Bahrain’s Al-Hidd To Approach Syndication Market
Bahrain’s Al-Hidd power and water project is expected to approach the syndication market, following the signing of financing documents with the mandated lead arrangers (MLAs), Gulf International Bank, Kreditanstalt für Wiederaufbau, Mizuho, Royal Bank of Scotland, Standard Chartered and Sumitomo Mitsui Banking Corp. The MLAs are providing a $400mn commercial tranche with a tenor of 20 years and margins of 90-150bps, and a $35mn mezzanine tranche. Mezzanine financing sits between senior debt and equity. It is cheaper than equity and brings greater returns than senior debt due to its higher risk. “If a bank is lending to a project, the implication is that it is comfortable with the cash flow,” said a banker. “Therefore, why not assume a junior position in the cash waterfall for a higher yield?” With Gulf margins trending lower, mezzanine financing could provide a vehicle for banks to improve returns on projects. Furthermore, given the huge funding requirements in the Gulf, it can also allow project sponsors to tap other sources of funding from the private equity market. In addition to the funding provided by the MLAs, Al-Hidd is receiving $592mn from the Japanese Bank for International Cooperation (JBIC) and $175mn in equity. Syndication is expected to allow the MLAs to sell down around $218mn of their exposure.
The Al-Hidd project was won by a consortium comprising International Power, Suez Tractebel and Sumitomo (MEES, 19 December 2005). The privatization, completed in January, is Bahrain’s largest (MEES, 30 January). The total project cost is $1.25bn and the winning bid price was $738mn. The developers signed a 20-year power and water purchase agreement (PWPA) with the Ministry of Electricity and Water (MEW) in January which covers the output from the existing 910mw combined cycle gas turbine (CCGT) and 30mn gallons/day water desalination facility, together with the output from a new-build 60mn g/d desalination expansion which is expected to start operations by the end of 2007. The first 12mn g/d of this will be in operation by April 2007. France’s Sidem (Société Internationale de Dessalement) is the engineering, procurement and construction (EPC) contractor on the desalination expansion. The fuel for the plant will be provided by the Bahrain Petroleum Company (Bapco) under a separate 20-year natural gas supply agreement. The project company – Hidd Power Company BSC – took over the operation of the plant on 24 January.
