BNP Paribas, Gulf International Bank and Samba Financial Group signed a US$3.443bn financing in May 2007 in support of the largest independent power and water desalination project finance transaction in the world to date.

As well as its size, the diverse range of funding sources and the conditions of its financing makes this deal stand out in the market. It also features the longest tenor achieved on a debt facility in Saudi Arabia, as well as the longest tenor for an Islamic financing and an equity bridge loan.

The project is led by sponsors Suez Energy International. The plant will be built in Jubail, northeast Saudi Arabia, with the aim of meeting the high demands of Saudi Arabia’s largest industrial city.

Given the size of the deal, the financing required complex structuring and a varied range of financing sources. The package incorporated an Islamic tranche, export credit agency (ECA)-backed tranches, commercial debt and equity.

For BNPP the deal broke new ground in terms of the successful collaboration between the bank’s project finance group and a number of other teams, especially export finance, syndications, fixed income and agency teams.

The project was also oversubscribed with 29 banks taking part, as well as the three MLAs.

Roland Kahale, head of power (emerging markets) energy and commodities structured debt – EMEA, at BNP Paribas comments: “The transaction was almost twice oversubscribed. This shows that the banks are now comfortable with the proposed structure of risk allocation in Saudi Arabia despite the complex jurisdictional environment.

“The success is also a result of the presence of strong and competent sponsors working with reputable EPC contractors.”

The deal is split into US$2.947bn of debt facilities and US$496mn in equity. The debt is then divided into a US$2.172bn (plus US$46mn standby) including a US$600mn Islamic facility, a Korean Export Insurance Corporation (KEIC) guaranteed facility of US$645mn and a debt service reserve account (DSRA) facility of US$130mn. KEIC is covering both political and commercial risk. The bank facility carries a 22-year tenor and the KEIC-backed deal has a 17-year tenor.

The Islamic tranche has been arranged by Riyad Bank, Al Rajhi Bank and National Commercial Bank. The DSRA facility has been arranged by Gulf International Bank.

Kahale remarks: “The transaction demonstrated that a large Islamic tranche could be smoothly implemented with a large ECA tranche and that there is high liquidity and appetite of Saudi banks in the local IPP/IWPP sector.”

Suez, alongside the Saudi ACWA group and Gulf International Corporation (GIC) have a 60% stake in the project company. A further 30% is attributed to Marafiq, 5% to Saudi Electricity Company and 5% to Saudi Public Investment Fund.

Deal Information:

Borrower: Marafiq Independent Water & Power Plant
Amount: US$3.443bn
Mandated lead arrangers:
BNP Paribas; Gulf International Bank; Samba Financial Group
Sponsors: Saudi ACWA; Gulf International Corporation; Marafiq Power and Water Company; Saudi Electricity Company; Saudi Public Investment Fund
Tenor: 17-22 years
Date signed: May 2007