DEAL ANALYSIS: Dolphin Refinancing


Dolphin Energy’s sponsors exploited a temporary easing in Eurozone-related jitters to execute a lightning bond refinancing, thus allowing the Mubadala-backed project company to pay down almost all of the $1.42 billion bank tranche that the project company closed in July of 2009. The Abu Dhabi-based project company produces and processes natural gas from Qatar’s offshore North Field before transporting it by subsea pipeline to the UAE and Oman.

There was little delay in implementing the February decision of project sponsors Mubadala (51%), Total (24.5%) and Occidental (24.5%) to go ahead, as the documentation for the 144A issue had been completed in June. But the sponsors had already delayed the refinancing until the New Year as the Eurozone crisis deepened throughout the second half of 2011.

Refinancing of the bank tranche had been on the cards when the original deal closed in July of 2009, at the height of the credit crunch, because the debt was subject to high pricing and a short tenor. The overall $4.1 billion of refinancing included a sponsor loan from Total and Occidental of $1.2 billion and a $218 million Sace-insured facility. The facilities were structured with an average tenor of just over five years and pricing began at 275bp over Libor, before stepping up to 350bp. By contrast, the international bank tranche of the $8.5 billion loan to Saudi Aramco and Total’s SATORP project, which closed in October of 2010, was priced at just 150bp points during construction before stepping up to 190bp.

Demand for the initial $1 billion in fixed-rate bonds issued by Dolphin was exceptionally strong, with orders of $8.6 billion prompting a further issuance of $300 million, which attracted orders of $2 billion. BNP Paribas, Royal Bank of Scotland, Mitsubishi UFJ, Societe Generale and Abu Dhabi Commercial Bank were bookrunners for the issue, which matures in 2021.

The high level of demand resulted in the bond tightening to 5.5%, from an indicative yield of 5.75% when it was launched. The bond was priced at 101.25% of par to yield 5.336% or 332bp over the equivalent Treasury. US-based investors accounted for 49% of the bonds’ buyers, while 24% were purchased in the UK, and 9% were purchased in the rest of Europe

A confluence of macroeconomic and market factors boosted demand for the bond, which benefited from a brief lull in fears surrounding a possible disorderly Greek default, as well as Eurozone banks’ take-up of $620 billion in cheap loans from the ECB in mid-December. “We had the luxury of the perfect window,” says Derek Rozycki, Mubadala’s executive director of structured finance and capital markets. “Back in June, there was a crisis in both Greece and the wider Eurozone ... The first week of February saw a lot of positive economic news, which led to a rally in credit and equity markets. There was relative tranquillity with the situation in Greece, which enabled us to hit a sweet spot in the market.”

“Back in June, there was a crisis in both Greece and the wider Eurozone ... The first week of February saw a lot of positive economic news, which led to a rally in credit and equity markets. There was relative tranquillity with the situation in Greece, which enabled us to hit a sweet spot in the market.”

Rozycki describes the take-up on Dolphin as a “flight to diversity and quality”. Dolphin benefited from being the first issuer of high- grade debt in the Gulf this year. Rated A1 by Moody’s, the bond preceded a heavily- oversubscribed $1 billion bond issue from Qatar National Bank, while more Qatar- based debt is expected to hit the market by the middle of the year.

The refinancing also benefited from the support of AA-rated (S&P) Mubadala as well as market perceptions that the project’s future cash flows would be transparent and consistent, because a substantial proportion of project revenues is subject to oil price-indexing and offtake agreements. The pipeline transports 2 billion cubic feet per day of refined methane gas from Qatar. Although further development of the

North Field is still subject to a moratorium announced in 2005 by the Qatari authorities, the company is currently in talks with third party gas producers about transporting more gas through the pipeline, which could transport up to 3.2 billion cubic feet per day.

Rozycki suggests that the Dolphin Energy bond issue could provide a model for the future of project finance and the recycling of bank liquidity. “With the stresses and new rules that the banks will see, there is a real need to get the project bond market activated,” he says. “The three pillars of that market are coming together. There is supply from sponsors, investors actively pursuing these trades and there are a dozen banks out there now with dedicated project bond desks.”

Mubadala has not held any discussions concerning further bond issues, and Rozycki says. “We’re not contemplating anything right now and I wouldn’t expect that,” he says, when asked if more issues can be expected later in the year.

Dolphin Energy Limited
STATUS: Initial issue priced 7 February, additional tap priced 9 February
SIZE: $1.3 billion
DESCRIPTION: 144A refinancing of gas pipeline that runs between Qatar, the UAE and Oman
SPONSORS: Mubadala (51%), Total (24.5%) and Occidental (24.5%)
DEBT: $1.3 billion in bonds due 2021
BOOKRUNNERS: BNP Paribas, Royal Bank of Scotland, Bank of Tokyo-Mitsubishi UFJ, Societe Generale and Abu Dhabi Commercial Bank
ISSUER LEGAL COUNSEL: Shearman & Sterling
UNDERWRITERS’ LEGAL COUNSEL: Sullivan & Cromwell