DEAL ANALYSIS: ACWA Power Barka refinancing


ACWA Power closed the refinancing of the $190 million in debt on its Barka independent water and power project (IWPP) in Oman on 12 November 2012. The $233 million in new debt refinances the existing loan, and funds an expansion that will add 45,600 cubic metres per day (cmpd) to the plant’s capacity. As a first for Middle East IWPPs, ACWA has managed to get banks to commit to tenors that exceed the length of the offtake agreement. The existing power and water purchase agreement (PWPA) ends in six years, while the new debt will not have to be fully repaid until 2024.

Barka is a power and desalination plant located 65km north of Muscat, and entered operations in early 2003. ANZ and Arab Banking Corporation (ABC) closed a 16-year $348.6 million financing for the plant in 2001. The debt was split between a $332 million term loan and a $16.6 million standby facility, with a margin of 115bp pre-completion, rising to 155bp over Libor in years 15 and 16.

The plant’s original sponsors put even more pressure on margins for the $170 million refinancing that they closed in 2006. Calyon (now Credit Agricole) was lead arranger on that deal, which reduced the debt pricing to 65-120bp over Libor. Arab Bank, ABC, Bank Dhofar, Bank Muscat, Bank of Tokyo- Mitsubishi UFJ, BayernLB, BNP Paribas, Calyon, Ersta Bank, Europe Arab Bank, Gulf International Bank, National Bank of Oman, Oman Arab Bank, Oman International Bank and Standard Chartered Bank were additional lenders on that deal.

ACWA bought a 51% share in the project from AES and IDB Infrastructure Fund in 2010, with Multitech and public shareholders retaining the rest of the equity. Bank Muscat, National Bank of Oman and ABC arranged this latest refinancing, which is structured to incorporate some merchant tail risk. Bank of Muscat & National Bank of Oman provided a $162 million loan for the refinancing, which matures on 30 April 2014 and is priced at 500bp over Libor, though swapped into a fixed rate.

The same banks also provided a separate tranche denominated in Omani riyals, which matures on 31 October 2024. This R16.6 million ($43 million) loan will fund the expansion. ABC contributed to the refinancing with a $28 million 8-year loan which was priced at 300bp over Libor.

The 2006 refinancing featured a 95% cash sweep, which started on 1 November 2012. The new facility allows the sponsors to remove this covenant, which would have resulted in an accelerated repayment of $80 million over the remaining term of the power and water purchase agreement, which ends in March 2018. The facility is relatively covenant-light and until March 2018 will be as sponsor-friendly as a corporate facility, whilst featuring a project finance security structure. It retains standard features such as a pledge of shares, but has no debt service reserve account.

At the end of the current PWPA with Oman Power and Water Procurement Company (OPWP) the debt will be subject to a financial covenant test. The sponsors will also need to present the details of any extension agreed with OPWP to the lenders. If the new PWPA still produces robust financial ratios then the facility will continue in its current corporate structure, but if not it will flip into a stricter covenant-heavy project finance structure.

The refinancing has also allowed for a $20 million re-leveraging. Shareholders, including public shareholders, have been able to avoid having to contribute additional equity to fund the expansion. Of the $20 million in additional proceeds from the releveraging, $16 million will be used on the expansion project and $4 million to meet development costs.

Barka trades on the Muscat Securities Market and this re-leveraging has allowed the sponsors to avoid resorting to a rights issue for the expansion. Public shareholders will also be happy with the continuity in distributions, because the project company will be able to make regular dividend payments during construction. The debt financing illustrates that local lenders, with a more optimistic view of the regulatory and economic backdrop to the country’s power sector, are able to offer more generous terms than international banks. But they will make sponsors pay for this flexibility. Even in a market where margins are creeping up, the spike on Barka is notable, if manageable in a low interest-rate environment.

The extra capacity is set to come online in October 2014 and construction is already underway. The expansion will add a 45,600 cmpd reverse osmosis facility to the existing 90,920 cmpd desalination plant. Abengoa is constructing the expansion and will be operations and maintenance contractor once it is completed. NOMAC, a joint venture between Sogex Oman and ACWA, currently operates the site. 

ACWA Power Barka SAOG

STATUS
Closed 12 November 2012
SIZE
$233 million
DESCRIPTION
Refinancing of 427MW/91,000-cubic metres per day facility and funding for 45,600 cubic metres per day expansion.
SPONSORS
ACWA Power, Multitech and public shareholders
DEBT
$162 million two-year dollar refinancing loan, $28 million eight- year dollar loan, and R16.6 million 12-year piece
LENDERS
Bank Muscat, National Bank of Oman and Arab Banking Corporation
OFFTAKER
Oman Power and Water Procurement Company
EPC AND O&M CONTRACTOR
Abengoa
SPONSOR LEGAL COUNSEL
Chadbourne & Parke
LENDER LEGAL COUNSEL
Milbank, Tweed, Hadley & McCloy
INDEPENDENT ENGINEER
PB Power