Mining

The Maaden Waad al-Shamal Phosphate Company, a subsidiary of the Saudi Arabian Mining Company (Maaden) has signed a $5bn project financing facility with 20 financial institutions to support the construction of its phosphate mining project.

The facility features an unprecedented number of international banks and export credit agencies (ECAs), marking a shift from previous Maaden financings, which were almost entirely funded by Saudi Arabian banks.

The involvement of international institutions was essential due to the size of the transaction, say sources.

“It could not be funded with just Saudi banks, it would have stretched their capacity,” says a banker close to the deal.

“This financing is unique, in the sense that the structure is acceptable to international banks and ECAs as well, compared with previous transactions, which people could have said were purely Saudi bank deals,” he adds. 

A previous large-scale financing for the mining company was signed in late 2011 by Maaden Bauxite and Aluminium Company, a joint venture of Maaden and US aluminium producer Alcoa for the second phase of a $10.8bn Aluminium Project.

This deal featured 13 banks, of which just two institutions, Emirates Bank (now Emirates NBD) and Export Development Canada (EDC), were from outside Saudi Arabia.

The involvement of ECAs from South Korea and Canada in Maaden’s latest deal has also helped the company broaden its financing sources.

The agencies give international lenders more confidence to lend to Maaden by providing credit guarantees on one of the tranches.

The ECAs also facilitated South Korean and Canadian firms win key construction contracts with Maaden, with South Korean firm Hanwha Engineering & Construction Company and Canada’s SNC Lavalin securing work towards the end of last year.

Maaden is using the money to develop a phosphate mining project being built at a new site in Waad al-Shamal, close to the Saudi border with Jordan, as well as at the existing Ras al-Khair Industrial City.

The financial closing of the deal has been widely welcomed by the market. “This financing is highly significant for the company’s growth plans, since the mining industry needs big capital investments in the initiation phase,” says Turki Fadaak, research and advisory manager at Al-Bilad Capital based in Saudi Arabia.

Wide range of lenders

The $5bn deal is split between Saudi’s Public Investment Fund (PIF), which is a shareholder in Maaden, and a mix of ECA and commercial bank debt.

PIF provided a $2bn financing tranche, marking the largest contribution to a project the fund has made to date.

A total of $1.9bn of commercial bank debt was extended by Saudi and international banks. The Saudi bank portion is in riyals and is sharia-compliant. 

A $600m loan was extended by the Export-Import Bank of Korea (Kexim).

Kexim and Korea Trade Insurance Corporation (K-Sure) provided loan insurance and guarantee facilities on a total of $575m-worth of loans from commercial banks HSBC Bank Middle East, KfW IPEX-Bank, Mizuho Bank, Sumitomo Mitsui Banking Corporation, and the Bank of Tokyo Mitsubishi UFJ.

The deal’s tenor is 16.5 years and will be repaid in semi-annual instalments starting at the end of December 2018. The total cost of the project is $7.5bn.

Maaden, the US firm Mosaic Company and Saudi Basic Industries Corporation (Sabic) will own 60 per cent, 25 per cent and 15 per cent respectively of the joint venture in charge of developing the project.

Improved international profile

As financial adviser to the project, HSBC took the project to prospective banks approximately 12 months before it was officially closed.

The deal proved popular and commitments had to be scaled back by more than 50 per cent, a source says.

In addition to the current $5bn deal, Saudi Industrial Development Fund (SIDF) is due to contribute a tranche of interest-free funding of between $500m-$800m in the coming months.

Lenders are also happy to support a project financing structure that does not feature a completion guarantee, but rather a two-year completion support mechanism.

A completion guarantee usually means that if a project does not finish within a defined time period, lenders are repaid.

However, in the event of a delay to this project, a completion support mechanism kicks in for two years, whereby the sponsor will continue to cover overrun costs. After the two years, lenders have no recourse other than to call a default on the project or negotiate some form of restructuring.

The deal’s popularity with international financial institutions will no doubt raise Maaden’s profile and help in its efforts to raise money for future projects.

It could even help boost its image among potential investors as Maaden progresses with plans to issue a rights issue of SR5.6bn ($1.49bn). It announced the appointment of a financial adviser in late May.

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