Qatar’s Barzan Becomes World’s Largest 2011 Project Financing

When the loan agreements were signed on 13 December for Qatar’s $10bn Barzan gas facility, it became the largest project financing to be completed in the world this year. The 1.4bn cfd capacity gas/NGL project also chalked up some other firsts. It carries the biggest ever ‘uncovered’ bank facility on a Qatar Petroleum (QP) project, even surpassing Qatargas 2, and has also received the most funding South Korean export credit agency (ECA) KEXIM has ever provided to a project. Melanie Lovatt reports.

The deal attracted 31 banks, aside from ECAs, came in oversubscribed, and the pricing matched the lowest seen in the Gulf post credit crunch (MEES, 10 October). This is a good result, even for strong sponsors – QP owns 93% and ExxonMobil 7% – given the ongoing European debt crisis. “Completing a financing of this size, at this pricing, in this market is a stunning achievement,” commented one banker. Pricing was at 130-200 basis points (bps) over the 16-year tenor on the commercial bank tranche, close to the levels secured by the Satorp 400,000 b/d export refinery in Saudi Arabia, sponsored by Saudi Aramco and French oil major Total. Satorp reported 185 bps all in (including margins and fees) for its 16-year deal (MEES,12 July 2010).

Bank appetite for Barzan was expected to be strong, given that it is one of the largest investments in the North Field for some time after the RasGas and Qatargas projects that propelled Qatar to its 77mn tons/year LNG capacity goal. While there has been some talk about initial temporary reinjection of the gas, Barzan is ultimately critical for the Qatari economy because it will feed the giant Ras Laffan C power station and other electricity providers in the country. Sold on the energy story, banks are also lured by Qatar’s growth prospects. The country already has one of the world’s highest per capita GDPs and expects further economic benefits from its hosting of the 2022 football World Cup and the implementation of expansion plans as part of its 2030 Economic Vision.

The deal was expected to reach conditions precedent (where all documentation is finalized) as MEESwent to press, and draw down of the funds was expected to take place shortly thereafter. Of the $10.3bn project cost, $7.25bn is accounted for by debt, with the remainder coming from equity. The total bank funding was $5.4bn which is comprised of the $3.34bn commercial facility, $850mn Islamic tranche, and $1.21bn tranche which is provided by banks, but covered or guaranteed by ECAs. A $5.4bn commitment from banks is considerable given the difficult market conditions, noted the project sponsors.

Regional Banks Step Up

Finding it difficult to secure dollars as a result of the Eurozone crisis, French banks were absent from the Barzan deal, but growing liquidity in the Gulf took up the slack and almost half of Barzan’s lenders are regional players (see table). Some Gulf banks, such as Samba, Riyad Bank and National Bank of Abu Dhabi, are lending cross-border to a Qatari project for the first time. “If that trend continues it will be encouraging for Gulf projects,” said the banker.

The uncovered (not guaranteed by ECAs) bank facility is $3.34bn, pared down from $4.9bn in commitments. This allowed some banks to be scaled back. Illustrative again of the Gulf bank appetite, most banks from the region did not want their amounts cut. The bank commitments to the financing comprised 36% from the Gulf, 32% from Asia, 25% from Europe and 7% from the US, although the Gulf’s proportion was set to increase on final allocation. “The Eurozone crisis has hit some banks hard, the only banks participating from the Eurozone are Germany’s KFW-IPEX and Siemens Financial Services, but the positive side is that there was a strong participation from non-Eurozone European banks,” said the banker.

ECAs have been a vital provider of funds and cover to large projects post credit crunch. Barzan’s total ECA component, via both guarantees and direct funding, is $2.55bn. Of this, the Japanese provided $1.2bn with a $600mn direct loan from the Japanese Bank for International Cooperation (JBIC) and a $600mn covered facility from NEXI. South Korea contributed $1bn via a $700mn direct loan and $300mn guarantee, and Italy’s SACE provided a $355mn guarantee. ExxonMobil provided a $507mn co-loan, as it has done on previous Qatari projects such as Qatargas 2 and 3. The sponsors have provided a completion guarantee to the project, which will be developed and managed by RasGas, which is a QP-ExxonMobil joint venture.

Barzan Bonds Still Possible

Bonds were part of the original financing plan, and it is likely that Barzan’s sponsors will launch international paper in future, possibly post completion, to take out the bank financing. Qatar recently braved volatile market conditions to launch a sovereign bond, raising $5bn and notching up the Gulf’s biggest bond issue of the year (MEES, 5 December). The six banks that were lead managers on the Qatari sovereign bond (Citi, HSBC, JP Morgan, Qatar National Bank, and Standard Chartered) are lenders to the Barzan project and were given the mandate in place of doing a Barzan bond, noted debt market experts. The market is tougher for project bonds, which have a smaller investor base than for sovereign issuers like the state of Qatar.

Barzan can accommodate a number of trains at the site and an expansion is allowed for in the project finance agreements. On announcing the project several years ago, QP said that Phase 2 could add another 2bn cfd and Phase 3 another 2.5bn cfd. Start-up is earmarked for 2014 and it is expected to ramp up to produce at least 100,000 b/d of condensate as well as 1.4bn cfd of gas. The main engineering procurement and construction (EPC) contractors are Japan’s JGC (onshore) and South Korea’s Hyundai Heavy Industries (offshore) – hence the considerable participation from their respective ECAs. Barzan will be Qatar’s largest project in terms of cost aside from the Shell-funded $18bn GTL Pearl project.

Barzan Financing Bank Participants

Commercial Banks

Al Khaleej Commercial Bank*

Citibank

JP Morgan Chase

Riyad Bank*

APICORP*

Commercial Bank of Qatar*

KFW-IPEX

Royal Bank of Scotland

ANZ

DNB Nor

HSBC

Samba*

Bank of America

Doha Bank*

Mizuho

Siemens Financial Services

Bank of Tokyo Mitsubishi

Export Development Canada

National Bank of Abu Dhabi*

Standard Chartered

Barclays Capital

International Bank of Qatar*

Qatar National Bank*

Sumitomo Mitsui

Union National Bank*

Islamic Banks

Commercial Banks – Export Credit Agency Tranche Only

Barwa Bank*

Credit Suisse

Masref al-Rayan*

West LB

Qatar International Islamic Bank*

Qatar Islamic Bank*

* Gulf banks

Updated from MEES, 10 October.

Copyright MEES 2011.