Emirates Aluminium reached financial close on the second phase of its aluminium plant in Abu Dhabi (Emal 2) on 17 May 2013. The $4 billion financing comes almost three years after sponsors Dubal and Mubadala closed on the last piece of the protracted and patchwork first phase debt financing process. This latest financing also took some time to come to market, but when it did the sponsors received a strong enough response from the bank market that they dropped plans for a bond. The bond is now likely to be used to refinance the bank debt at a later date.

Emirates Aluminium 2

STATUS

Financial close 17 May 2013.

SIZE

$4.5 billion

DESCRIPTION

Expansion of the Emirates Aluminium plant in the UAE to double its production capacity and increase its power capacity to 3,000 MW.

SPONSORS

Mubadala, Dubal

DEBT

$3.4 billion commercial and Islamic facilities and $600 million of export credit agency facilities

COMMERCIAL LENDERS

ADCB, Al Khaliji, Apicorp, BNP Paribas, BTMU, Citibank, Credit Agricole, EDC, Emirate NBD, First Gulf Bank, HSBC, KfW IPEX, NBAD, RBS, Samba, SMBC, Societe Generale, Standard Chartered and Union National Bank.

ISLAMIC LENDERS

Abu Dhabi Islamic Bank, Al Hilal and Islamic Development Bank

ECAs

US Ex-Im, Kexim, Euler Hermes and Coface

FINANCIAL ADVISER

RBS

BORROWER’S LEGAL COUNSEL

Sullivan & Cromwell

LENDERS’ LEGAL COUNSEL

White & Case

EPC CONTRACTOR

SNC Lavalin

Emirates Aluminium is a 700,000 tonnes per year (tpy) facility, with a 1,950MW power plant, spread over a 6km2 site at the Khalifa Port Industrial Zone in Al Taweelah, halfway between Abu Dhabi and Dubai. The expansion will double the plant’s production capacity and increase the capacity of the associated power plant to 3,000MW. The sponsors formally mandated RBS as financial adviser for phase two in June 2010, confirmed the roles of export credit agencies in May 2012, and launched the project to banks in August 2012.

Phase one of the project was always meant to include a bond financing. The sponsors signed the $4.67 billion main facility in 2007 and expected to quickly follow this with a bond. But the sponsors lowered the gearing by increasing their equity contributions after pricing on the proposed bond climbed too high, and looked for an export credit agency (ECA) debt package to plug the funding gap. The ECA debt did not sign, however, until July 2010, and up until July 2012 Dubal and Mubadala were still floating the idea of a bond refinancing of the original debt.

When it came to structuring the second phase, the sponsors did not want to again leave themselves at the mercy of the bond market, and set out to raise enough debt from ECAs and banks to avoid using a bond if they had to. Phase two still included a bond component in its capital structure, and up until a few months before signing, the sponsors still insisted they would launch a bond issue before financial close. Significant oversubscription on the expansion from commercial lenders means the long-promised Emal bond has yet again been pushed into the long grass.

The phase two debt is split between a $3.4 billion bank tranche with a 15.5-year tenor and $600 million in 16-year export credit agency debt. The pricing on the bank tranche, which features local Islamic and international commercial bank debt, begins at 250bp over Libor pre-completion, before stepping up to 275bp until year eight, and then climbing to 300bp until year 12, and peaking at 325bp until maturity. Each ECA is lending at a slightly different margin, but the average pricing on their facilities starts at around 200bp and ends at maturity at around 275bp.

A club of 22 banks, both local and international, and four ECAs made up the lending group. US Ex-Im made the largest commitment of any ECA, with a loan of $239.5 million, while Kexim ($172.5 million), Hermes ($99 million) and Coface ($89 million) also participated. The bank list features Abu Dhabi Islamic Bank, ADCB, Al Hilal, Al Khaliji, Apicorp, RBS, BNP Paribas, BTMU, Citi, Crédit Agricole, EDC, Emirates NBD, First Gulf Bank, HSBC, Islamic Development Bank, KfW-IPEX, NBAD, Samba, SMBC, SG, Standard Chartered and Union National Bank.

The sponsors scaled back the initial bank commitments from $4.3 billion, highlighting the strong support that the sponsors and the UAE can still command from banks, even at long tenors. Bank comfort comes from the fact that Emal 2 is a brownfield development, with completion guarantees, that already benefits from strong cash flows. They may also have committed to Emal 2 because of the promise of fees from a bookrunner role on any bond issue. The late cancellation of the bond will have disappointed the banks, but the sponsors claim a bond issue is still part of their plans.

Kelly Thompson, head of structured finance at Mubadala, said: “We continue to explore the appropriate timing for a bond, which, if issued, would likely replace a portion of the committed commercial bank funding.” Mubadala allows a 135-day window for issuing bonds following the twice-yearly publication of its financial results. The current quarter offers the next viable period to launch a bond, and so with no sign of a looming issue so far, any refinancing is now likely to take place next year.