January 31, 2011 / 12:22 PM / 9 years ago

PFI - Egypt's US$3.6bn refinery finance delay

* Deal due to sign today delayed * Deal involves a host of foreign contractors and lenders

By Rod Morrison

LONDON (Project Finance International) - The signing of the US$3.6bn Egyptian Refinery Company (ERC) financing, due today to meet a key project deadline, has been delayed. The contractors and the lenders will now have to decide whether to stay with the scheme and extend a waiver on the financing which runs out today.

The multinational project has had a protracted route to financial close and now the political crisis in the country has added further complexities. The deal achieved a commercial close in August 2010, after a four year development phase. The deal was then due to go to a full financial close last autumn but was held up by various changes on the equity side of the financing with more local government-backed institutions joining the financing.

The contractor and the debt funders agreed to a waiver on the financing to allow time for the equity changes to be made. This runs out today. Before the crisis erupted the feeling was today’s deadline might not be meet but the deal would be signed soon after.

The scheme was put together by local private equity firm Citadel Capital. It appointed a South Korean/Japanese joint venture GS (078930.KS)/Mitsui (8031.T) to build the plant and arranged a US$2.35bn debt financing from Korean, Japanese and European institutions to finance the scheme. The rest of the cost comes from equity.

The GS/Mitsui team has a 36 month, fixed price construction contact on the deal. The political situation will add to the risks on this contract, if it was signed. As part of the deal Mitsui will provide US$200m as part of the debt finance package.

The debt is being provided by multilateral agencies including Kexim from South Korea, JBIC/Nexi from Japan, the African Development Bank and the European Investment Bank. The commercial banks on the deal are Bank of Tokyo Mitsubishi, local bank CIB, Credit Agricole, HSBC, SG, Alhi United, Espirito Santo, KBC, KfW-Ipex, Sumitomo Trust, Standard Chartered and WestLB.

Given the amount of time spent on scheme, those involved are unlikely to walk now. The banks have already been paid fees on the scheme. However two of the 12 commercial banks in the deal - Espirito Santo and KBC - have since August pulled away from the international project finance market.

The scheme is important to Egypt as it will reduce the country’s import bill. The scheme will take light products and fuel oil from Egypt General Petroleum Company’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.

rod.morrison@thomsonreuters.com - www.pfie.com

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