Kayan Project Financing Oversubscribed, Despite Subprime Crisis
The commercial bank tranche for the project financing of Saudi Kayan Petrochemical Company has come in oversubscribed at competitive margins (fees have yet to be decided) despite the uncertainties triggered by the US subprime mortgage crisis, MEES learns. A large number of the banks signing up to the deal, the last major financing in the Gulf to seek funding in 2007, are international ones, suggesting that appetite for Gulf deals remains strong even as some of these lenders count the cost of sizeable subprime losses and write-downs. The deadline for banks’ commitments was 12 December, appointments will be finalized in January, and financial close will take place shortly thereafter. It is unclear whether there will be a general phase of syndication, given the oversubscription. The uncovered commercial portion, worth $1.7bn, will be provided by conventional and Islamic banks. Export credit agencies (ECAs) will contribute $1.5bn worth of cover, to which banks will also subscribe with funding. The ECAs are Italy’s SACE and the UK’s ECGD, Korea’s KEIC and KEXIM, which will also directly lend $500mn to the project.
Further funding will be provided by the kingdom’s largest Islamic bank, Al Rajhi, which is contributing $650mn in a separate tranche (MEES, 17 September). This will surpass PETRORabigh’s $600mn Islamic component (MEES, 6 March 2006). Al Rajhi joined the original underwriters and advisors on the project, which are Arab Banking Corporation, SAMBA and BNP Paribas. Earlier this year ABN Amro and HSBC increased their ranks by taking underwriting, but not advisory roles (MEES, 5 February). Further Kayan funding will come from the kingdom’s Public Investment Fund (PIF), which is providing $1bn, and Saudi Industrial Development Fund (SIDF), which will provide $533mn. Debt accounts for almost $6bn of the total $10bn project cost.
The Kayan project, on completion in 2009, will produce an estimated 5.6mn tons/year of petrochemicals (such as ethylene, propylene, polycarbonates and amines), the majority of which will be exported to China and India, in addition to other Asian countries. The project has achieved strong support in the kingdom because it is in line with the government’s push to add value to the hydrocarbon chain – it will be the first producer of amines and polycarbonates in the Gulf. SABIC owns 35% of the company’s capital, with Kayan, set up by Project Management Development Company, holding 20%, and the rest held by investors following an oversubscribed initial public offering (IPO) earlier this year (MEES, 14 May). The project is progressing as planned, with all the major engineering, procurement and construction (EPC) contracts awarded. SABIC has been funding it using shareholders’ equity, which totals $4bn.
Copyright MEES 2007.
