Construction of deep-sea oil drill ships for Brazilian companies has led to a number of innovative financing structures. Petrobras initiated the deals via its PROMINP programme. Rebecca Spong takes a look at two deals closed under the scheme.
In 2003 the Brazilian government created its PROMINP programme with the aim of helping Brazilian companies become more competitive when bidding for roles in oil and gas projects in Brazil and abroad. Two years later, Petrobras launched a bid for national Brazilian companies to develop, construct and operate offshore drilling units on its behalf, with the aim of ensuring the winning bidders would comply with local content requirements.
It awarded five Brazilian companies longer-term charter and services contracts to operate seven deepwater rigs: Petroserv, Schahin, Queiroz Galvao, Odebrecht and Delba.
WestLB has won mandates to arrange four out of seven rigs and closed one of these, an US$800mn financing for Schahin, at the end of October.
Working with fellow mandated lead arrangers and bookrunners Mizuho, HVB and Standard Chartered, it arranged a 10-year senior secured term loan for Black Gold Drilling to finance construction and operation of two deep water semi-submersible drilling platforms.
It closed oversubscribed, raising over US$1bn, and received commitments from 15 international institutions. Among the syndicate was IFC.
Speaking to Thomas Friebel, managing director, head of loan syndications – Latin America, at WestLB, the involvement of IFC was not necessarily needed from a risk mitigation point of view, but it reflects the growing tendency of multilaterals to aggressively expand their mandate.
Project sponsor Schahin is a Brazilian construction firm, active across many sectors including oil, gas and infrastructure. The vessels are being built in a Chinese shipyard, Yantai, and two fixed-price EPC contracts have been signed with Yantai Raffles Shipyard of Singapore.
Due to the Chinese elements, the transaction attracted several Chinese banks. However, it has also meant lenders had to handle a perceived heightened risk of dealing with a relatively unknown Chinese shipyard.
Friebel explains: “As the fundamentals in Latin America are so strong, it is much more critical to get your hands around the construction risk. Particularly when you talk about doing a 3.5-year construction phase in China in a shipyard lenders aren’t that familiar with. This is the challenging aspect of the transaction as you have to do increased due diligence on the performance risk.”
Claus Hertel, executive director, Latin America at WestLB, adds: “Basically there are three risks. The first is the construction risk in China. The second is the operating risk of the Brazilian operator of the platform. The third is Petrobras payment risk.
“Banks are generally comfortable with the last two risks in the Latin American market. However, with regards to the first, by using Sinosure credit enhancement and letters of credit, banks managed to get their arms around this kind of risk.”
During the riskier construction phase, lenders are set to benefit from a US$80mn completion letter of credit to be provided by an international investment grade-rated bank, EPC contract terms including two performance bonds issued by Sinosure for 10% of the value of the EPC contracts, delay liquidated damages for 5% and retention payments equivalent to 15%, and a completion guarantee from Schahin Engenharia and a comfort letter from ultimate shareholders.
The Delba transaction
Acting as lead arranger, underwriter and sole bookrunner, WestLB is set to close a further transaction, a US$488mn senior secured credit facility for Delba Drilling International Cooperative, to finance construction and operation of a semi-submersible offshore drilling rig. Signing was due in early November.
This deal did not face the same construction risk as Schahin, as the vessels are being constructed at a well-known Abu Dhabi shipyard owned by Gulf Piping Company. EPC contracts have been signed with Single Buoy Moorings (SCM).
Hertel adds: “It is a very strong and well-known shipyard, an equivalent of an investment grade company. Lenders have no problem with the construction risk. However, the risk with Delba is that it is a small project, and the question is whether they have the ability to operate the platform correctly.”
Delba is an experienced, but relatively small operator in Brazil. As yet, they do not have the financial record to get any equity. As financial advisor, WestLB has arranged for MPC Capital, a Germany-based fund to provide financial equity for the project, and placing it in the German KG market, a key source of global ship financing.
The deal also brought in the Inter-American Development Bank (IADB) under its A/B loan facility. The IADB provided a US$100mn ‘A” tranche, and the rest was syndicated out to commercial banks.
Delivery by the shipyard is expected to be June 1, 2010, and commercial operations are set to commence no later that August 11, 2010.
Total project cost:
MLAs: WestLB, Mizuho, HVB, Standard Chartered
Debt amount: US$800mn
Tenor: 10 years
Pricing: Libor plus 200-250bp pre-completion; 200bp post completion
Shipyard: Yantai (China)
Total project cost:
Debt amount: US$438.94mn
Tenor: 10 years
Pricing: Libor plus 238bp, moving up to 250bp post completion
Shipyard: SBM (Abu Dhabi)
Additional lenders: IADB (providing US$100mn ‘A’ tranche). DVB, Dexia, KfW, Depfa, Natixis, Itau BBA, Nordkap, Caterpillar Financial and CIFI