CNOOC and Shell complete mammoth Nanhai project financing

Chinese Banks continue to dominate the arrangers'' group, but international banks may be starting to gain a foothold

Following a year long syndication period the mammoth $2.7 billion project financing for CNOOC & Shell Petrochemicals has closed. The deal was split between a $1.977 billion onshore portion and a $700m offshore tranche that includes a $400m export credit financing.

The borrower is a Sino-foreign joint venture set up by sponsors: Royal Dutch/Shell Group, which has a 50% stake, China National Offshore Oil Corp (CNOOC), which holds 45% and Guangdong Investment with the remaining 5% share. This company was incorporated to finance and develop the Nanhai Petrochemical project in Huizhou, Guangdong Province.

The project entails the construction of an 800,000 ton per year ethylene manufacturing plant with nine downstream facilities. The total cost of the project is $4.3bn, with the remaining $1.7bn to be provided by the sponsors via an equity injection.

Arrangers of the $700m offshore segment comprise ANZ Investment Bank, Bank of Tokyo-Mitsubishi, Credit Agricole Indosuez, HSBC, IntesaBci SpA, Mizuho Corporate Bank, Sumitomo Mitsui Banking Corp and WestLB. Arranger Credit Lyonnais, co-arrangers Fortis Bank and KBC Bank and manager Hang Seng Bank joined in general syndication.

The transaction features heavy export credit support with five agencies providing insurance to the deal. These include Export-Import Bank of the USA, Gerling NCM of the Netherlands, HERMES of Germany, Japan Bank for International Cooperation and Nippon Export and Investment Insurance of Japan.

This portion of the fundraising is divided between a $300 million 13.5 year commercially syndicated tranche that pays a margin that ranges from a floor of 70bp to a ceiling of 175bp and front end fees of 175bp. The $400 million 16.5 export credit facility pays a step up margin of rising to 85bp from 20bp over the life of the loan with upfront fees of 20bp to 75bp, depending on ticket size.

The mandated lead arrangers of the onshore loan include Bank of China, China Development Bank and Industrial & Commercial Bank of China. Agricultural Bank of China and China Construction Bank joined as co-arrangers with Everbright Bank of China signing up as manager. Originally the financing was to be divided equally between the offshore and onshore portions, but the Chinese banks ended up increasing the size of their tranche substantially.

Some market observers attribute this to the excess liquidity in the Chinese banking system, which enables them to offer rock bottom pricing. This was also the result of the syndication for the $1.4bn Nanjing ethylene complex in China sponsored by BASF AG of Belgium and Sinopec of China.

Despite Citigroup joining the deal as lead arranger foreign banks only participated in the $120m Hermes portion when Bayerische Hypo-und Vereinsbank joined as Hermes agent. The remainder of the funds were provided by Chinese domestic banks including joint lead arranger ICBC Asia and lead managers Bank of China, Bank of Communications and China Construction Bank. The deal was funded late last year and syndication was completed in March. According to Dealogic figures this is the second large project financing to come out of China this year, the first being the RMB25 billion ($3 billion) transaction for the Xiaowan Power Station. This deal was completed by a small group of Chinese banks, propelling China Development Bank to the top of the Asia Pacific project financing league tables with $769 million from just two deals.

Market sources suggest that, following the relatively successful completion of this fundraising, the Chinese government is considering inviting Sino-foreign joint ventures to bid for further private projects. Royal Dutch/Shell Group, Hong Kong & China Gas and CLP have teamed up with Petrochina to construct the massive $14.5bn West East natural gas pipe line project that runs from Xinjiang to Shanghai's East coast.

Bankers are hoping that this could be just the beginning and that more deals will come out of the mainland in the near future. Their only concern is how large a piece of this new business they can wrestle away from the Chinese domestic banks.

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