The biggest project financing of 2013 shattered multiple records on its way to being closed. Finbarr Bermingham explores the evolution of Sadara.


Upon completion in 2017, the Sadara mega-project in Saudi Arabia will be the largest industrial complex ever to have been built in a single phase and the biggest petrochemicals facility on the planet. And in terms of raw figures, Sadara’s financing is the most eye-catching to have closed in 2013 – by some distance.

With a total project cost of US$20bn, it’s the biggest project financing in Middle Eastern history. US$12.5bn of the total finance came in the form of debt, sourced both from capital and loan markets.

First, the project sponsor (Sadara is a joint venture between the US chemicals giant Dow and the Saudi state-owned oil company Saudi Aramco) launched a project finance sukuk, arranged by RBS and Riad Bank and placed with Alinma Bank, Al-Bilad Bank, Deutsche Securities and Riyad Bank, worth SAR5.25bn (about US$1.4bn), marking the first time a Saudi sukuk had been issued before other project debt had been arranged. But having been oversubscribed by a factor of 2.6, the bond closed at SAR7.5bn (US$2bn), making it the largest-ever sukuk of its kind.

The US$10.5bn in project loans and direct loans was sourced from banks and ECAs around the world and contained a number of notable ‘firsts’. US Exim issued a direct loan of just under US$5bn – the largest direct loan in the agency’s history. UKEF issued the largest-ever project finance facility in its history. The agency guaranteed a US$700mn loan issued by BTMU, HSBC, JP Morgan, Mizuho Corporate Bank and SMBC to a group of British contractors.

“We’d been in discussions with the Sadara sponsors for more than four years,” John Snowden, head of civil and defence projects at UKEF tells GTR.

The arrangement consists of 28 process units, 36 construction packages, a mixed-feed steam cracker and an aromatics plant – each of which could have been sold as a project financing in its own right. Given the labyrinthine nature of the project, the lengthy gestation period is perhaps understandable.

The evolution

Dow and Aramco initially signed an MoU in 2006, an agreement which would see Dow provide technology and knowhow, with Aramco bringing large volumes of high-quality feedstock to the table. ECAs were approached in 2011; a process Ben Shorten, partner at sponsors’ law firm Shearman & Sterling (advisor to Dow) says was notable for its sheer scale.

“We started off in the room with eight ECAs and one or two of those didn’t end up being on the financing for procurement reasons,” he tells GTR. “There were three or four representatives from each ECA, plus legal teams for the ECAs and sponsors. There were 65 to70 people in each meeting. We had six or seven rounds of meetings with ECAs to finalise a 300-word term sheet, so you could imagine the logistics around that.”

Given the stability and reputations of the sponsors, it was unlikely that Sadara would ever have had great difficulty attracting commercial debt. Indeed, the fact that the remaining US$7.5bn project cost was equity speaks volumes on the liquidity of both.

The project finance market has recovered from its 2009 nadir, but the project sponsors were likely in discussions with banks – through RBS and Riyad, the leads – since the MoU came into effect. By the time formal negotiations begun in 2012, the European banks were still in ‘recovery mode’ and so while liquidity was available, it was expensive.

Launching the sukuk before finalising the project finance was, according to Shorten, a bold and effective piece of financial foresight. “It was a complicated and drawn-out exercise of trying to mine the liquidity in the market, but at a price that suited the sponsors. That’s where the sukuk option came in. The sponsors wanted to use the bond to create some pricing tension with the banking market. Rather than do it simultaneously, they wanted to use it to exert some pressure on the banks.”

The result, says Sadara CFO Luciano Poli, was that the financing “has been obtained at very competitive pricing in a difficult market”.

Trickle down

Speaking to GTR in 2013, the head of global transaction banking at Saudi British Bank, Arup Roy said that “there is a conscious effort from government to expand non-crude exports; to diversify non-oil exports” – making particular mention of the petrochemicals sector. In this respect, Sadara promises to be a game-changer.

Installing a complex of this size would be a big deal for any economy – the plant will churn out 3.2 million tonnes of amine, ether, polyol, polyethylene and other petrochemicals every year. The installation of a facility such as this in a country with a petrochemicals industry as secondary as Saudi Arabia’s could prove to be transformative.

The new industrial city of Jebail on the Persian Gulf coast has been earmarked as a destination for a host of facilities that will piggyback on the output of Sadara. The complex will feed a multitude of downstream plants and industries around it, so rather than being viewed as a standalone initiative, it’s seen as something that will kick-start an entire industry.


The financing

Tranche one

Project finance sukuk

Date signed: April 2, 2013
Sponsors: Dow Chemical, Saudi Aramco
Financial advisors to sponsor: RBS, Riyad Bank
Law firms: Shearman & Sterling, Saudi Legal, White & Case, Milbank Tweed Hadley & McCloy, Allen & Overy
Participating banks: Alinma Bank, Al-Bilad Bank, Deutsche Securities, Riyad Bank

Tranche two

Project finance/direct loans

Date signed: June 17, 2013
Sponsors: Dow Chemical, Saudi Aramco
Financial advisors to sponsor: RBS, Riyad Bank
Participating banks: Abu Dhabi Commercial Bank, Alinma Bank, Apicorp, Arab National Bank, Bank Al-Jazira, Bank Albilad, Banque Saudi Fransi, Barclays, BNP Paribas, BTMU, Citi, Crédit Agricole, Deutsche Bank, Goldman Sachs, Gulf International Bank, HSBC, JP Morgan, KfW-Ipex, Mizuho, National Bank of Abu Dhabi, National Bank of Kuwait, National Commercial Bank, Qatar National Bank, Riyad Bank, Samba Financial Group, Saudi Hollandi Bank, Saudi Investment Bank, SMBC, Standard Chartered
ECAs/development banks: Coface, EDC, Euler Hermes, Islamic Development Bank, Kexim, K-sure, Saudi Public Investment Fund, UKEF, US Exim
Law firms: Shearman & Sterling, White & Case, Milbank Tweed, Hadley & McCloy
EPC contractors: Daelim Corp, Fluor Corp, Jacobs Engineering, Foster Wheeler, Linde, Tecnicas Reunidas SA, Maire Tecnimont.