Yanbu refinery close to appointing banks for bond issue

21 April 2010

Banks will arrange up to $1bn of capital-markets funding

The sponsors of the Yanbu refinery project in Saudi Arabia are close to appointing banks to act as arrangers on a $1bn bond issue to finance the development of the project.

“The selection process for leading a capital markets issue on the Yanbu financing is largely complete,” says a source close to the project.

The banks are expected to be chosen from among the largest contributors to the debt financing for the project, which is already oversubscribed.

If the project sponsors, Saudi Aramco and the US’ ConocoPhillips, do go ahead with a bond issue, it will mean financing for the $8bn debt on the project will be broken down into a $3bn bank debt tranche, including Saudi riyal and dollar funding; a $3bn export credit agency tranche; $1bn bond issue; a $1.3bn loan from the Public Investment Fund (PIF); and a SR2bn ($533m) loan from the Saudi Industrial Development Fund (SIDF). The final size of each tranche will be adjusted depending on which is the cheapest source of funding.

The decision to tap capital markets funding echoes that of another Aramco refinery currently being financed, the similarly sized Jubail refinery. The local Banque Saudi Fransi and Samba, with Germany’s Deutsche Bank were appointed to lead the Jubail bond, which was to be carried out as a sukuk issued in the Saudi market in December 2009. However, issues with the Islamic structure have held up the deal (MEED 18:12:09).

The pricing on the Yanbu refinery, although not yet set, is expected to be about 40 basis points below the pricing on the Jubail refinery. That would put the pricing on the riyal denominated tranche at well under 100 basis points above the London interbank offered rate (Libor), and the international tranche at between 100 to 150 basis points.

Some bankers have suggested that the Yanbu financing may be in place ahead of the Jubail deal. When the Jubail financing was first launched in July 2009, the sponsors hoped to complete the deal before the end of the year. With the Saudi sukuk still not issued, that risks slipping until the second half of 2010. The Yanbu financing was launched about six months later in early 2010.

A source close to the Yanbu deal says: “There is now a real possibility that Yanbu can get financed before Jubail.” However, lenders on both projects say this is unlikely. They say that without being informed of the final size of their loans to the Jubail deal, it will be difficult for them to make large loans to another Aramco project. This could push a conclusion to the Yanbu financing into late 2010.

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