Qatar Petroleum (QP) and the US’ ExxonMobil, the sponsors behind the $10.3bn Barzan gas project, have put on hold until next year plans for a bond issue that could have raised up to $1bn.
Several bankers close to the deal say that the project sponsors have been put off by volatility in the capital markets as a result of the European debt crisis. “Market conditions now mean the cost of bond finance is quite high,” says one banker involved in financing the Barzan scheme. “This volatility is not going to go away quickly.”
The two sponsors behind the project had been planning to appoint banks to lead the bond issue by the end of October (MEED 12:10:11). Several other bond issues from the region were put on hold in July due to unfavourable markets, including issues from Abu Dhabi’s Tourism Development & Investment Company, and Dolphin Energy. More recently, International Petroleum Investment Corporation (Ipic) completed a $3.75bn bond issue in late October (MEED 31:10:11).
|Select planned and completed bond issues 2011/12|
|Issuer||Country||Potential size ($m)||Status|
|International Petroleum Investment Corporation||UAE||3,750*||Completed|
|International Bank of Qatar||Qatar||500||Planned|
|Tourism Development & Investment Company||UAE||1,000||Delayed|
|*Actual. Source: MEED|
In addition to plans to raise bond finance, the project has also raised commercial bank and export credit agency (ECA) loans, which are expected to reach financial close by the end of November. In total, the financing raised $2.7bn from ECAs, split evenly between direct loans and loan guarantees. There is $5.7bn in commitments from commercial banks, including a $850m Islamic tranche. The commercial bank commitments will be scaled back to $3.9bn by the time the deal reaches financial close, bringing the total financing to $6.6bn.
Once a bond issue is completed, the proceeds will be used to further scale back the bank loans.
On 1 November, Qatar’s energy minister Mohammed al-Sada, said the Barzan project would cost around $10.7bn to develop, $1.7bn more than initial estimates. Barzan will produce 1.4 billion cubic feet a day of gas, primarily for domestic use in power production and water desalination.
The UK’s Royal Bank of Scotland is advising the sponsors on financing the project.
QP could not be reached to comment.