of the US (US Exim), France’s Coface and Germany’s Hermes, have already agreed to fund part of the project development cost. The rest of the funding for the project will come from commercial banks and the bond market.

A source close to the project say Emal, a joint venture of Abu Dhabi’s Mubadala Development Company and Dubai Aluminium (Dubal), is considering issuing a bond to fund the project under the 144a regulations in the US. This means the bond will be targeted at institutional rather than retail investors.

The source adds that six banks, which financed a $420m ECA backed loan in 2010, are expected to form the core of the banking group on the expansion financing, along with the banks that funded the $4.8bn of loans arranged for phase one of the project in 2008. “The existing bank group involved in funding Emal will be a big benefit for the second stage of the project, as they already know the company well,” says the source. “Mubadala is also well known to the bond markets, so Emal is well positioned for a bond issue.”

The breakdown of the financing for phase two is still unclear, but the bond issue is expected to be about $1bn, depending on market appetite. Emal had originally planned to issue a $1bn bond to finance phase one of the project in 2008, but the worsening financial crisis of the time led to those plans being cancelled.