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Middle East

CASE STUDY: Financing the Largest Single Tendered IPP in Oman

Despite the economic downturn in Oman, Mitsui & Co, ACWA Power and Dhofar International Development and Investment Holding Corporation (DIDIC) were able to secure a US$1.375bn dual-currency non-recourse project financing package at competitive prices for the largest single tendered IPP in the country to date.

Dec 7, 2016 // 10:22AM

Deal At A Glance

Deal Type: Loan

Deal Structure: Limited Recourse Project Finance Loan

Borrower: Ad Dhahirah Generating Company (Ibri), Shinas Generating Company (Sohar 3)

Concessionaires: Oman Power and Water Procurement Company (OPWP)

Sponsors: Mitsui & Co, ACWA Power, Dhofar International Development and Investment Holding Corporation (DIDIC)

Governing Law: UK Law

MLAs: Bank Dhofar, Bank Muscat, BNP Paribas, KfW IPEX-Bank, Mizuho Bank, MUFG, SMBC, Standard Chartered Bank

Security Agent (Ibri): BNP Paribas

Security Agent (Sohar 3): MUFG

Technical Advisor: Poyry

Environmental Advisor: 5 Capitals

Model Auditor: BDO

Broker: Marsh

Lenders Insurance Advisor: Indecs

Legal Advisors to Borrower: Allen & Overy, Trowers & Hamlins

Legal Advisor to JLMs: Shearman & Sterling, Al Busaidy Mansoor Jamal & Co

Size: US$1.375bn

Issue Date: June 2016

Maturity dates: June 2033

Yield: Confidential

Use of Proceeds: To develop two CCGT plants

Background

The overall objective was to win the tender for and co-finance the development and construction of the Ibri IPP and Sohar 3 IPP, two greenfield CCGT power plants in Oman of 1,509MW and 1,710MW respectively, and raise non-recourse long-term financing to support this.

The tender was submitted in August 2015 and results were released in December that year, with the financing agreements signed in June 2016. During this period, Oman faced significant tightening of credit and multiple downgrades of its sovereign rating.

The project tender by OPWP had no requirements for committed financing, and the sponsors raised more commitments than required at the bid stage, ensuring that pricing, commitments, risk allocation and key financing provisions were locked in at that point in the process, minimising uncertainty towards the close of the deal.

Despite the economic downturn in Oman, the sponsors were able to ensure the financing was achieved without compromising on pricing and key lending terms.

Transaction Breakdown

The transaction, which was achieved on a fully commercial basis, included the non-recourse project financing of two separate IPP projects with an overall capacity of 3.2GW, housed in two SPVs, and awarded under a single tender.

The sponsors originally approached 18 international, regional and local banks on a commercial lending basis, and secured a banking group of 10 lenders for the transaction. The financing was achieved with no change to debt pricing from the initial commitment despite the tightening liquidity environment.

The tenor of the loan extends to the end of the PPA term and includes a substantial balloon amount that is payable on maturity. The credit support for the balloon is structured on a non-recourse basis, a unique feature given the precedent on other IPPs in the region in the post-2009 credit crisis.

The senior financing was structured on a limited recourse basis utilising both US dollar and Omani riyal liquidity. The project also required significant levels of development security, early generation revenues and foreign exchange hedging, all of which were structured with no recourse to the sponsors. Sponsors were able to attract strong participation from Omani lenders despite the lack of a local mechanism for fixing interest rates on longer tenor debt.

The deal involved various challenges in terms of converging on a bankable risk allocation framework that met the unique requirements of OPWP and the Omani Ministry of Gas. This included the structuring of a mitigant to the fuel charge payment risk under the PPA.

The project is of significant socio-economic importance for Oman. The Ibri and Sohar 3 IPPs would together contribute about 35% of the installed capacity in the main interconnected system of Oman on commissioning in 2019, and will allow for older less efficient plants to be decommissioned.

Middle East Energy

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