After a delay due to the credit squeeze caused by the financial crisis, a $1.56 billion financing package for Jurong Aromatics' new petrochemicals project in Singapore was finally launched last week by coordinating banks ING and Royal Bank of Scotland. The borrower is being advised by ING.
The $2.4 billion project involves the development of a condensate splitter and aromatics facility on Jurong Island, which will have an annual production capacity of 1.5 million tonnes of aromatics and 2.5 million tonnes of fuel. Construction is scheduled to start in early 2011 and the plant is expected to come on stream in 2014.
The plant was initially meant to begin operations in 2011. However, as the company was unable to obtain the necessary funding due to the meltdown in the markets, the project was delayed and the finishing date was moved back, initially to 2013 and then again to 2014.
The major sponsors of the project are Korea’s SK Group, with a 30% interest, and Chinese polyester maker Jiangsu Sanfangxiang Group, which holds 25%. Glencore International also has a 10% share in the project. Other major sponsors that own about 10% each are Arovin and Shefford Investments – both of which are equity investment houses based in India. Another 5% is held by the Economic Development Board of Singapore and the remaining 10% is held by other minority shareholders based across the region.
There are six senior debt facilities within the package, five of which shall be marketed and arranged by ING and RBS, but syndicated to other banks. The sixth facility is a $340 million 15.5-year direct loan provided by the Export-Import Bank of Korea (Kexim).
The five facilities that the joint coordinators shall be marketing are: a $620 million covered loan provided by Korea Trade Insurance Corporation (100% comprehensive cover up to 15.5 years); a $280 million loan guaranteed by Kexim (100% cover up to 15.5 years); a $155 million uncovered commercial 10-year loan; a $50 million uncovered loan up to 15.5 years; and a $115 million working capital five-year facility.
The financing is conservatively structured with all the equity having to be contributed upfront before the senior debt is drawn and a 60:40 debt-to-equity ratio in the sponsors’ base case. The lenders will further benefit from a 12-month debt service reserve account and a cash sweep mechanism on the 15.5-year loans that can reduce the tenor to 13.5 years, or possibly shorter, with prepayments being preferentially applied to the facilities with the longest tenors.
Given that the project will cost $2.4 billion in total, there is an $840 million overhang that is not covered by the debt package. The bulk of financing for this outstanding amount is expected to be raised via a subordinated debt facility provided by BP, while the remainder will be equity contributed by the sponsors.
BP has been involved with the project since January 2010 when it stepped in to help with financing. “BP has an interest in the project as a supplier and off-taker for the products that the plant is expected to produce,” explained one source familiar with the deal. The same can be said for most of the sponsors as it is expected that they will get use of the products produced at the plant.
Bruce Macfarlane, head of natural resources advisory for Asia at ING, said the timing was ideal with no other deals of this size expected in the market this year.
“And certainly not for US dollar funding in Singapore with such strong support from the Korean export credit agencies that Jurong Aromatic enjoys,” added Macfarlane.
Banks are required to respond with firm commitments in October and the financing is expected to close in late November or early December. ING, accompanied by representatives from SK Group, took Jurong Aromatics on the road on Thursday and Friday last week to meet with key firms in Singapore and Hong Kong. There are four levels of participation ranging from $75 million to $150 million, with banks at the highest tier receiving the title of mandated lead arranger and bookrunner.
The Jurong Aromatics project was set up as a special purpose vehicle by Jurong Energy Corporation in 2007 and is one of the largest privately owned petrochemical projects in Singapore.
