Lenders to the $20bn Sadara Chemical project are preparing for significant scalebacks on their commitments as the sponsors behind the project face a massive oversubscription.
Every tranche of the $12.4bn debt financing package is understood to be oversubscribed, leading to some changes in the expected size of each as Saudi Aramco and the US’ Dow Chemical try to ensure they get the best possible deal.
Even some of the export credit agencies (ECAs) providing funding to the deal are understood to be lobbying the sponsors to ensure their commitments are not cut back, especially in the wake of the Export-Import Bank of the US (US Exim) approving a $4.975bn loan for the scheme.
|Sadara chemical financial breakdown|
|($m)||Original plan||Potential revised plan|
|Export credit agencies||6,500||6,700|
|Saudi Industrial Development Fund||530||1,000|
|Public Investment Fund||1,300||1,300|
“All the ECAs want their commitments to be as big as possible as they want to be seen to be promoting exporting from their countries,” says one source close to the project. When the financing was first launched the ECA tranche was expected to be around $6.5bn. Sources close to the project say this could now be over $8bn. Six other ECAs are providing loans or loan guarantees to the project.
That will leave little left for commercial banks. Originally, the sponsors envisaged borrowing $2.7bn from local and international banks, though this has now been reduced to $1.5bn. Export Development Canada is lending $800m into this tranche, potentially leaving only $700m for other commercial banks.
“The large contribution from US Exim should be good news for us as it means they have all the dollars they need from them and the local banks can take out the commercial bank loans in riyals,” says one Saudi banker.
With local banks expected to dominate the bank tranche, international banks are expected to fund the European ECA tranches as they only provide loan guarantees and not direct funding. Those ECAs are the UK’s Export Credits Guarantee Department (ECGD), Germany’s Hermes and France’s Coface.
A sukuk issue of $2bn is also planned, although this is now not expected to happen until early next year. In addition, the project is also expected to borrow $1bn from the Saudi Industrial Development Fund and $1.3bn from the Public Investment Fund.
Financial close of the Sadara Chemical deal is also not expected to occur until the first quarter of 2013 now, later than originally anticipated as the sponsors had wanted to close the deal before the end of 2012.