Download Download attachment

Deals of the Year 2006 Handbook
Sohar Aluminium Smelter Project Islamic
Finance Facility
The approximately US$2.5 billion Sohar Aluminium smelter
project (the Sohar Aluminium Project), which closed in
December 2005, was a landmark deal in the Middle East
and particularly in Oman. The Sohar Aluminium Project
was the rst greeneld aluminium smelter to be built in the
Middle East in the last 25 years and will be able to produce
350,000 tonnes of aluminium ingots per year, representing
an important step for Oman’s economy as it seeks to
diversify its economic base. Capitalizing on Oman’s oil
and gas reserves, it is anticipated that the Sohar Aluminium
Project will contribute signicantly to Oman’s GDP and in
doing so create signicant employment opportunities.
Gulf in large nancings, including the US$530 million Islamic
tranche in the Qatargas II nancing in 2004. Since the Sohar
Aluminium smelter project, the structure has also recently
been used as part of the nancing plan for the US$5.8
billion nancing for the US$9.9 billion Petro-Rabigh project
in Saudi Arabia.
The Sohar Aluminium Project – whose sponsors are Oman
Oil Company, Abu Dhabi Water and Electricity Authority
(ADWEA) and Alcan – will consist of a primary aluminium
smelter including carbon and casting facilities, raw materials
handling facilities, unloading and uploading facilities at the
port of Sohar, storage facilities in the Sohar Industrial Area
and a 1,000mw combined gas cycle turbine power plant
to power the aluminium smelter.
ISTISNAH AGREEMENT
The nancing plan for the project involved US$1.545 billion
of external indebtedness and approximately US$900 million
in equity. The commercial debt component consisted of a
US$1.2 billion commercial bank tranche and a US$85 million
letter of credit facility. An important component of the
nancing was a US$260 million Islamic nancing tranche.
The Islamic nancing tranche represented, at the time of
signing, the rst Islamic nancing tranche in a multi-sourced
project nancing in Oman. The US$260 million Islamic facility
was arranged by leading regional and international banks:
the Islamic arrangers were ABN AMRO Bank, Citibank, Arab
Bank, Calyon, Gulf International Bank, WestLB, Royal Bank
of Scotland, Abu Dhabi Commercial Bank, BNP Paribas,
Société Générale and Standard Chartered Bank.
Islamic nancing tranches using the Istisnah (a sale of
assets to be constructed) and Ijarah (an Islamic lease)
combination had been successfully used elsewhere in the
In Sohar, the Ijarah/Istisnah combination was documented
with an Istisnah agreement, a forward lease agreement
(Ijarah l Zimma), a service agency agreement, sale and
purchase undertakings, an investment agency agreement
and a common terms agreement.
The Istisnah agreement operates during the construction
phase of the Sohar Aluminium Project. Under the terms of
this agreement, the Sohar Aluminium Project company (the
company) undertakes to develop the Islamic nanced
assets (including certain gas turbines, generators and
electrical transmission equipment) on behalf of a special
purpose company (SPC) owned for and on behalf of
the Islamic participants by the Islamic facility agent. The
company undertook to develop the Islamic nanced
assets in accordance with the specications of the EPC and
EPCM construction contracts (the company was permitted
to subcontract such obligations to another person) and to
arrange for delivery of such assets on or before a specied
completion date. When the Islamic nanced assets
are delivered to the company in accordance with the
foregoing requirements, title to (and possession of) such
assets passes to the SPC.
As consideration for the company procuring the Islamic
nanced assets, the SPC is to pay the company the
amount of the facility via “phase payments” (broadly
equivalent to advances under a conventional commercial
bank facility) and such phase payments are made subject
to the same conditions precedent to drawdown as under
EPC/
EPCM Contractor
Consideration
Islamic SPC
Phase Payments
On completion of Assets, title
transfers of Islamic SPC
Page 36
www.islamicnancenews.com
Assets developed
Company
Deals of the Year 2006 Handbook
Sohar Aluminium (continued...)
the commercial bank tranche. The Istisnah agreement also
contains a mechanic to enable the Islamic participants to
receive liquidated damages payments in the event that
the Islamic nanced assets are not delivered on time or
are not delivered at all. (The quantum of such liquidated
damages is the same as the lease payments that would
otherwise have been due and payable under the lease
agreement).
IJARAH FIL ZIMMA
At the same time as entering into the Istisnah agreement,
the company entered into a lease agreement (Ijarah l
Zimma) with the SPC for the operational phase of the project
(the period following delivery of the Islamic nanced assets
to the SPC pursuant to the Istisnah agreement until a date
equivalent to the nal maturity date under the commercial
bank tranche). Under the lease agreement, the company
leases the Islamic nanced assets from the SPC in return
for lease payments (comprising of a xed and a variable
element). The lease payments under the lease agreement
are broadly equivalent to the principal and interest
payments under the commercial bank tranche and are
made at the same times as the equivalent payments under
the commercial bank tranche.
SERVICE AGENCY AGREEMENT
As per other Ijarah/Istisnah nancings, the SPC (in its
capacity as lessor) is responsible for all major maintenance
(repair, replacement and maintenance of a capital
nature without which the Islamic nanced assets could not
reasonably be used by the company). Such obligations,
together with insurance obligations and obligations to
pay ownership taxes, are subcontracted to the company
(acting in its capacity as service agent) via a service
agency agreement. The company is responsible for all
repair and maintenance (other than major maintenance)
in accordance with the lease agreement.
SALE AND PURCHASE UNDERTAKINGS
The company is entitled to terminate the lease agreement
voluntarily – in much the same way as the company would
be entitled to cancel and/or prepay the commercial
bank tranche. The Islamic facility agent and SPC (in its
capacity as lessor under the lease agreement) grant in
favor of the company (in its capacity as lessee under the
lease agreement) a sale undertaking pursuant to which
they undertake to sell the Islamic nanced assets to the
company at an exercise price equal to an agreed “lease
termination payment”. (This corresponds to a voluntary
prepayment of the entire amount outstanding under the
Islamic facility).
Likewise, in certain default scenarios, the Islamic facility
agent and SPC are entitled to require the company to
repurchase the Islamic asset and to terminate the lease
agreement. The company (in its capacity as lessee under
the lease agreement) grants in favour of the Islamic facility
agent and SPC (in its capacity as lessor under the lease
agreement) a purchase undertaking, pursuant to which it
undertakes to purchase the Islamic nanced assets from
the SPC when a “purchase event” has occurred and is
continuing at an exercise price equal to an agreed “lease
termination payment.” (A purchase event arises when an
event giving rise to a mandatory prepayment (applicable
to the Islamic facility and requiring prepayment in full of the
Islamic facility) has occurred, or a decision has been taken
in accordance with the nance documents to accelerate
and exercise other remedies).
On receipt of the relevant “lease termination payment”
or at the end of the lease period, on payment of the nal
lease payment, the assets will be transferred back to the
company.
SPC STRUCTURE AND INTER-CREDITOR ISSUES
In Sohar, the Islamic participants agreed to enter into a
“common terms agreement” together with the commercial
Rental Payments
Islamic SPC
Lease of Assets
Company
Title to Assets reverts at end of
Lease
www.islamicnancenews.com
Page 37
Deals of the Year 2006 Handbook
Sohar Aluminium (continued...)
facility participants. The common terms agreement
provided for common representations and warranties,
covenants, conditions precedent and events of default
between the Islamic participants and the commercial
banks providing the commercial bank tranche and letter
of credit facility. The terms of the agreement were adapted
to address the particular Shariah concerns of the Islamic
participants. The Islamic participants were also party to
an inter-creditor agreement with the company’s other
nanciers, including the commercial facility participants
and hedging counterparties.
An important element of the structure that was used in
the Sohar nancing and which has been used elsewhere
in Ijarah/Istisnah nancings in the Middle East is the use of
the SPC to act (on behalf of the Islamic participants) as
the “purchaser” under the Istisnah agreement and the
“lessor” under the lease agreement. The SPC structure has
perceived benets for both the Islamic participants (such
as protecting the participants from the risks associated with
the ownership of the Islamic nanced assets, e.g. potential
environmental liabilities) and the company (the Islamic
nanced assets are not held by the Islamic participants
directly and therefore are isolated from the risk of insolvency
to an Islamic participant).
The relationship between the SPC and the Islamic participants is governed by an investment agency agreement
which also includes mechanics for the Islamic participants
to make contributions towards phase payments, regulates
payments to and from the SPC by the Islamic participants
and also transfers by the Islamic participants. In addition,
the Islamic participants provided the security trustee (on
behalf of the wider lending group) with security over the
SPC’s shares and the Islamic nanced assets. This security
was provided to secure the Islamic participants’ performance of their obligations under the inter-creditor agreement and to ensure that the Islamic participants would not
have preferential access to the Islamic nanced assets
(which for structural reasons are otherwise not part of the
security pool available to the wider lending group).
Craig Nethercott is a partner in White & Case’s global Energy, Infrastructure,
Project and Asset Finance
Practice. He has worked on a variety of project nance
transactions throughout the Middle East (including Islamic
nancings in Egypt, Yemen, Oman, Qatar and Saudi Arabia). Craig most recently advised Saudi Aramco with respect to the Rabigh Project.
Nick Collins is a senior associate in White & Case’s global
Energy, Infrastructure, Project and Asset Finance Practice.
He has worked on a variety of project nance transactions
throughout the Middle East, including the representation
of the project company and the project sponsors on the
Sohar Aluminium Project.
Page 38
x 50 online issues
Islamic Finance
news
+
LEGAL GUIDE
2006
Ó¿´¿§-·¿ ó ̸» ײ¬»®²¿¬·±²¿´ ×-´¿³·½ Ú·²¿²½·¿´ Ý»²¬®»
REPORT 2006
+
+
+
Guides & Supplements
All of the above for only
US$525 per year
YES! I would like to subscribe to Islamic Finance ²»©Name : .................................................................................................
Company : ............................................................................................
Telephone : ..........................................................................................
Work Email : ........................................................................................
Return fax this form to +603 2141 5033
www.islamicnancenews.com
TERMSHEET
Sohar Aluminium Company LLC
INSTRUMENT
US$1.545 billion nancing comprising US$1.2 billion commercial tranche; US$260 million Islamic facility;
US$85 million letter of credit.
ISSUER
Sohar Aluminium Company LLC
PRINCIPAL ACTIVITIES
Primary aluminium smelter with an initial nameplate capacity of approximately 350,000 tonnes per
annum (together with associated power generation and related desalination plant)
SHAREHOLDERS/
SPONSERS
Oman Oil Company (40%), ADWEA (40%) and Alcan (20%)
ISSUE SIZE
US$1.545 billion nancing comprising US$1.2 billion commercial tranche; US$260 million Islamic facility;
US$85 million letter of credit facility.
FINANCIAL CLOSE
23rd December 2005
DATE OF ISSUE
11th December 2005 (Signing of nance documents)
TERM OF COMMERCIAL &
ISLAMIC TRANCHE
15 years each
MATURITY
15 years
COUPON
45 bps to completion, 60 bps years 3 to 7, 75 bps years 8 to 10, 90 bps years 11 onwards
LEGAL COUNSEL
Mohsin Tayebaly & Co.
AUTHORIZED PAID UP CAP
187,500 Rial Omani divided into 187,500 shares with a nominal value of 1 (one) Rial Omani.
IDENTIFIED ASSETS
(ISLAMIC FACILITY)
•Gas Turbines c/w generators, step-up transformers, starting devices, lube oil skids, air/water coolers,
air inlet lters, fuel oil and gas trains, diverter damper and by-pass stacks.
•Heat recovery steam generators c/w main stacks, boiler feed-water pumps, de-aeration tanks.
•Steam Turbines c/w generators, step-up transformers, steam valve systems, main condensers, HP
steam piping, condensate return pumps and sea-water pumping station.
•Electrical transmission and distribution system comprising dual overhead line system to the smelter,
gas insulated switchgear substation, 220kV cabling to all 6 generators and the Transco grid station.
•Reverse Osmosis plant c/w storage tanks for potable and de-mineralised water, water forwarding
pumps and water mains to smelter.
SPONSORS’ LEGAL
COUNSEL
White & Case LLP
LENDERS’ LEGAL COUNSEL
Allen & Overy LLP
FINANCIAL ADVISOR
Citigroup
ISLAMIC STRUCTURING
BANK
Citigroup
MANDATED LEAD
ARRANGERS (OVERALL
FINANCING)
ABN AMRO Bank, Abu Dhabi Commercial Bank, Arab Bank & Oman Arab Bank, Arab Banking Corporation,
Bank Muscat, BNP Paribas, Calyon, Citigroup, Export Development Canada, Gulf International Bank,
ING, Mizuho Corporate Bank, The Royal Bank of Scotland, Société Générale, Standard Chartered Bank,
Sumitomo Mitsui Banking Corporation, WestLB
UNDERWRITERS
Commercial tranche: Citigroup Corporate and Investment Banking, ABN AMRO Bank, Sumitomo Mitsui
Banking Corporation and Export Development Canada; Islamic tranche: Citigroup Corporate and
Investment Banking, ABN AMRO Bank and Sumitomo Mitsui Banking Corporation
BOOKRUNNERS
Citigroup and ABN AMRO Bank
ISLAMIC FACILITY AGENT
Gulf International Bank
METHOD OF ISSUE
Sohar Aluminium Company LLC approached the underwriters to underwrite up to US$1.545 billion. The
debt was successfully taken up at sub-underwriting level by the other mandated lead arrangers.
PURPOSE OF ISSUE
To nance a portion of the costs relating to the construction and start up requirements of the Project
and towards the provision of Acceptable Credit Support for the Debts Service Reserve Account in
accordance with the Accounts Agreement.
www.islamicnancenews.com
Page 39