The Kuwait National Petroleum Company (KNPC) is pushing ahead with a KD3bn ($9.98bn) loan, according to local banking sources.

The mandated lead arrangers have been appointed for the Kuwaiti dinar, Islamic and dollar tranches of the commercial loan.

They will work on the loan syndication in the first half, with the size of the tranches depending on appetite.

The debt is to finance the KD4bn Clean Fuels refinery upgrade project.

KNPC will contribute KD1bn in equity. This has been used to start work on the project, for which contracts were awarded in mid-2014.

To continue paying the contractors, KNPC will have to secure the debt in 2016, after beginning work on the financing in the first half of 2015.

KNPC spent several months negotiating with Korea Export Import Bank (Kexim) and Japan Bank for International for an export credit agency (ECA) tranche. This is expected to total KD1.5bn, or half the debt.

UK-based HSBC is advising on the ECA tranche. National Bank of Kuwait (NBK) Capital is also advising on the loan.

KNPC signed a memorandum of understanding with Kexim for $5bn of finance for oil projects in October 2015. Some of the lending will be allocated to future projects awarded to South Korean contractors.

KNPC is seeking a tenor of up to 10 years, and aiming for pricing below 100 basis points over the London interbank offered rate (Libor) on the commercial tranche, according to one source. Banks are expected to push for less generous terms, such as a shorter tenor or margins of 120 basis points above Libor.

The low pricing reflects the extremely low risk perceived for state-owned KNPC. However, with liquidity tightening across the region, the company may have to revise its pricing expectations upwards.

The packages and contractors on the refinery are:

• Mina Abdullah package one, valued at $3.8bn, to a joint venture of Petrofac (UK), Samsung Engineering (South Korea) and CB&I Lummus (US). Petrofac’s share of the contract is estimated as $1.7bn;
• Mina Abdullah package two, valued at $3.4bn, to a joint venture of Daewoo Engineering & Construction (South Korea), Hyundai Heavy Industries (South Korea), and Fluor (US);
• The $4.8bn Mina al-Ahmadi package to a joint venture of GS Engineering & Construction (South Korea), SK Engineering & Construction (South Korea), and JGC Corporation (Japan).

The project is scheduled for completion in 2018.