Financing for Salalah in Oman faces delay to 2009

17 October 2008
Financing for the $1bn Salalah independent water and power project is unlikely to be launched before 2009, according to one of the leading bidders for the scheme.

Three groups submitted bids for the project to the Oman Power & Water Procurement Company in June (MEED 11:6:08).

A preferred bidder is likely to be named within weeks, with Singapore’s Sembcorp understood to be the front runner.

“Technically, we are expected to have financial close on the project by the end of the year, but any financing this year is virtually impossible now,” says one source at Sembcorp.

“Even under normal conditions, reaching financial close this year would be difficult.”

Sembcorp’s bid is backed by Standard Chartered Bank, which is acting as sole underwriter on the $800m debt needed for the project.

“While this is a big underwriting for one bank, we are confident that we can find a solution to arranging the financing,” says one source at Standard Chartered.

The original margin on the debt was expected to be in the region of 125 basis points over the London interbank offered rate (Libor).

But this might now need to be increased to make it more attractive to banks to buy into the project.

Alternatively, it could be restructured into a short-term financing package that can be refinanced when markets recover.

Other bidders include a group led by Saudi Oger and a consortium led by the UK’s International Power. BNP Paribas is acting as financial adviser on the project.

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