Saudi loan revamps: one down, two to go

12 November 1999
FINANCE

Bankers say the rescheduling of loans to three subsidiaries of Saudi Basic Industries Corporation (Sabic) is proceeding smoothly with an agreement reached with Saudi Iron & Steel Company (Hadeed) on 31 October. 'The first of the three packages has been dealt with, and progress is being made on the other two,' said a London-based banker involved in one of the deals (MEED 17:9:99).

The rescheduling of $1,260 million worth of bank loans for Hadeed, for which Barclays Bank was acting as adviser, was achieved with full approval from all the 31 international and regional banks involved, says a Barclays official. It is understood that the grace period on the loans has been extended by 18-24 months and the maturity of the loans by three to three- and-a-half years. The repricing of the loans brings annual interest payments up to 140 basis points (bp) over Libor.

The original loans came from six separate syndicated facilities, signed in 1997, for which the agent banks were Creditanstalt, ANZ Bank, Sumitomo Bank, ANZ Grindlays Bank and the local Riyad Bank. Al-Bankal-Saudi al-Fransi acted as intercreditor agent.

'After fairly tough negotiations, a cash-sweep provision has been included in the deal,' says the banker. 'If Hadeed's earnings rise, probably on the back of a stronger international steel market, the banks will have the option to demand pre-payment of latter instalments.' He says that through such a mechanism, the deal can be brought back close to its original terms if Hadeed's operating environment improves.

Sabic, which wholly owns Hadeed, is not involved in the terms of the re-financed deal despite a request made by some of the international banks. 'Sabic has only gone as far as to reiterate its status as the lender of last resort and re-issue comfort letters to the ECAs [export credit agencies],' says the banker. 'It has also issued letters to the commercial banks confirming its ongoing support.'

Bankers say the refinancing of loans to Saudi European Petrochemical Company (Ibn Zahr) and Arabian Industrial Fibers Company (Ibn Rushd) will be accelerated by the completion of the Hadeed deal. 'Hadeed was the longest and the hardest of the three,' says one senior banker involved in the deal. 'Sabic had to go through an educational experience as they had little experience of rearranging facilities with international banks. They had a fair amount to learn.' Arab Petroleum Investments Corporation (Apicorp) is acting as financial adviser for Ibn Zahr and Chase Manhattan Bank for Ibn Rushd.

'The term sheet for the Ibn Zahr rescheduling has been agreed and the final documents are in circulation,' says one banker involved in the deal. 'The tenors have been extended and the pricing raised, as with the Hadeed deal. I expect it to be finalised in the next couple of weeks.'

A similar process can be expected for Ibn Rushd. 'The timeframes for negotiations will be shorter and the process easier as all parties will have benefited from the Hadeed experience,' says one banker.

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