PIM issued for Sohar refining debt

07 March 2003
International banks are preparing to respond by 28 March to a preliminary information memorandum (PIM) for the commercial debt financing package on the 125,000-barrel-a-day (b/d) Sohar refinery project.

Sohar Refinery Company (SRC)is looking for a multi-tranche, 14-year facility. The commercial debt element for the deal will account for $590 million, with an additional standby facility of $111 million being provided by Japan Bank for International Co-operation (JBIC). JBIC is also expected to contribute to the project's $260 million export credit facility via a smaller direct lending tranche, which is being covered by Nippon Export & Investment Insurance. The total finance package is for $1,200 million. Bank of Americais acting as the financial adviser.

Fourteen banks are said to have received the PIM and it is understood that they include Bank of Tokyo-Mitsubishi, HSBC, Societe Generale, BNP Paribas, ANZ Investment Bank, Citibank, Mizuho Financial Group, Credit Agricole Indosuez, Credit Lyonnais, Arab Banking Corporationand Gulf International Bank.

'The only surprising element of the PIM was the section on the prospective size of the lead arranging group,' says a potential bidder. 'The two options outlined are for either five or eight lead arrangers. Given the uncertainty over Iraq and the impact this could have on syndication, having only five banks underwriting it could be very painful. That would be a hefty sell-down, for sure.'

Most bankers agree that the 14-year tenor is obtainable, but there is a spread of opinion over where the facility will be priced.

'Given the effective guarantees that are in place at both the feedstock and offtake ends, this will be priced pretty close to Omani sovereign,' says one of the bankers. 'Just where that is remains to be seen. The Omanis will be looking for a step-up structure that could start at - maybe - 80-90 bp [basis points - over Libor], but it will depend on how strong the bank appetite is. If it is limited, the banks might finally get their way and drive up the margin a little. If appetite is healthy and regional liquidity remains, maybe there will be an all-in yield of 120-130 bp.'

The ownership structure of the facility is also expected to influence pricing. Under the terms of the proposed project, Oman Refinery Company (ORC)- which controls distillate production in the sultanate - will pay SRC on a toll basis for the Sohar plant's output. Products from the refinery will then be owned by ORC, which it will sell into the open market.

The UK's BP alreadyhas a firm offtake agreement in place for 80,000 b/d, which it aims to ship to a planned blending and bunkering facility in Jebel Ali in the UAE with Trafiguraof the Netherlands and Emirates General Petroleum Corporation. The government of Oman has also agreed to cover all the contractual obligations of SRC, which is owned 80:20 by the government and Oman Oil Companyrespectively (MEED 17:1:03, Oil & Gas).

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