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MEED Business Review / 65

Riyadh has picked US-based lender JPMorgan and Michael Klein, who runs a boutique advisory, to help it with the planned share sale

of Saudi Aramco. It is a step forward for a deal that could see the world’s biggest oil producer become a listed firm worth trillions of dollars.

This is not the only equity capi-tal market transaction happening in Saudi Arabia, where reforms are being implemented to reduce dependence on hydrocarbons for revenues. The Saudi Stock Exchange (Tadawul) has invited investment banks to pitch for an adviso-ry mandate for its initial public offering (IPO). Saudi Grains Organisation, a firm at the forefront of Riyadh’s food security programme, has invited banks to help with the restructuring of its business

and an eventual share sale. These deals are just the tip of the iceberg.

Riyadh has identified about 146 firms, in which it plans to sell stakes to public or private investors. The deal flow will increase further once the kingdom an-nounces its economic vision on 25 April and launches the National Transforma-tion Plan 30-45 days later.

Private companies are not far behind in the race to secure funds from equity capital markets. Acwa Power has revived plans to raise $1bn through an IPO and Naqel, a state-controlled logistics and transportation firm, has engaged GIB Capital to help it sell about 30 per cent of its shares to the public next year.

Riyadh and commercial hub Jeddah are the places to be for investment bank-ers for the foreseeable future. Sarmad Khan

FinanceState oil firm Aramco, the Saudi Stock Exchange and silo operator Saudi Grains Organisation are just a few of the state entities looking to list shares in Saudi Arabia

Deals galore in Saudi arabia

Business Outlook

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66 \ MEED Business Review

Business Outlook

US Exim to offer fi nancing for Dubai’s Al-Maktoum airport

Aramco secures $4.7bn loan for Yanbu

Export credit agency willing to offer competitive fi nancing terms for specifi c segments of the development

The US Export-Import Bank (Exim) recently met with Dubai Aviation City Corpo-ration (DACC) to discuss po-tential fi nancing cooperation

for the development of Al-Maktoum International airport in Dubai South.

Exim said it can offer competitive fi nancing for segments such as the bag-gage handling, cooling and sustainable landscaping packages, according to a source familiar with the project.

The source said Exim was willing to extend fi nancing terms comparable to those offered by the Organisation for Economic Cooperation & Development.

“Exim Bank expressed strong interest in fi nancing projects for Dubai … that may use US-made goods and services,” the source said.

Jennifer Aguinaldo

Saudi Aramco and China’s Sinopec have raised a $4.7bn loan for the Yanbu export refi nery.

The fi nance releases equity invested in the construction of the $10bn refi n-ery, which did not secure project fi nance before construction.

Twenty-six local and international banks participated in the unsecured, seven-year syndicated loan. The US dollar tranche totalled $3.1bn from 17 banks. It is understood to be priced at 105 basis points over the London interbank offered rate (Libor), accord-ing to UK news agency Reuters.

The bank is the latest in a string of funds and export credit agencies to have discussed funding options with DACC. The organisation is understood to have been in talks with UK and Italian credit agencies over the past year.

Sace creditIn October 2015, Italian export credit agency Sace signed a memorandum of understanding with DACC to pro-vide $1.14bn of credit for the Dubai South development.

The expansion of Al-Maktoum airport has a budget estimated at $33bn.

Project client Dubai Aviation Engi-neering Projects received bids for an enabling works contract for the scheme in March.Jennifer Aguinaldo

Jennifer Aguinaldo reports on the success of the UAE’s Etihad Rail. Search for ‘Key milestones’ on www.meed.com

Nine local banks participated in the $1.6bn Saudi riyal tranche. It was priced at 100 basis points over the Saudi interbank offered rate.

Aramco and Sinopec formed a joint venture, Yanbu Aramco Sinopec Refi ning Company (Yasref), to build the 400,000 barrel-a-day refi nery. It was completed in 2014. Aramco has a 62.5 per cent equity stake in Yasref, with Sinopec owning the remainder.

MEED reported in March that Aramco had not disclosed an adviser, and dealt directly with lenders. Philippa Wilkinson

UAE

SAUDI ARABIA

SHAREHOLDERS IN YASREF%

Yasref=Yanbu Aramco Sinopec Refi ning Company. Source: MEED

Saudi Aramco 62.5

Sinopec 37.5

MEED Business Review / 67

Emirates NBD closes subsidiaryDubai’s biggest lender has laid off more than 100 employees as it integrates Emirates Money with ENBD

“The SME portfolio of ENBD has remained reasonably stable year-on-year and the bank remains committed to this segment,’’ according to the spokesman. “Many of our SME customers have banked with Emirates NBD for over 20 years and have successfully navigat-ed challenging market conditions.’’Sarmad Khan

Emirates NBD (ENBD) has closed down operations of its subsidiary Emirates Money, as the biggest lender in Dubai restructures its business lines

to save costs, a spokesman of the bank has confirmed.

“As part of our ongoing business review to enhance overall cost and oper-ational efficiencies, we have decided to integrate Emirates Money into Emirates NBD,’’ the spokesman said in a state-ment to MEED.

SME businessEmirates Money’s small- and medi-um-enterprises (SME) portfolio will be migrated to Emirates NBD, the spokes-man said, adding that the existing Emirates Money SME customers will be served through the bank’s business banking unit.

Acwa pushes for financial close on HassyanAcwa and Harbin agreed with client

Dubai Electricity & Water Authority to double the size of the project from 1,200MW to 2,400MW, combining phases 1 and 2. The project consorti-um then had to renegotiate the project finance deal with the Chinese banks, increasing the original $1.4bn loan size. The new loan size has not been set, but is thought to be more than $2bn.

Chinese banks are liquid and have a strong appetite for the project. Howev-er, they are unfamiliar with the region, meaning due diligence may take time.Sarmad Khan, Philippa Wilkinson

Saudi Arabia’s Acwa Power and its con-sortium partner China’s Harbin Electric are aiming for a first half financial close for the coal-fired Hassyan independent power project in Dubai.

The companies are in talks with Export-Import Bank of China, Industrial and Commercial Bank of China, Bank of China, Standard Chartered, Abu Dhabi’s First Gulf Bank and Saudi lender Samba Financial Group, Reuters has reported.

However, due to the complexity of the coal project, financial close may be de-layed until the second half, or even early 2017, banking sources told MEED.

UAE

The move will allow the bank to stream-line its processes

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1,200MWoriginal capacity of Hassyan power project

2,400MWNew capacity of Hassyan power project

$3.5bnEstimated new loan size for Hassyan power project

68 \ MEED Business Review

Business Outlook

Saudi Grains contacts banksState-owned flour mills operator invites lenders to help with restructuring its business

Further readinG

Saudi Arabia’s Naqel eyes Tadawul IPOSaudi Arabia’s Naqel, a state-controlled logistics firm, is being advised by Bahrain’s GIB Capital on an ini-tial public offering (IPO) on the Saudi Stock Exchange (Tadawul).

Italy agrees $5.4bn Iran credit lineItaly has agreed to pro-vide $5.4bn of export credit to support con-tractors and exporters working with Iran, dur-ing a visit by premier Matteo Renzi to the Islamic Republic.

Oman oil firms look to raise $4.4bn in loansTwo Omani state-owned oil companies are looking to raise loans worth a com-bined $4.35bn as they turn to bank finance for future growth amid falling state revenues.

Morocco negotiates for wind farm loansMorocco is in talks with three devel-opment lenders to finance a 850MW wind scheme. The final size of the funding deal will be about $521.4m.

Read more about finance on www.meed.com/finance

Saudi arabia

Silo (thousand tonnes)

Flour mills (thousand t/d)

dammam 80 1,350hail 300 600Jeddah 260 2,730Jizan 120 600Jumoum 250 1,200Medina 60 600Qassim 485 900riyadh 535 2,550tabuk 140 600

t/d=Tonnes a day. Source: Saudi Grains Organisation

Saudi GrainS capacity in Selected locationS

Mohammed bin Salman al-Saud’s inter-view with US news agency Bloomberg.

The kingdom is looking to sell less than 5 per cent of shares in Aramco’s parent company in an initial public of-fering (IPO) as soon as next year or in 2018, and transfer the remaining own-ership to the Public Investment Fund to inflate its size to about $2 trillion.

Saudi Electricity Company is already undergoing a restructuring pro-gramme. This involves the creation of four generation firms, an independent system operator, and separate trans-mission and distribution companies, which will lead to potential IPOs of the new subsidiaries, Abdullah al-Shehri, governor of the Electricity & Cogenera-tion Regulatory Authority (Ecra), told MEED in an exclusive interview.

Riyadh is also considering plans to turn Saudi Ports Authority into an au-tonomous body, which will enable the port operator to independently raise funds through the debt market or float its shares on the Tadawul.Sarmad Khan

Saudi Grains Organisation has invited banks to pitch for an advisory mandate to help it restructure the business and possibly float

its shares on the Saudi Stock Exchange (Tadawul), according to sources famil-iar with the matter.

The request for proposals was issued to several local and regional banks, ac-cording to the sources, who asked not to be identified as the information is private. The state-controlled grain silos and flour mills operator is said to be in the process of shortlisting the banks.

Saudi Grains, which could be valued at more than of $1bn, intends to either sell a stake to a strategic investor or raise funds through a public flotation next year, once its organisational re-structure is completed, the sources said. A company spokesman could not be reached via phone and did not respond to an emailed request for comment.

privatisation focus Saudi Grains is the latest government- related entity in the kingdom to con-sider privatisation, which is a part of Riyadh’s broader economic reforms agenda. The kingdom has identified about 146 state entities that could be privatised or sold to the public as it looks to monetise assets to meet budget shortfalls amid low oil prices and shrinking revenues.

Saudi Arabia, the biggest GCC economy, which expects a SR326bn ($87bn) budget deficit in 2016, plans to create the world’s largest sovereign wealth fund for its most-prized assets, including oil major Saudi Aramco, according to Deputy Crown Prince

MEED Business Review / 69

Riyadh picks Aramco IPO advisersKingdom is planning to list less than 5 per cent of state oil major’s parent company

Mohammed bin Salman al-Saud said in an interview.

Aramco will be listed on the Saudi Stock Exchange (Tadawul), a move that could turn the oil giant into the world’s largest publicly traded firm, with a value running into trillions of dollars.

JPMorgan has worked on several large deals in the kingdom. It was the sole international financial adviser on the $2.5bn IPO of Saudi Arabian Min-ing Company (Maaden) in 2008.

The bank, along with the UK’s HSBC, also helped arrange a $10bn loan for Aramco in 2015.

Pricing for Aramco borrowing tends to be very low due to the state support enjoyed by the oil firm as well as its size. The rates on its $10bn facility gave lenders a tiny margin of between 13 and 16 basis points.

Other state companies that have been identified for listing include Saudi Grains Organisation, logistics firm Naqel and Saudi Ports. Others are en-gaged in talks with banks.Sarmad Khan, Philippa Wilkinson

Saudi Arabia has selected US-based lender JPMorgan and Michael Klein, an in-vestment banker who runs his own advisory boutique,

to advise on state-owned oil company Saudi Aramco’s share sale.

Klein is advising the Saudi gov-ernment, while JPMorgan is helping with initial public offering (IPO) preparations, according to US news agency Bloomberg.

JPMorgan could be among the lenders that will underwrite the listing. The deliberations are at early stages, and the government has yet to take a final decision on the IPO of the world’s biggest oil producer.

Sweeping reforms Saudi Arabia is introducing sweeping reforms to cut its dependence on the sale of hydrocarbons for revenues af-ter oil slumped from a mid-2014 peak.

The kingdom, the biggest regional economy, is running an austerity campaign and is looking to mone-tise some of its assets to generate alternative revenues. Riyadh has identified about 146 companies that it plans to take to public or strategic private investors.

The kingdom, which expects a SR326bn ($87bn) budget deficit in 2016, is considering plans to sell a less-than-5 per cent stake in Aramco’s parent company in an IPO as soon as next year, or in 2018.

The government will then transfer the remaining ownership of the oil company to the Public Investment Fund (PIF) to inflate its size to about $2 trillion, Saudi Deputy Crown Prince

SAudI ARAbIA

Aramco could be-come the world’s largest publicly traded firm

5%Estimated value of stake set to be sold in Aramco

146 Number of firms Riyadh plans to take to investors

$87bnBudget deficit expected by Saudi government in 2016p

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MEED Business Review / 65

Business Outlook

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Banks in Saudi Arabia and other GCC states are see-ing a lower volume of syn-dicated corporate loans in the regional debt market.

Firms are revising ambitious business plans in the context of low oil prices, and are reconsidering their borrowing needs in the light of higher loan pricing. They are also being crowded out by government-related entities, which have stepped up their borrowing in response to lower state revenues.

The flow of project finance deals has slowed noticeably in Saudi Arabia and Qatar, and could slow further in 2017 in the UAE and Oman. Govern-ments are still preparing public-private partnership (PPP) frameworks and programmes, and other capital expend-iture has been reduced.

Normally, financiers would complain about lower demand for credit and slowing loan growth, as it affects profit growth. But with liquidity increasingly tight in the GCC, banks are relieved to experience weaker demand for struc-tured finance. It reduces pressure on liquidity and difficult decisions about where to deploy scarce resources.

Demand is picking up in two are-as: bond issuance by both sovereigns and banks; and shorter-term work-ing capital.

Banks can now be more selective about where to lend and invest, and at what price, as competition eases. This will leave less attractive deals and borrowers out in the cold, as the GCC moves from a borrower’s market to a lender’s market.Philippa Wilkinson

FinanceWith tightening liquidity in the GCC, banks are relieved to experience weaker demand for structured finance

Gcc becomes lender’s market

66 \ MEED Business Review

Business Outlook

Saudi Binladin Group agrees loan with local banks

Pension funds to refinance power company

Jeddah-based construction company will use real estate assets as collateral

Saudi Binladin Group (SBG), the biggest contractor in the kingdom by turnover, has agreed an estimated SR2.5bn ($667m) loan

from a group of local banks by pledging properties in Mecca and Jeddah.

The company, which has laid off more than 70,000 of its employees in recent months, will primarily use the funds to clear end-of-service dues and boost cash reserves to clear salary arrears, according to banking sources.

SBG had originally approached lend-ers in April to secure SR5bn in cash.

Only a small group of lenders has agreed to extend the SR2.5bn facili-ty, the sources said, asking not to be identified as the discussions are private. The deal will be signed shortly; the local

Sarmad Khan

Saudi Arabia’s Rabigh Electricity Company (Rabec) is close to agreeing a $2bn refi-nancing for its Rabigh independent power project (IPP), sources have told MEED.

Local investment and pension funds will provide a new pool of liquidity. The new debt will include US dollar and Saudi riyal tranches, and will have a 17-year tenor.

The structure of the project finance deal has not changed since the original 20-year, $1.9bn agreement signed in 2009. As the first project finance transac-tion to close following the 2008 global financial crisis, Rabec was forced to accept very poor terms. The new terms

Sabb and Arab National Bank are said to be leading efforts to arrange the loan for SBG, the sources said. The assets pledged by SBG are valued at between SR7bn to SR9bn, they added.

Seeking security“By taking about 250 per cent coverage on the loan, the banks are securitis-ing their exposure to SBG,” said one Riyadh-based banker.

Banks are mostly exposed to SBG through project and construction finance collateral and this loan will give them additional security from the firm, reducing their risk on overall SBG receivables, the banker said.

A Jeddah-based spokesman for SBG declined to comment on the transaction.Sarmad Khan

Sarmad Khan reports on a $900m loan raised by Saudi Elec-tricity Company. Search for ‘$900m loan’ on www.meed.com

are thought to be better, despite tighter liquidity across the GCC.

The local Acwa Power and South Korea’s Korea Electric Power Corporation (Kepco) each own 40 per cent stakes in the $2.5bn Rabigh IPP, while Saudi Electricity Com-pany (SEC) owns the remaining 20 per cent. The refinancing was delayed slightly while SEC finalised a $2.1bn revolving credit facility in late 2015 and early 2016.

The original financiers included the local Alinma Bank, Al-Rajhi Bank, Banque Saudi Fransi, National Commercial Bank, Sabb and Samba Financial Group. Sarmad Khan and Philippa Wilkinson

Saudi araBia

Saudi araBia

20%Saudi Electricity Company’s stake in the Rabigh IPP

40% Acwa Power’s stake in the Rabigh IPP

40%Korea Electric Power Corporation’s stake in the Rabigh IPP

MEED Business Review / 67

Tadawul pursues MSCI inclusionStock exchange optimistic on its chances of being included in Emerging Markets Index

the country’s weight could increase to 5.5 per cent.

“We believe the run-up to an emerg-ing market upgrade would trigger strong performance in Saudi equi-ties,” Fahd Iqbal, head of Middle East research at Credit Suisse, said in a re-search note. The bank remains neutral on the Tadawul, albeit with a short-term bearish bias due to the risks of oil price consolidation and further earnings downgrades in the kingdom.

The Tadawul plans to issue its own IPO by 2018, and has named the UK’s HSBC as the financial adviser on the deal. The exchange, which would become only the second regional bourse to undertake a share sale after the Dubai Financial Market, has already conducted an IPO readiness exercise. The structural changes are also part of efforts to launch a successful IPO.

In early May, the CMA lowered restrictions on foreign investors in the Saudi market, which has a total market capitalisation of about $400bn. The regulator has doubled the limit for qualified foreign investors to own up to 10 per cent in a listed company. Sarmad Khan

The Saudi Stock Exchange (Tadawul) sees improved chances of being included in US index provider MSCI’s Emerging Markets Index,

after the market announced structural changes and loosened restrictions on foreign investors.

“MSCI inclusion is very important for qualified foreign investors and some of the local funds. It’s an objective for the exchange,” Khalid Abdullah al-Hussan, CEO of the Tadawul, told a recent conference. “With all these changes, we see that happening.”

The bourse has received approval from the regulator, the Capital Market Authority (CMA), to extend the current T+0 (same-day settlement system of transaction) to T+2.

The same-day clearance of the trans-actions has been the biggest impedi-ment in the flow of investments from foreign institutional investors.

The Tadawul aims to be part of MSCI’s Emerging Markets Index, which is tracked by investors managing tril-lions of dollars in assets, by 2017.

Bourse issuesHowever, the index provider has expressed reservations about the bourse’s settlement system and its accessibility to foreign investors. MSCI will now review investor feedback and make a decision, Al-Hussan said.

Swiss lender Credit Suisse believes the kingdom will only enter the index by June 2019, and that it will account for 2.9 per cent of the total weight of the gauge. If Saudi Arabia conducts its planned initial public offering (IPO) of state oil major Saudi Aramco in time,

SaudI araBIa

MSCI will now review investor feedback and make a decision

$400bnTadawul total market capitalisation

2018 Year by which Tadawul plans to launch its IPO

2.9%Credit Suisse estimateof Tadawul’s weight on the Emerging Markets IndexP

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68 \ MEED Business Review

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Clean Fuels loan makes progressKuwait National Petroleum Company secures fi rst $4bn of planned $10bn fi nancing

overnight rates. This is despite a recent rise in the cost of borrowing.

The US dollar tranche is expected to be syndicated shortly. The UK’s HSBC is the adviser. The tranche, expected to reach at least KD1.5bn, will be support-ed by export credit from South Korea, Japan, the UK, Italy and the Netherlands.Philippa Wilkinson

Kuwait National Petrole-um Company has signed a KD1.2bn ($4bn) syndicat-ed loan to fi nance its Clean Fuels Project.

The local currency tranche of the KD3bn loan comprised conventional and sharia-compliant facilities.

Local lendersThe mandated lead arrangers were National Bank of Kuwait (NBK) and Kuwait Finance House, an Islamic bank. NBK Capital was the adviser.

Eleven local lenders participated in the syndication. The loan fea-tures a 10-year tenor as well as an amortising repayment structure after a grace period.

MEED reported in March that the pricing guidelines were low, at 100 basis points over Kuwait interbank

Banks expect refi nery loan in late 2016refi nery in March. However, doubts remain over the feasibility of the scheme in the cur-rent low oil price environment. DRPIC is expected to fi nd that pricing is much higher than the fi gure Oman Oil Refi neries & Petroleum Industries Company secured on its $5.2bn Liwa plastics scheme. Banks committed to that deal in 2015.

Since then, Oman’s sovereign rating has been downgraded to Baa1 stable by Moody’s Investors Service and BBB-/A-3 stable by Standard & Poor’s, both of the US. The sultanate has also seen banking sector liquidity fall in the past six months.Philippa Wilkinson

Banks are expecting a major loan for Oman’s $6bn Duqm Refi nery to be syndi-cated in the second half of 2016.

France’s Credit Agricole is the fi nancial adviser. Duqm Refi nery & Petrochemical Industries Corporation (DRPIC), a joint venture of Abu Dhabi’s International Petroleum Investment Company (Ipic) and Oman Oil Company, has begun contacting export credit agencies. The agencies will be essential to support the multibillion-dollar fi nancing. Informal discussions with banks are expected to start shortly.

Bids were submitted for the two main packages for the 230,000 barrel-a-day

OMAN

The project involves upgrades at the Mina Abdullah and Mina al-Ahmadi refi neries

OMAN OVERNIGHT LENDINGYearly interest rate (%)

Source: Central Bank of Oman

Jun 15

Sep 15

Dec 15

Mar 16

KUWAIT

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MEED Business Review / 69

Costs to rise for next Al-Zour IWPPKuwait Authority for Partnership Projects rules out refi nancing and equity bridge loans

increase their internal rate of return to provide a larger buffer. This will result in a high levelised cost of electricity.

KAPP could reconsider these con-ditions, according to industry sourc-es. The authority did not respond to requests for comment.

Three consortiums are expected to bid, led by:� Acwa Power (Saudi Arabia)/Mitsui & Co (Japan);� Marubeni (Japan);� Sumitomo (Japan).

The developers are lining up fi nance from Japanese, local and European banks, as well as export credit agen-cies including Japan Bank for Interna-tional Cooperation.

The Al-Zour North 2 IWPP will have a power generation capacity of 1,500MW and a desalination compo-nent of at least 102 million imperial gallons a day. The bid deadline for the scheme has been extended fi ve times and is now 21 June.

Mutlaq Mubarak al-Sanei was appointed general manager of KAPP on 1 April, replacing Adel al-Roumi. Philippa Wilkinson

The project fi nance restrictions that the Kuwait Authority for Partnership Projects (KAPP) is applying to developers bid-ding for the Al-Zour North 2

independent water and power project (IWPP) will push up costs.

Sources have told MEED that KAPP has imposed strict restrictions, ruling out refi nancing and equity bridge loans.

Miniperms, which have a seven-year term followed by refi nancing or a cash sweep and higher interest rates, and balloons, where the majority of debt is paid on maturity, are also excluded. With liquidity concerns growing in the GCC, these structures could be useful to keep the cost of fi nance down.

These are new conditions that did not apply to Kuwait’s previous IWPP, Al-Zour North 1.

Lower guaranteeThe sovereign guarantee for the offtaker, the Ministry of Electricity & Water, has also been reduced from 100 per cent of tariffs to 90 per cent.

Lenders are concerned about collat-eral for the debt. According to Kuwaiti law, if a power purchase agreement is terminated, the land reverts to the state. This would leave banks with no recourse.

There is also a requirement that local investors be guaranteed 13 per cent returns on the project. Shares in the scheme will be distribut-ed to Kuwaiti citizens after the plant is commissioned.

Combined, these factors are pushing up the cost of fi nance for the pro-ject. Developers are also expected to

FURTHER READING

Doha selects advisers for PPP frameworkThe UK’s PwC and Eversheds will advise on Qatar’s public-private partnership (PPP) framework. Doha may look at using PPPs for stadium construc-tion, says a source.

IFC arranges Iraq power plant fi nancingThe World Bank’s International Finance Corporation will lend $375m to the local Mass Global Energy Su-laimaniyah to expand the capacity of a power project in the Kurdish region of northern Iraq.

Investec concludes Emirates aircraft dealUK-based Investec has closed a $1bn leasing deal for four aircraft with Dubai’s Emir-ates airline. Investec has purchased four Emirates Airbus A380s and will lease them back for 12 years.

Egyptian banks prepare to lend $2bnFour local banks are arranging a loan worth $2.25bn to fi nance the construction of 500,000 low-income housing units in Egypt.

Read more about fi nance on www.meed.com/fi nance

KUWAIT

KUWAIT PPP PROJECTSShareholding (%)

Kuwaiti public 50

Either developer or relevant govern-ment entity 18

Developer 26

Relevant govern-ment entity 6

Source: Kuwait Authority for Partnership Projects