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Sunday, 17 December 2017

Continuing to grow

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Project Finance International’s third survey of the Middle East projects market shows the dollar volume of projects continues to increase – although the actual number of projects has remained remarkable similar over the three surveys. By Rod Morrison.

The first survey was carried out in February 2005 (PFI issue 307) and showed the dollar volume of projects was US$74.5bn and the number of projects 55. Then, in February 2006, the dollar volume jumped to US$118bn from 57 projects (PFI issue 331). Now, in the latest survey, the dollar number has leapt to US$167.5bn, but from a similar number of projects, 56.

Once again, the major reason for the dollar increase is simply rising EPC costs. This is now a significant issue in the region's projects market. It was back in February 2006 too, but the difference now is that projects are actually being delayed by higher EPC costs. Times have been good for the projects market in the Gulf, with rising energy and petrochemical prices boosting aggressive project development, but EPC costs have risen so fast that even in a high energy price environment, the economics of new developments are suffering.

The results were revealed for the first time in the TF/PFI first-half tables for 2007. The volume of deals dropped by US$10bn to US$15.8bn. The petrochemical sector, which relies on selling into a global market, suffered the most with volumes dropping by US$10bn to just US$3.3bn. The power sector, which is less risky to the extent that deals have long-term power purchase agreements (PPAs) with local utilities rose by US$1.5bn to US$9.3bn.

Looking into the future, the prospects are mixed for petrochemicals. High EPC prices will probably be around for some time and there are fears that global petrochemical prices will peak and then fall in 2009–10. But on the other hand, the driver for new petrochemical plants in the region remains strong – the lowest feedstock prices in the world. If the world economic order remains the same, based on utilising manufacturing sites for the lowest cost production, new petrochemical plants – and plants for other energy-intensive industrial products – will continue to be built in the region.

The outlook remains good for the power (and water) sector. There has been a steady stream of independent water and power project (IWPP) deals over the last couple of years and there will continue to be so. We have just seen the world's largest IWPP, the US$3.5bn Marafiq scheme in Saudi Arabia (profiled in this report), financed. Most of the other schemes are in the US$2bn-plus category.

PFI's third projects survey shows the growing importance of Saudi Arabia in the region's market. Nearly half the potential market is now in the Kingdom, US$87.5bn of projects in 16 individual schemes. The Kingdom has the full mix of projects – petrochemicals, IWPPs, telecoms and infrastructure. It has the world's largest potential PFI deals, the US$22bn Ran Tanura scheme, which is a joint venture between Dow and Aramco. The sheer size of this scheme slightly skews the projects tables. But there are other big schemes – the IWPPs and the MTC telecoms deals.

The next big market is the UAE, at US$33.8bn. This is a new development as the UAE was never really a PF hub, apart from the constant stream of ADWEA IWPPs. As with Saudi Arabia, there is a good mix of industrial, IWPP and infrastructure deals.

Egypt is becoming an active market. Three deals have recently been signed. Projects still take some time to put together but the country is making progress. Algeria comes next on US$11.3bn. But in this country the likelihood of turning prospects into financed projects remains lower than in many other countries in the region. Qatar, next up on US$9.7bn, has an excellent record on turning prospects into actual projects. But it is taking a breather in the project development stakes, mainly due to its concerns over high EPC prices. It will be back, however.

The projects list is one of potential projects, so it does not give an accurate indication of what the size of the project finance market will be over the coming years. However, in the previous two surveys, the hit rate for turning prospects into real projects has been high. It is worth noting that the current hot sector, IWPPs, is at the bottom of the list in terms of potential sectors – US$17.4bn of potential projects compared with US$70.7bn for petrochemicals. This is due to the fact IWPPs are procured as an when needed while other, market-led projects are take longer to put together and do not necessarily proceed into a real project.

One issue with this year's list is that there are no Iranian deals. While there are a few projects – particularly in the LNG sector – the commercial and political uncertainty surrounding the schemes make it difficult to judge when they can proceed.

Across the Gulf the number of oil and gas-related PF schemes has been dropping as the North Field (Qatar and Iran) projects have been put on hold or delayed. Indeed, while the overall dollar volume of projects has jumped, the amount of potential oil and gas schemes has fallen by US$8bn to US$23.5bn. But both the industrial and infrastructure sectors have more than doubled in size to US$22bn-plus each. The industrial sector has been boosted by demand for products such as aluminium, steel and cement locally and globally. And the infrastructure sector has been driven mainly by some mega scheme needed to keep growth in the UAE on track.

The bank advisory mandate market has marked similarities to the 2006 table – although the top two have moved further ahead. HSBC and BNP Paribas, both with active bases in the Gulf, top the table with 10 and nine mandates respectively. Citigroup has five mandates, SG three and then the rest one or two. In 2006, HSBC had eight, BNP seven, Citigroup six, SG four, and the rest one or two. The number of mandates has increased, however, from 38 in 2006 to 45. One thing to watch for will be whether the US investment banks, which are now all in the region, will start to become a force in the advisory market.

While EPC prices continue to be a concern, the same cannot be said for the cost of project finance in the region. Margins have dropped to well below 100bp for nearly all projects. Tenors have lengthened, with the latest power deal coming in at 28 years.

The market has been driven by the continued appetite of international lenders. It will be interesting to see if this appetite persists given the current global shift in risk appetite in the banking sector.

In the first-half 2007 tables, Calyon/Saudi Fransi leapt to the top for the first time with a total three times that of the next bank at US$2.5bn. The US$1.3bn Mesaieed IPP, which Calyon solely underwrote, was part of the reason. The table was different from previous years in other respects. Mid-sized European player Natixis jumped to fourth. There was only one regional player in the Top 10, Arab Bank/Arab National Bank. Apicorp was just out in 11th and the usual regional banking stalwart GIB was down in 13th place.

The table measures activity at the mandated lead arranger (MLA) level. This means only deals done by the banks at the most senior level count towards the figures. The mix, however, between local/regional bank MLA roles and international bank roles has not altered much over the year. In the first half of 2006, local/regional banks accounted for 30% of the activity and in the first half of 2007 this actually rose slightly to 35%.

Middle East PF mandated lead arrangers, first-half 2007

MLA US$m

Calyon/Saudi Fransi 2,486.5

Standard Chartered 853.6

Citigroup 679.2

Natixis 678.4

SMBC 633.7

Arab Bank/Arab National Bank 615.2

Mizuho 555.4

SG 481.0

BNP Paribas 480.2

HSBC/Saudi British 467.7

Apicorp 417.2

Samba 385.3

GIB 371.2

Bayerische Landesbank 335.1

Abu Dhabi Commercial Bank 331.0

KfW 327.1

WestLB 327.1

RBS 322.7

Saudi Hollandi 316.3

Bank of Tokyo Mitsubishi 301.5

Dexia 285.4

ABC 271.5

Riyad 247.9

Mashreqbank 234.9

NCB 234.7

National Bank of Abu Dhabi 218.9

DZ Bank 203.7

Woori Bank 185.2

ING 177.2

Fortis 177.2

Credit Populaire d'Algerie 160.0

Banque Algerienne de Development 160.0

Banque Nationale d'Algerie 160.0

Intesa Sanpaolo 158.3

EDC 158.3

KBC 153.2

Al Rajhi 103.5

Shinhan Bank 103.5

Barclays Capital 102.5

Bank Muscat 92.7

National Bank of Egypt 84.0

Commercial International Bank 84.0

Korea Development Bank 81.7

DekaBank 81.7

Caja Madrid 73.7

National Bank of Kuwait 73.7

Kuwait Finance House 73.7

BBVA 73.7

First Gulf Bank 66.7

Qatar National Bank 66.7

Union National Bank of UAE 66.7

UniCredit 66.7

Total 15,846.7

Sectors US$m

Power 9,336.7

Petrochemicals 3,320

Industry 2,070

Water 710

PPP 410

Total 15,846.7

Country US$m

Saudi Arabia 6,225.4

UAE 2,922.2

Egypt 1,491.0

Kuwait 1,400.0

Qatar 1,335.0

Oman 967.2

Bahrain 641.0

Algeria 640.0

Jordan 225.0

Total 15,846.7

Prospective projects by country

Country No US$m

Algeria 6 11,300

Bahrain 1 3,000

Egypt 9 15,700

Jordan 2 1,150

Oman 3 1,650

Qatar 5 9,700

Saudi Arabia 16 87,550

UAE 12 33,850

Yemen 2 3,570

Total 57 167,470

Prospective projects by sector

Sector No US$m

Petrochemicals 14 66,750

Industrials 7 24,950

Oil & Gas 13 23,470

Infrastructure 10 22,900

IWPP 9 17,400

Telecoms 3 12,000

Total 57 167,470

Current advisory mandates

Bank No US$m

ABC 1 3,300

Bank of Tokyo Mitsubishi 1 450

BNP Paribas 9 13,100

Calyon 2 9,000

Citigroup 5 16,500

Ernst & Young 1 450

Goldman Sachs 1 1,000

HSBC 10 25,400

Morgan Stanley 2 1,600

National Commercial Bank 1 2,500

Riyad 2 3,750

Royal Bank of Scotland 2 8,000

Samba 1 3,300

SG 3 5,100

Standard Chartered 2 3,750

UBS 1 2,500

Prospective project financings

Project CountryCost (US$) Sector Description

Arzew Algeria 700m Petrochems First scheme in Sonatrach's petrochemical project programme. Partner due to be selected soon on 1m tpa methanol scheme. HSBC is advising Sonatrach on the programme of six projects.

Galsi Algeria 1bn Gas A pipeline project that would bring 10bcm into Italy from Algeria. Sonatrach will hold 36% and 12 European companies – including Eni, Edison and Wintershall – will hold the rest. BNP Paribas is advising.

Bahwan Algeria 1.8bn Petrochems Bahwan Group is working on a fertiliser scheme at Arzew. Sonatrach will own 49%. ABC, BNP Paribas and HSBC are the three MLAs on the deal. BNP Paribas is advising.

Dubal Algeria 5bn Industrials Dubal and Mubadala have signed an MoU with Sonatrach to build a new 700,000 tpa aluminium smelter and a 2,000MW power plant.

MLE Algeria 1.3bn Oil & gas First Calgary is developing the Menzel Ledjment East project. It will hold 75% of the scheme and Sonatrach 25%. Sonatrach will offtake the gas. Citi is advising.

OCI Algeria 1.5bn Petrochems Orascom Construction Industries has been working on a fertiliser scheme at Arzew. Sonatrach will hold 49%. The scheme is believed to have been expanded and Uhde has been selected as the EPC. SG is advising.

Ad Dur Bahrain3bn IWPP Scheme expected to be offered to tender market later this year. IWPP will have capacity of 2,000MW and 30m gallons a day. The project could be phased with first power due in 2010. BNP Paribas is advising.

Echem Egypt 1.7bn Petrochems Echem, Oriental Petrochemicals and Eurochem are expected to sign a joint venture agreement on a 750,000-1m tpa polyethylene plant using UOP gas to olefins technology.

Egypt LNG Egypt 2bn Gas The ENLG1&2 sponsors are now considering developing trains 3 and 4. BG, Petronas, EGPC and Egas are the sponsors.

EPPC Egypt 750m Petrochems Joint venture between Oriental Petrochemicals and Echem to develop a propane dehydrogenation and polypropylene plant. Uhde is the EPC contractor.

Essar Group Egypt 3.4bn Oil The Indian company is planning a 300,000 barrels a day refinery in the northern part of the country.

Etisalat Egypt 3bn Telecoms An Etisalat led team has won the third GSM licence with a bid of US$2.9bn. A long-term financing is being considered. Calyon is advising.

Mostorod Egypt 2bn Oil Citadel is planning a new refinery next to an existing EGPC facility 10km north of Cairo. Morgan Stanley and SG are advising on the scheme, which will have a 65/35 debt/equity split.

Segas LNG Egypt 1bn Gas The sponsors of Segas LNG are planning a second train, with BP looking to become involved. The scheme is backed by Eni, Union Fenosa and Egas.

Sewedy CablesEgypt 850m Industrial Suez industrial zone scheme for a 300,000 tpa copper cathode plant. Glencore is the joint venture partner. HSBC is advising.

Sokhna Egypt 1bn Oil Local firm Investment & Securities Group is planning a 130,000bpd refinery with Saudi and Kuwaiti investors. EGPC will supply some feedstock and take an equity stake. Shell and Eni could supply some feedstock. BNP Paribas and CIB are advising.

JPRC Jordan 700m Oil Jordan Petroleum Refinery Company is to invest in upgrading its Zarqa refinery as part of a modernisation and privatisation plan. Citi has been appointed to advise on bringing in a strategic partner. Taylor de Jongh is working on a separate mandate to privatise the various parts of JPRC.

Queen Alia Jordan 450m Infrastructure ADIC, Kuwait Noor Financial, J&P Overseas, EDGO and Aeroports de Paris have won the airport expansion scheme in Amman. IFC is involved. Ernst & Young is advising on the financing.

Batinah Oman 1bn IWPP Advisers are currently being selected for the 700MW and 34m gallons a day scheme. Oman Power & Water Procurement Company is the client.

MoD College Oman 150m Infrastructure Serco and Bahwan won this private finance initiative (PFI) style deal in early 2003. Various debt options are still being considered, including an offsets-style route. Bank Muscat is the lead arranger.

Salalah Oman 500m IWPP Nineteen companies have been prequalified to bid on the 400MW and 16m gallons a day IWPP development. BNP Paribas is advising.

Qafco Qatar 1.2bn Petrochems Fifth train scheme, which will be financed by a bank and bond deal. Financing delayed by EPC costs issues and project will now be tendered on a LSTK basis. The company, 75% owned by Industries Qatar, has an Aa3 rating. Goldman Sachs and Morgan Stanley are working on the bond.

QGTC Qatar 2.5bn Gas Nakilat is raise a mixture of conventional and Islamic financing to back the purchase of up to a further nine LNG tankers. Nakilat has approached the Korean Export-Import Bank (Kexim) and is considering issuing sukuk, although it is not certain how much it will raise.

QHIIC Qatar 2.6bn Petrochems Honam Petrochemical of South Korea and Qatar Petroleum have signed an agreement to build a propylene/poplypropylene and styrene/polystyrene plant under the name Qatar Holding Intermediate Industries Company. SG is advising.

Ras Abu Fontas A1Qatar400m IWPP QEWC is planning a 40m gallons a day IWP. Bank of Tokyo Mitsubishi is advising.

Ras Laffan C Qatar 3bn IWPP Bidders lining up for the 2,600MW and 40m gallons a day IWPP. Royal Bank of Scotland is advising client QP/QEWC and HSBC is advising offtaker Kahmaraa.

Al KayanSaudi Arabia10bn Petrochems The project company has completed its IPO to local investors. Sabic now holds 35%, the original developer Project Management Development (PMD) holds 20% and the other 45% is traded. Aramco is supplying the feedstock. ABC, BNP Paribas, Samba, ABN AMRO and HSBC are in the lead bank group on the US$6bn debt financing, which will be split into a commercial bank tranche of US$2.5bn, ECA debt of US$2bn and PIF/SIDF debt of US$1.5bn.

InoesSaudi Arabia 2bn Petrochems Ineos is developing a greenfield development with local company Delta Oil. The scheme includes a 1.2m tpa cracker and various downstream units and could be expanded to a second phase. HSBC is the adviser.

JazanSaudi Arabia 3bn Oil Scheme offered to the private sector to build a new 250,000–400,000 barrels a day refinery. Aramco will supply the crude. The winning bidder will be include local and international companies.

Jubail Saudi Arabia 6bn Petrochems Aramco refinery and petrochemical scheme following the Rabigh model. Total has been selected as the IOC partner. Calyon/Saudi Fransi is advising.

Maa’denSaudi Arabia 3bn Industrial Saudi Arabian Mining Company is planning a 2.9m tpa di ammonium phosphate (DAP) fertiliser plant at Al Jalamid. Feedstock will come from a phosphate mine in the north of the country, funded as part of the development cost. The scheme will utilise a PIF funded US$2bn rail freight link. The financing could be in the market this year, once the EPC winners are selected. Debt equity split will be 60/40 and no ECAs are expected to be used on this deal. Standard Chartered and Riyad are advising.

Maa’denSaudi Arabia 4.5bn Industrial Saudi Arabian Mining Company is planning a 620,000tpa aluminium smelter and associated 1,860MW power plant project at Az Zabirah. The plant feedstock will come from a bauxite mine development in the centre of the country funded as part of the project cost. The project will utilise a PIF funded US$2bn freight rail link. Alcan has signed an MoU to join the project company. Standard Chartered and Riyad are advising.

MarafiqSaudi Arabia 2.5bn IWPP The second Marafiq IWPP, this time to be located at Yanbu. It should go out to the tender market later this year. HSBC is advising.

NCP Saudi Arabia 3.5bn Petrochems The Saudi Industrial Investment Group/ChevronTexaco joint venture is planning to expand again under the name National Chevron Phillips. The latest expansion was financed in the loan markets in 2003. The financing has been delayed by the need for the project company to have an IPO. The debt will be split into a US$600m US Exim tranche, a US$1.5bn bank tranche and US$1.3bn from PIF/SIDF. HSBC is advising US Exim.

MTCSaudi Arabia 7.6bn Telecoms An MTC led team has won the bid for the third GSM licence. It is working on a bridge loan to fund the US$6.1bn licence fee and US$15.bn of capex.

NWCSaudi Arabia 450m Infrastructure National Water Company has been established to run PPPs in the water and sewerage sector across 17 cities and directorates by the Ministry of Water & Electricity. The first concession scheme is likely to be in Riyad. HSBC is advising NWC.

Ras TanuraSaudi Arabia22bn PetrochemicalsDow and Aramco have signed an MoU on the mega scheme. Bidding for a financial adviser could start later this year.

Raz al Zour Saudi Arabia2bn IWPP The third WEC IWPP scheme. It will have a capacity of 850MW–1,100MW and 220m gallons a day. Bids are due by next February. HSBC is advising.

SECSaudi Arabia 3bn IWPP SEC is proposing three IPPs at Rabigh, Al-Qurayyah and Riyad totalling 5,200MW.

SipchemSaudi Arabia 7bn Petrochems The private sector company is planning a polyolefins and ammonia complex at Jubail. Mitsui has pulled out of the scheme and Hanwha Chemical Corporation is now looking to be involved. HSBC is advising.

SRO Saudi Arabia 5bn Infrastructure Saudi Rail Organisation (SRO) is offering its land bridge east-west freight and passenger scheme to the private sector. PWC Logistics, Al Muhaidib and Acwapower, Mada and Saudi Binladin will submit bids for the 50-year concession at the end of this year. The scheme will carry both passengers and freight. National Commercial Bank and UBS are advising.

Yanbu Saudi Arabia 6bn Petrochems Aramco refinery and petrochemical scheme following the Rabigh model. ConocoPhillips has been selected as the IOC partner. Citi is advising.

ADBI UAE 5bn Industrial Government owned company GHC is proposing a new aluminium smelter and is looking at bring Rio Tinto into the scheme. Royal Bank of Scotland is advising GHC.

ADPC UAE 8bn Infrastructure Abu Dhabi Ports Company is planning a new port and industrial development. The port, which will cost US$2.5bn, will be in the Khalifa Port & Industrial Zone. HSBC is advising.

ADSSCUAE 500m Infrastructure ADWEA's Abu Dhabi Sewerage Service Company is tendering its sewerage scheme. Biwater/Kharifi has submitted the cheapest bid and is backed by Abu Dhabi Commercial Bank. Veolia/Bexis is the second cheapest bidder. BNP Paribas is advising ADSCC and Macquarie is advising Biwater.

Emirates AluminiumUAE5.5bn Industrial Smelter project being developed by Dubal and Mubadala. The first phase will total 700,000 tpa and will be built by SNC Lavalin and Worley Parsons. Debt will be split between bank debt and a 144a bond and in addition there will be a up to US$2bn in an equity bridge loan. Citi is advising.

Emirates SteelUAE 1.1bn Industrial Government owned GHC is building the plant and has raised a US$600m bridge financing with ABC, First Gulf Bank, HSBC, Mizuho, Natixis, NBAD and QNB. Danielli is building the plant. HSBC is advising on the long-term financing.

Fujairah refineryUAE 2bn Oil ConocoPhillips and IPIC are studying a 500,000 barrels a day refinery as part of a joint venture agreement to study possible downstream and upstream projects.

International CityUAE300m Infrastructure Sewerage project being developed by Palm Water, an Istithmar subsidiary, for Nakheel's property developments. HSBC is advising.

Gulf EstatesUAE 450 Infrastructure Sewerage project being developed by Palm Water, a Istithmar subsidiary, for Nakheel's property developments. Macquarie and Abu Dhabi Commercial Bank are advising.

Yahsat UAE 1.4bn Telecoms Mubadala is developing a satellite project for government and commercial users. EADS Astrium, Thales and Alenia Space will build the satellite. BNP Paribas is advising.

Scadia UAE 7bn Infrastructure Abu Dhabi is planning a major expansion of its airport to handle Etihad Airways' 50-strong A380 fleet of new jumbos, perhaps with a strategic partner. Citi won a preliminary advisory mandate that has now been completed. Advisers are bidding again for the scheme.

Shuweihat S2 2bn IWPP The next ADWEA IWPP. The scheme will total 1,600MW and 100m gallons a day. HSBC is advising ADWEA.

JAFZA UAE 600m Infrastructure Sewerage project in the Jebel Ali Free Zone being developed by Palm Water, an Istithmar subsidiary, for Nakheel's property developments. BNP Paribas is advising.

Ras IssaYemen 570m Oil Refinery project being developed by Hood Oil and Reliance Energy with a proposed capacity of 50,000–60,000 barrels a day. Debt equity split is 60/40. IFC is providing a US$70m A loan and is working with ABC on a US$180m B loan. Kexim is providing US$92m of debt.

Yemen LNG Yemen 3bn Gas The Total, Yemen Gas, Hunt Oil, SK Engineering, Hyundai Heavy Industries and Kogas team have taken the FID and appointed Rechnip/JGC/KBR as the EPC contractor. Five ECAs are doing due diligence in the scheme – Coface, Opic, JBIC/Nexi, US Exim and Kexim. The deal should be sent out to commercial banks in the second quarter. However, Hunt and the government have gone to arbitration in Paris over the rights over Block 18, the field that will supply gas to the scheme. Citi is advising. Calyon is advising the ECAs.

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