The first true non-recourse project financing and the first international oil and gas deal in Uzbekistan, the $3.9 billion project breaks with what has become conventional bank thinking since 2008 – start with a small template deal in an untested, non-investment grade country.

Project company Uz-Kor Gas Chemical is a 50/50 joint venture between state-owned Uzbekneftgaz (UNG) and Kor-Uz Gas Chemical Investment (which is itself owned 49% by Korea Gas Corporation, 45% by Honam Petrochemical and 6% by STX Energy), the deal is remarkable both for the $2.54 billion of debt raised for a project in a market with no track record, and because that debt comes with a 16-year tenor (inclusive of 3.5-year construction period) – the longest-dated debt to date for a downstream project in the former Soviet Union.

Official agencies are meeting the entire debt requirement, either in the form of direct loans or cover for commercial bank commitments, and the deal sets new benchmarks for cooperation on future DFI-backed projects in both Uzbekistan and Central Asia. The multi-sourced debt comes from 16 different lenders, features the biggest Korean export credit agency facility for any project to date (a $1.8 billion commitment) and is the first time Korean, European, Chinese and Uzbek lenders have shared the same project financing documentation.

The project comprises both upstream and downstream elements, and features Samsung, GS and Hyundai as engineering, procurement and construction contractors under true lump-sum turnkey contracts with no completion guarantees from the shareholders.

The upstream facilities involve drilling gas production wells at the Surgil field, with a 2.3 million tonnes per year (tpy) capacity, and building delivery infrastructure that includes a gas treatment unit and gas/condensate pipelines. Around two-thirds of the project’s feedstock will come from the Surgil field, with the remainder from other UNG-owned fields such as East Berdakh and North Berdakh.

The downstream elements – the Ustyurt Gas Chemical Complex – involve development of a gas separation plant, cracker, high-density polyethylene (HDPE) plant, polypropylene (PP) plant and associated infrastructure.

The output of the project is expected to be around 1.7 million tpy of natural gas for sale in the domestic market and 380,000 tpy of HDPE and 80,000 tpy of PP for sale in the export market. Uz-Kor has signed long-term offtake contracts with UNG for gas, condensate and gasoline residual sales, and with Honam, Samsung C&T and UNG for HDPE and PP.

The financing combines eight separate facilities – four ECA-covered tranches amounting to $1.365 billion and four ECA/multilateral direct loans of $1.175 billion in total. 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. Thus gearing on the project is around 65/35.

The $1.175 billion in direct loans came from the China Development Bank (CDB), ADB and Kexim, and $1.365 billion in ECA-covered debt from nine banks. The direct loans comprise $100 million from National Bank for Foreign Economic Activity of the Republic of Uzbekistan (NBU), $400 million from China Development Bank (CDB), $125 million from ADB and $550 million from Kexim.

The ECA-covered debt features an $800 million tranche guaranteed by K-Sure with Korea Finance Corporation providing $500 million, KDB $225 million, Credit Suisse $50 million and ING $25 million; a $450 million Kexim tranche with ING, KDB and Siemens Bank providing $75 million each, SEK $40 million, Credit Suisse $25 million and BayernLB $10 million; a $124 million Euler Hermes tranche with KfW-IPEX providing $64 million and BayernLB $60 million; and a $140 million EKN tranche with Nordea providing $60 million, ING $60 million and SEK $20 million.

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 ADB 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 is available in case of an increase in operating costs, thus giving the project repayment flexibility.

Potential cost overruns are also covered with an undisclosed amount of contingent equity that is not factored into the base case model, and a six-month debt service reserve account.

None of the financial engineering in Uz-Kor is new, just new to Uzbekistan. But that should not detract from the deal’s achievements. Closing a true non-recourse financing in a country without a basic project legal framework until 2009 is significant both for Uzbekistan and beyond its borders. 

Uz-Kor Gas Chemical
STATUS
Financing signed 19 May 2012
PROJECT COST
$3.94 billion
DESCRIPTION
First true non-recourse and petrochemicals project financing in Uzbekistan
SPONSORS
Uzbekneftegaz, Kor-Uz Gas Chemical Investment
(Kor-Uz is owned by Kogas 49%, Honam Petrochemical 45%, STX Energy 6%)
FINANCIAL ADVISER
ING Bank
MANDATED LEAD ARRANGERS
Korea Finance Corporation, KDB, ING, BayernLB, Credit Suisse, KfW-IPEX, Nordea, SEK, Siemens Bank
DFI DIRECT LENDERS
NBU, CDB, ADB, Kexim
ECAS
K-Sure, Kexim, Euler Hermes, EKN
SPONSOR INTERNATIONAL COUNSEL
Vinson & Elkins
LENDER INTERNATIONAL COUNSEL
Norton Rose
SPONSOR LOCAL COUNSEL
Leges Advokat
LENDER LOCAL COUNSEL
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