Oman banks keen on Liwa Plastics

14 September 2015

Roadshow builds appetite for foreign investors

  • Local, regional and international banks prepare offers for $5.2bn Liwa plastics project
  • Domestic banks have strong appetite for the government-supported project, despite squeezed petrochemicals margins
  • Interest rates on the $3.6bn financing could be London interbank offered rate plus 200 or 250 basis points

Omani, regional and international banks are putting together proposals to participate in the financing of the $5.2bn Liwa plastics project.

Banks’ offers are due in mid-October, and Oman Oil Refineries and Petroleum Industries Company (Orpic) hopes to reach financial close before December.

Domestic banks have good appetite for the project. Roadshows in Dubai and London this week are aiming to build interest among GCC and international banks.

“There is government support for the Orpic project, so it is exciting for us, but we have to take the oil market into consideration,” says a Muscat-based project financier. “Investment in the sector will be cautious for the time being, but it is a long-term project.”

Orpic plans to provide 30 per cent equity and raise 70 per cent of the project costs through debt. This implies project finance of more than $3.6bn will be required. Banks are submitting offers individually and Orpic will allocate tranches based on the interest rates they offer.

“They will reach this easily, and probably be a little oversubscribed,” says the banker. “The market rate at the moment for a project like this would be Libor [London interbank

offered rate] plus 200 or 250 basis points.”

Orpic has contacted 35 banks and eight credit export agencies about funding, according to its chief financial officer, Nazar al-Lawati.

Japan’s Mitsui Banking Corporation is advising Orpic on raising the funds, which are expected to be settled at the same time as the EPC awards.

Lower oil prices mean petrochemicals companies based outside the GCC have become more competitive with GCC producers, which benefit from cheap feedstock. This has resulted in the cancellation or slowdown of petrochemicals projects in other GCC countries, including the $7.4bn Al-Sejeel and $6.4bn Al-Karaana schemes in Qatar.

Despite the lower margins on petroleum products, bankers see the Liwa scheme as a project with sound fundamentals.

“Their costs of production [10 per cent] will be one of the lowest globally, so there are still good returns in a low margin scenario,” says another Oman-based banker. “We are happy the project is sound and adds value to the economy.”

Domestic banks are also keen to participate as they expect Oman’s projects market to hit a lull in 2016, especially in oil and gas. Muscat is expected to shelve less essential projects to reduce government spending and control the fiscal deficit.

Orpic signed a $2.8bn financing deal to support the expansion of Sohar refinery in May 2014. It also closed a $909m loan from a consortium of mainly local banks in May to finance future growth.

Orpic is planning an initial public offering (IPO) before 2020.

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