Borrower Briefing

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Sep 26, 2016 - also expected to include separate sukuk and. ECA-backed fundraising – is rumoured to be around 325bp ov
26 September 2016

Borrower Briefing

Middle East gets Margin-Minded Two years ago a partially-ECA-backed deal for the $2.9 billion Dubai Metro extension project would have been unlikely at best. Today, every export and project finance bank is bidding for the mandate. The Dubai metro tender, by no means one of the largest in the Middle East, is symptomatic of the pressure Middle East government budgets are coming under since the slump in oil and related product pricing. For the first time many government agencies and corporates in the region are looking at borrowing to fund major projects, and in a bank market where the cost of long tenor debt has risen due to a combination of impending Basel regulation and lower Middle East borrower/sovereign credit ratings. Consequently, the Middle East has become the growth market for export credit cover and direct loans: The total volume of export credit backed lending into the Middle East for 2016 looks set to match that of 2014 and 2015 combined by the end of the year (see chart). Orpic’s Liwa Plastics financing at the beginning of the year set the tone, pulling in support from Sace, Atradius DSB, Kexim, KSure, Euler Hermes and UKEF. And a slowdown, predicted by some bankers midyear, shows no signs of happening. Major deals in the pipeline include Tahrir Petrochemicals Corporation’s $5.9 billion petrochemicals project in the Suez Special Economic Zone, which is expected to get backing from OPIC, US Exim, Sace and UKEF; ECA-backed loans for the $3-$3.5 billion combined debt facilities for the Alba Line 6 potline expansion in Bahrain; Acwa Power has also lined up a mix of development finance institutions and export credit agencies – including EDC US Ex-Im and OPIC - to finance its 2,250MW Dairut independent power producer (IPP) project in Egypt; and KNPC is in the market with an international tranche of around $7 billion – with potential ECA backing from Kexim, Sace, JBIC, UKEF and Atradius – for its refinery expansion project. The driving force behind all this is cost of debt. For example, the all-in pricing on Liwa Plastics was around 300bp over a 16-year term. The pricing on the $1.5 billion unsecured facility for Alba – part of its potline 6 fundraising, which is also expected to include separate sukuk and ECA-backed fundraising – is rumoured to be around 325bp over Libor for seven-year debt. But pricing is not the sole driver. Many ECAs are reacting to local borrower requirements.

UKEF has added a sukuk guarantee to its standard product range following its groundbreaking guarantee for Emirates’ Airbus financing last year. Sace is also developing shariah compliant products across its range of offerings as the market readies itself for a potential bonanza of deals from Iran. Similarly, Coface has just set up shop in the DIFC to cement its Middle East footprint. With more Middle East borrowers becoming familiar with ECA products, what has begun as a reaction to tightening liquidity and the increased cost of borrowing from regional banks, looks set to become a permanent and growing part of the Middle East market – even if pressure on budgets eases in the future.

To see more coverage of trade finance activity in the Middle East, or to access our market-leading database of verified trade finance transactions, take a trial of Trade Finance Analytics.

Talking shop – ECA comment ECA: BPI France Direct lending: €13 billion per year Guarantees: €10 billion per year Innovation soft loans: €1.5 billion per year Equity investment under management: €25 billion Equity Investment per year plus indirect: €1.5 - €2 billion Number of borrowers per year: 6,000 for firect lending, 40,000 short-term lending, 4000 for innovation financing, 1,000 for equity, 200 for export insurance, 900 for advisory services. On January 1 2017, French state export guarantees management will be transferred from Coface to BPI France, a state-owned lender to entrepreneurs. What will that mean for borrowers? Nicholas Dufourcq, Executive Director, BPI France "The big difference is that we now offer state guarantees rather than Coface guarantees – this is more efficient. We will also try and convince our stakeholders to decentralise a lot of decisions for SMEs – for example we do not need to submit all deals to all committees. That process will be facilitiated by having small offices across France with local knowledge, so that we go to the client rather than them coming to us. "SMEs are key to furture French exports. One SME out of two is not exporting, due to the fear of going outside of the contract. We evaluate the pressure on SMEs and try to disentangle them from their fear of the unknown – we want to give them the confidence to export. "In terms of export market growth, Africa has tremendous potential for the French economy. If we keep our current market share in Africa, in the next five years that would creat 400,000 jobs in Africa. There is also a big focus on Europe. "In short, we want to treble to volume of euros for export finance in three years and significantly simplify all the processes for SMEs."

Mandate mill A Japanese sponsor – rumoured to be Mitsui – is looking for financing for a $100 million-plus power project in Iran. Commodities traders Mercuria Asia Group Holdings and Mercuria Energy Trading have been giving presentations to lenders in Asia and the Middle East on a potential $900 million joint borrowing. Tenor and pricing have yet to be formalised, but the pairing last signed a joint fundraising in November 2015 when they raised $1.1 billion (from an initial amount sought of $900 million) comprising two one-year tranches and a three-year piece with the one-year paying a margin of 85bp and the three-year 140bp over Libor. China National Offshore Oil Corporation (CNOOC) has issued a request for proposals for around $1 billion of three-year debt to refinance part of the facility it raised in 2013 to fun its acquisition from BG of a larger stake in the Queensland Curtis LNG project in Australia. The original $3 billion deal, signed in September 2013, was self-arranged and comprised a $2 billion one-year tranche, which paid a margin of 80bp over dollar Libor, and a $1 billion five-year tranche with a margin of around 140bp over Libor. The funds were provided by ANZ, Bank of America Merrill Lynch, Bank of China, Barclays, China Construction Bank, Citi, Commonwealth Bank of Australia, Goldman Sachs, HSBC, Mizuho Bank and SMBC. Proposed pricing on the refinancing is roumoured to be considerably tighter than the 140bp margin on the 2013 deal. Norilsk Nickel is rumoured to be looking to refinance a $1.5 billion five-year pre-export financing with an unsecured loan before the pre-export deal matures in October. The financing for Eni's 3.4m tpa Coral FLNG scheme in Mozambique is due to be launched to banks and may be out to market as early as next month. The sponsors have been in talks with a pathfinder froup of ECAs and DFIs – including Coface, SACE, Kexim, Chexim and China Development Bank – since the start of 2016.

Top Stories Isbank raises $1.04bn trade finance facility Like all other recent Turkish bank trade finance borrowings, the deal includes a margin ratchet.

Vale quietly closes $1bn pre-payment loan The loan closed in June with a syndicate of banks taking the bulk of the exposure.

EuroChem refinancing very near to financial close Eurochem last came to the international loan market in September 2015 when it signed a $750 million four-year pre-export facility.

Al Zarqa CCGT nears financial close The project benefits from a 25-year offtake agreement with Jordan’s National Electric Power Company.

Banks bidding for Dubai Metro partial ECA-backed financing mandate Although bank appetite for the overall deal is high, according to a banker bidding for the mandate, the market may struggle to syndicate such a large uncovered commercial bank tranche.

News in brief Laos gets Chexim backing for Nam Ngum 4 hydro The project is located 30km from Paek district capital and is expected to take around five years to build.

Diana Containerships agrees debt restructuring with RBS Diana Containerships, which has 13 vessels, reported a net loss of $8 million in Q2 from $900,000 profit a year earlier. Charter revenue in the same period plummeted to $8 million from $17.3 million.

Chow Energy gets EXIM Thailand backing for solar projects The deal complements past EXIM Thailand loans to Chow Steel – which have supported construction of 47MW of solar farm capacity in Japan - and ups the borrower’s total solar power generating capacity in Japan to more than 70 MW.

Pemex mandates $1.25bn revolver refinancing The deal will refinance the three-year $1.25 billion revolver Pemex signed in October 2013.

NIB tops up Fortum Varme project debt The loan complements an earlier SKr1.4 billion borrowing from NIB, signed in June 2014, for the project.

GoviEX Uranium mandates financial advisory GoviEx Uranium has appointed Medea Capital Partners as financial advisor on a potential ECAbacked project financing for its Madaouela uranium project in Niger.

BOC Aviation syndicating up to $1.5bn revolver The initial amount sought is $1 billion split equally between three- and five-year tranches, however the total amount could rise to $1.5 billion subject to bank appetite.

OTE raises network upgrade funding via DFI/commercial bank loan OTE is rated Caa2(stable)/B+(stable) by Moody's and Standard and Poor's. Fitch withdrew its ratings for the telecoms firm in 2013.

Solaria raises $25m from IIC for Uruguay wind project State energy provider UTE has signed a 20-year power purchase agreement with the sponsor.

Frisa Forjados signs $50m ECA-guaranteed RCF BBVA committed $20 million, while the other lenders provided $10 million each.

More details emerge on MPS' Tema Port expansion financing MPS has awarded the marine construction contract to China Harbour Engineering Company (CHEC), while AECOM Professional Services (Ghana) will oversee the build.

CWP Renewables mandates financing for Sapphire Wind The project has a 20-year offtake agreement in place for 100MW of capacity to the Australian Capital Territory government at a tariff of A$89.10 per MW/h.

Bumbuna II PIM out to lenders by end of September Joule Africa has also launched a revised EPC tender based on a value-engineered design that cuts planned installed capacity from 202 MW to 140 MW while only reducing forecast energy by 1%.

Petrovietnam mandates ECA-backed financing for Long Phu 1 The project is the first phase in a 4400 MW coal power plant complex currently under development in Soc Trang province, Vietnam.

Scorpio Tankers closes $372m tanker refinancing The deal refinances debt on up to 20 product tankers and provides working capital.

People and places ABN Amro appoints new global head of ECT natural resources The natural resources team will focus on global market leaders in metal and mineral reserve extraction, chemical product manufacturing and the production of construction materials such as cement, asphalt, glass and bricks.

UKEF appoints new regional business development head Shah will report to David Ludlow, head of business development.

Mizuho appoints new EMEA head of export finance Lamey joins from BNP Paribas, where he served as head of export finance for Asia Pacific.

Chatterjee appointed Natixis head of syndication for global finance Americas He will report to Benjamin Sirgue, head of global finance at the French bank.

Daillencourt joins Asia Aviation Capital Daillencourt joins from GE Capital Aviation Services (GECAS) where he has spent the past 11 years, rising to executive vice president of financing operations.

Deutsche Bank expands Asia Pacific trade team Jae-Sun Rah joins the team as director and head of trade finance and working capital advisory for South Korea. Masahiro Goda has taken the same role in Japan.

Hill Dickinson hires partner from HFW Thomas joins from Holman Fenwick Willan, where she spent five years, having previously worked at Clyde & Co for four years.

Capannelli takes over at ADB Kazakhstan One of Capannelli’s first priorities in Kazakhstan will be overseeing the preparation of ADB’s new country partnership strategy for 2017-2021.

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