Oman's United Power Company to tap bond markets

09 May 1997

Oman's United Power Company (UPC), which runs the country's first private power station at Al-Manah, is planning an international bond issue worth $140-170 million, bankers say. Goldman Sachs of the US is understood to have won the mandate to arrange the issue.

The issue is expected to take place later this year. It would be the second of project finance bonds from the Gulf, following Qatar's $1,200 million Ras Laffan LNG Company (Rasgas) issue in January, and would be the first from a power scheme in the region. The Tractebel engineering group of Belgium owns a controlling interest in UPC and the International Finance Corporation (IFC), the private sector arm of the World Bank, has a small stake. Omani investors own the rest.

Al-Manah is a build-own-operate-transfer (BOOT) scheme with a 20-year life. The purpose of the bonds appears to be to refinance the project's existing bank and export credit agency (ECA) debt. UPC is also planning to expand its existing 90-MW plant, but this depends on its agreeing with the government about the price that the latter will pay for the extra electricity. The bonds are expected to be sold privately under the US 144A rules, in several tranches with maturities of 10-14 years. The power plant started commercial operations last year: this means that, in contrast to the Rasgas bonds, there is no construction risk for bondholders.

The original financing for Al-Manah totalled just over $142 million, made up of about $60 million in eight-12-year loans from the IFC, about $65 million in 10-year export credits from the UK's ECGD and France's Coface, and a $17 million, 10-year loan from the local Bank Muscat al- Ahli al-Omani. Under the loan agreement, repayment was due to start in March of this year.

If the bond issue is successful - and most project financiers say the Rasgas deal shows there is a strong investor appetite for Gulf bonds - then it will set a precedent for future power project financings in the region. Two other private schemes are planned in Oman, the most advanced being a 200-MW project in the southern city of Salalah. The mandate will also bolster the regional reputation of Goldman Sachs, which was adviser and lead manager on the Rasgas deal.

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