In January last year, Standard Bank joined forces with other international financial institutions and Palestinian banks to close a US$85mn syndicated structured project financing facility to enable the build-out of a new mobile phone network in Palestine.

The deal is one of the largest foreign direct investments made in the region, and the first cross-border agreement for the local Palestinian banking sector.

The overall project costs of the roll-out were US$285mn, which included a US$200mn equity investment. This was provided by Qatar Telecom (Qtel) (57%) and the Palestine Investment Fund (43%).

Of the remaining US$85mn, the facility was split into two tranches; one 3.5-year portion and one 7-year portion.

Both tranches feature a 2-year grace period to allow the project cash flows to ramp up following the launch of the network. This debt financing was provided by Standard Bank, IFC, Ericsson Credit, and local banks: Bank of Palestine, Commercial Bank of Palestine and Quds Bank.

This facility financed the import of Ericsson equipment and services, as well as associated local works. The Swedish Export Credits Guarantee Board (EKN) provided a political and 60% commercial guarantee for Standard Bank.

GuarantCo, a local currency guarantee fund, provided a partial commercial guarantee for the Commercial Bank of Palestine and the Bank of Palestine.

Given the range of funding sources in the transaction, including private commercial financing, local bank participation and multilateral support, the deal really is a first-of-a-kind transaction.

Nina Triantis, managing director, global head of telecoms and media at Standard Bank, elaborates: “The Wataniya Palestine Telecom project is a testament to Standard Bank’s extensive experience in structuring and arranging early stage financings in challenging geographies.

“Arranging a long-term non-recourse financing of a greenfield operation in Palestine was always going to be a challenging task, but using our knowledge and relationships with the vendor and the various international financial institutions we were able to utilise each of our partners’ strengths for the benefit of the project.

“The participation of the local banks, who had no previous international experience, was a watershed for the Palestinian financial sector and will prove valuable for other large-scale international financings in the region.”

Limited by their single obligor limits, the local banks were able to increase their ticket size in the transaction with the help of a credit enhancing guarantee from GuarantCo and became the majority lenders to the transaction, therefore making this a project supported heavily by the local Palestinian market.

Yet, not only was the financial structure of the deal intricate, the political environment in which the deal was closed also presented challenges.

Those involved had to deal with the issue that Palestine is not an internationally recognised state.

There were also a number of complex negotiations between Israeli and Palestinian authorities over the allocation of the frequencies required by the telecoms network. Furthermore, the movement of company personnel and goods in and out of Palestine was not always fluid.

The situation inevitably worsened upon the outbreak of armed conflict in the Gaza strip early last year. This presented very real obstacles to getting the deal completed. For instance, a lawyer representing a local bank involved, based in Gaza, was stranded in a bunker during the air strikes, and had to reach a UN building to find an internet connection to send his comments.

Local banks still got the deal done despite working from damaged buildings.

Ultimately the deal achieved its goal, comments Standard Bank’s Triantis: “Wataniya Palestine Telecom successfully launched in November 2009 and over 100,000 Palestinian mobile users are able to benefit from its high-quality network and innovative services.”
Deal information

Borrower: Wataniya Palestine Mobile Telecommunications Company
Amount: US$285mn (US$85mn debt facility)
Mandated lead arranger: Standard Bank
Co-lenders: IFC, Ericsson Credit, Bank of Palestine, Commercial Bank of Palestine and Quds Bank
Law firms: Norton Rose (lenders); Allen & Overy (sponsors)
Tenor: 3.5 years and 7 years
Date signed: January 19, 2009