PFI - Egyptian Refinery seeks equity

LONDON (Project Finance International) - Egyptian Refinery Company (ERC) is seeking to raise equity for its US$3.5bn scheme. The scheme requires US$1.2bn in equity and mezzanine and US$2.25bn in debt. The construction contract with the GS/Mitsui South Korean/Japanese joint venture team for the new refinery will cost US$2.1bn.

Project developer Citadel Capital will hold 8% of the US$1bn equity. State-owned oil company EGPC will hold 15% with half paid upfront. Mitsui will hold the US$200m of mezzanine, which is priced at about 300bp and rolls up for eight years.

The scheme will take light products and fuel oil from EGPC’s Cairo Oil Refinery Company (CORC) and crack then into valuable light products such as diesel, fuel oil, jet fuel and naphtha, to be sold back to EGPC under a take-or-pay contract with prices based on international norms. ERC is predicting a net refining margin of US$19 a barrel on its base case and US$13 on its low case. Ebitda is set at US$700m pa for the first four years with a base case IRR at 22% based on an average debt service cover ratio of 2.5x.

The base case has a feedstock fuel oil price of US$64 per barrel and revenues of US$87.6 with an operating cost of US$4.60. The low case has a feedstock cost of US$40 and the same operating margin.

The main part of the debt is expected to come from JBIC and Nexi with 40%. Kexim will provide 30% and the rest will come from the European Investment Bank (EIB) and African Development Bank (AfDB). The EIB tranche could increase, however, to 750m euro and requires the funding banks to take commercial but not political risk.

The export credit-linked debt will run for 17 years but will be pushed back to 14 years through a cash sweep. The EIB debt will run for 15 and 12 years. SG is advising on the financing. BTMU has been appointed documentation and co-ordinating bank; HSBC market and modelling bank; Credit Agricole CIB technical and environmental bank; and CIB local co-ordinator and onshore agent.