INSIGHT: Sadara loan agreement wins plaudits all round

21 June 2013 16:55  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--“This was as big and complicated as it gets,” law firm Milbank, Tweed, Hadley & McCloy, advisers to all the lenders in the $12.5bn second phase financing package for the giant Sadara project in Saudi Arabia, said on Monday.

The Sadara project, between Saudi Aramco and Dow Chemical, moved up a step with the $10.5bn of financing agreements struck with a group of export credit agencies and other public and commercial lenders.

Contracts have already been awarded for individual production units, for site infrastructure, process control and other aspects of the venture which will be based on a mixed feed cracker. The partners have an ambitious timetable for the single-phase project, with the first units due on stream in 2015 and the entire project scheduled for completion at the end of 2016.

Sadara is big in more ways than one and built on big ambitions. Some of the products in the broadly-based integrated venture do not yet have a ready market in the Kingdom. But they will be feedstocks for downstream industries which have yet to be built.

The Milbank deal team also acted as international counsel to the joint lead managers of Sadara’s earlier US $2bn (€1.52bn) Sukuk issue agreed in April, which was amongst the world’s largest project bonds.

“It took a high level of cooperation by the lenders, the sponsors and all of the legal teams involved and shows that even the most complex, multi-sourced financings can be accomplished on schedule when the parties are committed to doing so,” said Milbank Project Finance partner Phillip Fletcher.

The project partners also welcomed the agreement on the major part of financing for the single phase project.

“Securing the financing for this historic project is the achievement of a significant and critical milestone,” Dow chairman and CEO Andrew Liveris said.

“Sadara is a cornerstone of Dow’s growth strategy. The joint venture will introduce a differentiated product slate from a competitive, low-cost position which will transform the landscape of our industry and the chemicals and plastics sector in Saudi Arabia.”

The investment is expected to provide a competitive cost position for the joint venture company, Dow’s CFO Bill Weideman said. The financial close of the project is expected in the third quarter of this year.

"These financing agreements demonstrate the significant progress that Sadara has made since we signed the JV agreement with our partner Dow in 2011," said Saudi Aramco president and CEO Khalid Al-Falih.

"The strong response from the lenders demonstrates confidence in Sadara and in its capabilities as it moves forward to start up in 2015. As the project execution moves ahead, I’m more confident than ever in the future of this bold venture, which will become a significant cornerstone of Saudi Aramco's ambitious downstream growth strategy as well as contributing to the Kingdom’s economic diversification and job creation aspirations," he added.

Seven years after being revealed publicly the project, now planned for Al-Jubail on the Kingdom’s east coast, will include the cracker and aromatics units.

The integrated hydrocarbon and chlorine based complex will include 26 manufacturing plants and three on-site third party units as well as extensive supporting infrastructure.

The 3m tonnes/year product slate will include amines, glycol ethers, isocyanates, polyether polyols, polyethylene, polyolefin elastomers and propylene glycol, according to Sadara.

The products are expected to enable development of the downstream conversion industry in Saudi Arabia.

Capital costs are put at $19bn with the first production units due on-stream in the second half of 2015 and all units on-stream in 2016.

The structure of financing package shows how involved international contractors will be in the project.

Seven export credit agencies were involved in the financing, including COFACE of France, Eurler Hermes, from Germany, FIEM of Spain, K-Exim and K-sure from South Korea, UK Export Finance, and the US Ex-Im Bank.

“The lenders included Saudi Arabia’s Public Investment Fund, as well as Saudi and international commercial banks and Islamic institutions participating in [Shariah-compliant] Wakala and Procurement facilities,” said Milbank Partners.

The US-Exim bank has lent $4.975bn to Sadara, agreed in September last year, the largest loan in the bank’s history.

The bank said in April that the loan would support more than 18,000 American jobs with $600m of the for goods and services from small companies. Included with the approximately 70 American exporters involved in the transaction were, alongside Dow, KBR, ABB Inc, and Fluor.

Sadara won the banks’ 2013 Deal of the Year award.

"No other transaction in Ex-Im Bank's history has supported as many American jobs and no other single transaction has provided so much support to small businesses, said bank chairman and president Fred Hochberg.”

($1 = €0.75)


By: Nigel Davis
+44 20 8652 3214



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