Egypt's Abu Qir Fertilizers negotiates with 11 financial institutions to get $80m-$100mln fund

The expansion will be 80% financed in US dollar, with the remaining 20% to come through bank financing in local currency

  
The plant of Egyptian Fertilizers Company (EFC) is seen at the desert road of Suez city north of Cairo, Egypt August 14, 2016. Image used for illustrative purpose.

The plant of Egyptian Fertilizers Company (EFC) is seen at the desert road of Suez city north of Cairo, Egypt August 14, 2016. Image used for illustrative purpose.

REUTERS/Amr Abdallah Dalsh

Abu Qir Fertilizers has announced that it is currently negotiating with up to 11 financial institutions, all competing to offer $80m-$100m for the expansion of its granular urea plant, AbuQir 3.

The expansion will be 80% financed in US dollar, with the remaining 20% to come through bank financing in local currency. The expansion of the AbuQir 3 granular urea plant will see the company’s production capacity increases from 1,940 tonnes/day to 2,370 tonnes/day.

The project will aim to use the excess ammonia produced and often exported at cost, and the CO2 emissions, and combine the two compounds to produce urea. This will in turn ramp up production and cost efficiency, and decrease externalities associated with carbon emissions.

The second expansion plan, which is still under consideration, is the company’s Methanol plant which aims to produce 1 mtpa of methanol and 400k/tonnes of Ammonia per annum. These products are destined for markets in East Asia.

The project is expected to come at an investment cost of $2.6bn, with $1,600m earmarked for phase I and the balance for phase II.

Meanwhile, the management of Abu Qir has also disclosed that the company has entered into an agreement with its foreign customers to sell its urea production in February, at an average price of $317/tonne.

The management added that it has received an offer for March’s volumes at $335/tonne. The rise in prices has been driven by low global supply and a high pickup in demand from India, the US, and Europe. The company projects that urea prices will average at $275-$280/tonne for fiscal year (FY) 2020/21.

It stressed that the company’s key strength is operational and utilisation rates that guarantee solid volumes, even if prices fluctuate.

Abu Qir has identified three key catalysts that would unlock significant upside to shareholders, namely: reduction in natural gas costs; liberalisation of the local market; and Abu Qir’s classification as a free zone company.

Management also highlighted the company’s competitive advantage versus its Egyptian peers, by shedding light on its close proximity to major shipping ports. Abu Qir also has low operating costs, and boasts a diversified product mix.

The company’s dividend policy is expected to remain more or less the same as the preceding period, which saw a DPS of EGP 1.2/Share.

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