The owners of the Shuweihat 2 power and water plant in Abu Dhabi are planning to issue a project bond of about $800m in September, as part of a plan to refinance the project.

The owners, which include Abu Dhabi Water & Electricity Authority (Adwea), Japan’s Marubeni and France’s GDF Suez, will use the proceeds of the bond to reduce debt by about $600m, split roughly equally between a $1bn Japan Bank for International Corporation tranche, and a $950m loan provided by banks.

“The bond is scheduled to close in September, but will have to be timed to coincide with the execution of the refinancing,” says one banker close to the process.

In return for the early payment, banks are being asked to lower the pricing of the debt, which was signed in 2009 with a 22-year tenor. In the original deal, the loan pricing started at 260 basis points above the London interbank offered rate (Libor), rising to 350 basis points above Libor, making it one of the most expensive deals signed for an Abu Dhabi power project in recent times. The owners hope to reduce it in line with the last Abu Dhabi power deal, Shuweihat 3.

Banks have now responded to the request to lower the pricing on the debt. Owners of the project hope to get documentation for the refinancing and approvals from banks to the new terms in place during August.

Although using the bond markets to reduce bank debt is something banks have wanted to see happen for years, lowering the pricing on the remaining debt has put an added complication into the deal. European lenders in the 14-strong bank group are expected to want to be largely paid out of the deal as the new pricing is unattractive for them. While some regional banks are still eager to book new deals and are understood to have said they would be prepared to increase their commitments to the loan as part of the refinancing.

The owners are expected to let banks know how they would like to change the terms of the deal and commitment levels in early August.