Nord Stream has secured a €3.9bn (US$5.35bn) financing for phase one of the natural gas pipeline project between Russia and the EU, via the Baltic Sea.
Nord Stream’s shareholders Gazprom, BASF/Wintershall, E.ON and Nederlandse Gasuine provided 30% of the funding, while 26 different banks provided the remaining 70%.
Export credit agencies Sace and Euler Hermes provided loan guarantees, of €500mn (US$684mn) and €1.6bn (US$2.2bn) respectively.
The German government’s untied loan guarantee programme, known as UFK, also offered an untied loan guarantee of €1bn (US$1.37bn).
Covered tranches have a tenor of 16 years, while uncovered tranches have a maturity period of a decade.
Initially, Nord Stream was 60% oversubscribed for funding, with 29 banks offering financing.
The construction of the pipeline will begin in early April, with gas delivery on course to start in 2011.
Société Générale (SG) became a financial advisor to the project in 2006, before the consortium North European Gas Pipeline Company became Nord Stream by the end of the same year.
Stephen Craen, co-head of energy project finance at SG, explains to GTR: “The deal happened at almost the worst time that it could have; banks’ appetite for underwriting was practically zero. However, in terms of how the deal was done, it’s basically a club. We went out to over 30 banks, of which 26 committed at the same time in the final deal. The difference between the MLAs and the non-MLAs is simply down to the level of commitment. It’s quite a simple deal with a strong Russian flavour and a very robust gas transportation agreement with Gazprom allowing most parties to get comfortable with it.
“Convincing UFK to join meant that we had to provide proof that the project has strategic German interest, which it clearly does, and that there was not already adequate financing available in the commercial bank markets. We had to convince them that, without their financing, the project could not be done. We, therefore could only approach them after a detailed sounding of the bank market. This was the first time that this German government funding scheme was used on such a scale."
There was no underwriting or syndication of the deal and all tranches are considered senior for the purposes of possible defaults and potential problems.
With the project passing through the Baltic’s relatively shallow waters and through areas that had once been used as World War Two aquatic-munitions dumps, environmental issues were particularly high on the agenda for Nord Stream; as Craen goes on to explain: “Nord Stream went to great lengths to make sure they were meeting all of the requirements of the relevant countries. All lenders were clear about only wanting to be involved if the project was entirely clean from an environmental point of view.
“From the commercial banking side, we needed to ensure the project was fully in compliance with a set of benchmarks for managing environmental risk in project management, known as the Equator Principles, which is something that Société Générale built into the process from the very beginning. However, Nord Stream was also so robust in dealing with the environmental issues that they have been ahead of us.”
Managing director of Nord Stream, Matthias Warnig, says: “Investors see Nord Stream as an excellent investment opportunity. The successful conclusion of the phase one financing demonstrates that there is a genuine enthusiasm for a project that will provide Europe with another major supply route for natural gas. In a few days we will bring the first pipe into the water of the Baltic Sea. This will be an important and emotional moment.”
Nord Stream maintains that even though the market has been tough in terms of finding financing, a lot of the hard work has been done in phase one, making the second phase of the project significantly easier, as Paul Corcoran, financial director at Nord Stream, explains: “This deal is particularly pleasing because we have closed in probably the worst market conditions since the Great Depression. All of the work done in phase one will serve us in finding financial institutions in phase two. We are happy to be able to build on these strong relationships.”
Phase two of the project will begin at an undisclosed date in 2012 and double the pipeline’s capacity to bring a projected 55 billion cubic meters of natural gas to the EU each year, making it one of the biggest sources for Western Europe’s gas supply.
While the second phase of the deal has yet to have any numbers finalised, SG estimates that it will come to less than €3bn (US$4.06bn).
The total cost of the deal, including financing and interest, is estimated at €9bn (US$12.3bn).
Below is an alphabetical list of mandated lead arrangers:
BayernLB
BNP Paribas
Caja Madrid
Commerzbank AG
Crédit Agricole CIB
Deutsche Bank AG
ING Bank N.V.
Intesa SanPaolo
KfW IPEX-Bank
Mediobanca
The Royal Bank of Scotland
Société Générale
Standard Bank Plc
Sumitomo Mitsui Banking Corporation
UniCreditGroup
Other institutions involved:
Banco Bilbao Vizcaya Arentairia
The Bank of Tokyo-Mitsubishi UFJ
Credit Suisse
Dexia Credit Local
DZ Bank
Espirito Santo Investment
Fortis Bank Nederland
Natixis
Nordea Bank
Raiffeisen Zentralbank Oesterreich
WestLB
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