'We have a difficult timing situation,' says one of the bankers who received the preliminary information memorandum (PIM). 'Some of the banks have refused - I could name at least two - and some are finding it difficult to get approvals from their credit committees while the war in Iraq continues.'
Fourteen international and regional banks received the PIM (MEED 7:3:03). The $1,230 million debt is expected to be split into four packages. The first is a 14-year commercial tranche worth $593.8 million, the second a $261.9 million facility for which political risk and possibly commercial risk cover is being provided by Nippon Export and Investment Insurance (Nexi). The third is a $111 million standby facility from which drawdowns can be made in the event of cost overruns or for working capital requirements. It is understood that the standby facility will have a much shorter tenor than the other tranches, probably only covering the construction period. The fourth tranche is a $261.9 million loan from the Japan Bank for International Co-operation (JBIC).
The 14 banks were asked to bid for all but the JBIC tranche, but those without a presence in Japan will find it difficult to qualify for the Nexi facility and there is some speculation that this might disqualify them from full participation in the lead arranging group.
'One of the main concerns is over the envisaged size of the lead arranging group,' says a banker interested in the deal. 'They seem to want either five or eight lead arrangers. The former is way too small: there just aren't that many banks that want to take on that size of underwriting risk during such difficult times. The more lead arrangers the better - that is what everyone will be saying.'
The possibility remains that if there is insufficient competition for the lead arranging mandate, the banks might be able to apply pressure to the price structure.
'In principle, with the government effectively offering guarantees at both ends of the project - both the feedstock and the offtake - this has an attractive structure,' says the banker. 'It should be priced somewhere near the OGC[ Oman Gas Company]debt, but the banks are going to seek a premium: we will all be wanting to take advantage.'
The $410 million, 12-year debt package for OGC had a step-up pricing structure that started at 65 basis points (bp) over Libor and rises to 140 bp. It had a seven-strong lead arranging group that included three regional and four international banks (MEED, Banking Special Report, 2:3:01, pages 26-30).
Bank of Americais acting as the financial adviser to SRC.
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