Uz-Kor Gas Chemical signed a $2.54 billion financing onfor the construction of its Ustyurt gas in north-western Uzbekistan. Uzbekneftegaz (UNG), the national oil company of Uzbekistan owns half of the borrower and a consortium of South Korean sponsors – Korea Gas Corporation, Honam Petrochemical and STX Energy – owns the rest.

The debt, which signed on 19 May, is noteworthy for the size of the debt raised, split between thirteen lenders, across eight separate facilities, and involves a mixture of ECA, multilateral and commercial bank support. The deal is only the second petrochemicals project financing in the CIS region to close and the first to do so with sponsor contingent support, rather than a full completion guarantee.

The project, which has a mixture of upstream and downstream elements, will include gas production wells with a 2.3 million tonnes per year (tpy) capacity, product pipeline and delivery infrastructure and a gas separation plant and chemical complex. Around two-thirds of its feedstock requirements will come from the Surgil field, with the remaining third coming from other UNG-owned fields such as East Berdakh and North Berdakh.

Once constructed, Uz-Kor will produce 1.7 million tpy of natural gas for sale in the domestic market and 380,000 tpy of high-density polyethylene and 80,000 tpy of polypropylene for sale in the export market. Uz-Kor has signed long-term offtake contracts for its production, which are understood to comprise agreements with the project sponsors.

When the joint venture was formed in February 2008, the sponsors also had to deal with an unsupportive legal framework, which dated to the Soviet era. A series of presidential decrees in February 2008 and August 2009 provided the initial legal framework for investments in big-ticket projects like Surgil.

On 11 February 2010, the government of Uzbekistan, the consortium of Korean companies and the project company signed an investment agreement in Seoul, which outlined the framework of the financing for the Ustyurt project. On 15 April 2011, they then signed a supplementary agreement.

The sponsors had already started informal discussions with the two Korean ECAs, Kexim and K-Sure, as well as the Asia Development Bank. By September 2011 the sponsors had signed a detailed term sheet, which became an umbrella common terms agreement for the eight separate facility agreements.

The deal closed through $1.175 billion in direct loans from the National Bank for Foreign Economic Activity of the Republic of Uzbekistan (NBU), China Development Bank (CDB), ADB and Kexim, and $1.365 billion in ECA-covered debt from nine banks.

The deal breaks down into eight separate facilities: a $100 million loan from NBU, a $400 million loan from CDB, a $125 million loan from ADB, a $550 million loan from Kexim, an $800 tranche guaranteed by K-Sure, a $450 million Kexim tranche, and then two smaller tranches, which total $115 million, covered by two European ECAs, Euler Hermes and EKN. The four ECAs are providing both political and commercial risk insurance. The commercial lenders on the covered facilities were Korea Finance Corporation, Korea Development Bank, ING, BayernLB, Credit Suisse, KfW-IPEX, Nordea, SEK, and Siemens Bank

Each of the facilities has a maximum tenor of 16 years, except the ADB direct loan, which has a maximum maturity of 13 years in accordance with the multilateral’s lending policy. The target repayment schedule under the base case model is 15 years for seven of the facilities and 12 years for the ADB loan. An additional year for full amortisation would occur in case of an increase in operating costs for one year.

The sponsors are also providing an undisclosed amount of contingent equity. This is not factored into the base case model but would be used to cover any cost overruns. This complements a six-month debt service reserve account. Lenders apparently felt comfortable with the absence of any completion guarantee because of the robust terms on offer from the four engineering, procurement and construction contractors.

The sponsors are providing roughly $1.4 billion to round out the project’s financing requirements, through a mixture of equity and subordinated shareholder loans. The gearing on the project is thus about 65%, which was kept conservative to maintain lender comfort.

The initial phase of construction will be financed through equity with debt drawdown to occur at a later date. Some preliminary work on the site has already taken place, but full construction will start once the EPC contracts have been issued, which is expected imminently. Operations are due to start in early 2016. 

Uz-Kor Gas Chemical
STATUS
Financing signed 19 May 2012
SIZE
$3.94 million
DESCRIPTION
Gas chemical complex in Surgil, north-western Uzbekistan
SPONSORS
Uzbekneftegaz, Kogas, Honam Petrochemical, STX Energy
MANDATED LEAD ARRANGERS
KFC, KDB, ING,BayernLB, Credit Suisse, KfW-IPEX, Nordea, SEK, Siemens Bank
OTHER LENDERS
NBU, CDB, ADB, Kexim
ECAS
K-Sure, Kexim, Euler Hermes, EKN
SPONSORS’ LEGAL ADVISER
Vinson & Elkins (replaced Dewey & LeBoeuf)
SPONSORS’ FINANCIAL ADVISER ING
LENDERS’ LEGAL ADVISER Norton Rose
SPONSORS’ LOCAL LEGAL ADVISER Leges Advokat
LENDERS’ LOCAL LEGAL ADVISER Colibri Law
SPONSORS’ ENVIRONMENTAL ADVISER
Mott McDonald
SPONSORS’ INSURANCE ADVISER Willis
SPONSORS’ TAX ADVISER PwC
LENDERS’ TECHNICAL ADVISERS
DeGoyler and MacNaughton, Nexant, IHS CERA
LENDERS’ ENVIRONMENTAL ADVISER Aecom
LENDERS’ INSURANCE ADVISER JLT
LENDERS’ MODEL AUDITOR
Ernst & Young EPC CONTRACTORS
GS Engineering & Construction, Samsung Engineering, Hyundai Engineering, Uzbekneftegaz