Sembcorp to complete financing for Salalah power plant

13 November 2009

Developer will secure $750m in loans for power scheme from local, Chinese and other international banks

Singapore-based Sembcorp will complete the financing of its $1bn Salalah independent water and power project (IWPP) in Oman on 14 November, senior bankers close to the deal tell MEED.

In addition, the developer aims to sign power and water purchase, land use, and gas feedstock agreements by the end of November.

State-run utility Oman Power & Water Procurement Company (OPWP) requires Sembcorp to have its financing in place for the November deadline to avoid delays to its construction schedule.

Sembcorp will raise $750m of debt to finance the project from three tranches, which will be taken up by local, Chinese and other international banks.

The Chinese institutions are willing to lend $750m to the project as Sembcorp has appointed China’s Shandong 3 Electric Power Construction Corporation as the engineering, procurement and construction contractor for the power portion of the scheme.

However, this is more than is required by Sembcorp from the Far East tranche so it will only borrow $400m from the Chinese.

This will be underwritten by the UK’s Standard Chartered Bank, which will  then syndicate the debt to the Chinese banks towards the end of the year.

Standard Chartered stepped in to underwrite the Chinese debt in September, after the Far East banks revealed they were unable to get internal approval for loans before the deadline. The Chinese lenders also need approval from China’s Finance Ministry to sign off their loans. 

In addition to underwriting the Chinese debt, Standard Chartered will lend Sembcorp $50m, Omani banks will lend $130m and international banks are providing $170m. The remaining $250m required for the project will be funded via equity.

This is the second time Standard Chartered has agreed to provide large loans to the project in the hope of reducing its exposure at a later date.

In Feb-ruary, when Standard Chartered first approached banks to finance the deal, it agreed to underwrite the full $750m, a commitment it withdrew in April after Sembcorp temporarily lost its status as preferred bidder. Sembcorp was reconfirmed as the preferred bidder in September. The Semb-corp consortium has started construction work at the Salalah site, say sources close to the project.

Sembcorp lost its preferred bidder status earlier in the year after it tried to renegotiate the tariff structure for the scheme with OPWP. The developer had sought to mitigate against the increase in the cost of financing since it first submitted its bid.

The plant will be located in the Taqah area of Salalah, 1,000 kilometres southwest of Muscat.

It will have capacity of 400MW of power and 15 million gallons a day of desalinated water.

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