The first transaction has seen PIF take over the three international syndications, worth $372 million, of Saudi Iron & Steel Company (Hadeed) finance facility restructured in late 1999. The first of these tranches, worth $97 million, was lead arranged by ANZ Investment Bank, and the second and third, worth $200 million and $75 million respectively, by Sumitomo Mitsui Banking Corporation.
It is understood that PIF intervention has seen the terms and conditions of the debt considerably relaxed. ‘Pricing has come down to less than 1 per cent, the tenor has been stretched and Hadeed will find it infinitely easier to talk to PIF about its problems than the international banking community,’ says one of the bankers involved in the transaction.
The remainder of the $1,260 million financing package for Hadeed remains in place. This includes a $247 million tranche covered by German export credit agency (ECA) Hermes, $358 million covered by the Austrian ECA and a SR 1,060 million ($283 million) local currency tranche lead arranged by Riyad Bank.
‘The move into Hadeed is not a rescue job. It’s true that the steel market is painfully soft and the next two years look a little tight for Hadeed, but the steel producer is basically sound,’ says another banker involved in the deal. ‘Everyone’s a winner. Those in the international syndications effectively get their ROEs [returns on equity] boosted by being bought out of the deal early, Hadeed gets better pricing and weaker structures and PIF gets something to do with its massive liquidity.’
Bankers say the situation at Arabian Industrial Fibers Company (Ibn Rushd)is more precarious.
‘Talks have been going on for some time over PIF making a move to buy out the bank debt on Ibn Rushd,’ says an international banker. ‘This cannot be done quickly enough. I’ve never seen worse project reports.’
Others maintain that Ibn Rushd’s problems, both technical and financial, are not too serious. ‘Sure the project is behind schedule, sure there are some technology issues, but the medium-term prognosis is not so bad,’ says a Riyadh-based banker close to the deal.
A total of 29 international, regional and Saudi banks have exposure to the Ibn Rushd project. The $850 million debt package, originally put in place in 1997, was refinanced in July 2000, at which point the pricing was raised and tenor was stretched (MEED 21:7:00).
The move by PIF to take on the debt of Sabic subsidiaries has been cautiously welcomed by the banking community. ‘There is a strong message being sent that Sabic – and the authorities at large – are not willing to let projects fail,’ says a banker familiar with both deals. ‘Sabic has a strong reputation and it’s not going to let this be ruined by a couple of tricky projects. It is ambitious and aggressive and knows that part of the financing process in Saudi Arabia is built on trust: this is too valuable a commodity to sacrifice.’
The need for Sabic to preserve its hard-won reputation for protecting and preserving its projects is highlighted by its ongoing attempts to tap the market for more than $2,000 million for the financing of its acquisition of a Dutch petrochemical company (see above).